MAN 401 – HUMAN RESOURCES

1. THE HUMAN RESOURCE ENVIRONMENT

HUMAN RESOURCE MANAGEMENT (HRM)

HRM – Definition & Concept:

• Policies, practices, and systems that influence employees’ behavior, attitudes and performance.
Employees are resources of the employer.

• Types of Human Capital: (employees are described in terms of) training, experience, judgement,
intelligence, relationships and insight.

HRM – Practices:

• Strategic HRM leads to Performance with:

o Analysis & design of work
o HR planning
o Recruiting
o Selection
o Training & development
o Compensation
o Performance management
o Employee relations

HRM – Impact:

• HRM takes care of the type and the behavior of human capital to create organizational performance.

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HRM – Sustainable Competitive Advantage:

• An organization can succeed if it has a sustainable competitive advantage. HR have the necessary
qualities to help give organizations this advantage (resource-based view):
o HR are valuable
o HR with needed skills and knowledge are sometimes rare
o HR cannot be imitated
o HR have no good substitutes

• But, “like human assets, an oil field may be a strategic asset. However, once acquired, an oil field:
o Cannot quit and move to a competing firm
o Cannot demand higher or more equitable wages
o Cannot reject the firm’s authority or be unmotivated
o Doesn’t need to be satisfied with supervision, coworkers, or advancement opportunities.”

High-Performance Work Practices (HPWPs):

• HPWPs are performance-enhancing:

o Impact on employee skills and organizational structures (training hours, employee selection)
o Impact on employee motivation (incentive pay, formal performance appraisals)

• Positive impact on:

o Intermediate employee outcomes (turnover, productivity)
o Short- and long-term measures of corporate financial performance

• At companies with effective HRM, employees and customers tend to be more satisfied. These
companies tend to be more innovative, have greater productivity, and develop a more favorable
reputation in the community.

RESPONSIBILITIES OF HR DEPARTMENTS

• Job Analysis is the process of getting detailed information about jobs.

• Job Design is the process of defining the way work will be perform and the tasks that a given job
requires.

• Recruitment is the process through which the organization seeks applicants for potential
employment.

• Selection is the process by which the organization attempts to identify applicants with the necessary
knowledge, skills, abilities, and other characteristics that will help the organization achieve its goals.

• Training is a planned effort to enable employees to learn job-related knowledge, skills, and behavior.

• Development is the acquisition of knowledge, skills, and behaviors that improve an employee’s ability
to meet changes in job requirements and in customer demands.

• Performance Management is the process of ensuring that employees’ activities and outputs match
the organization’s goals. The HR department may be responsible for developing or obtaining
questionnaires and other devices for measuring performance.

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 • Planning pay & benefits raises three questions:
o How much to offer in salary and wages
o How much to offer in bonuses, commissions, and other performance-related pay
o Which benefits to offer and how much of the cost will be shared by employees

• Administering pay & benefits require systems for keeping track of employees’ earnings and benefits:
employees need information about their benefits plan and an extensive record keeping and reporting
is needed.

• Maintaining positive employee relations by preparing and distributing employee handbooks and
policies, by dealing with and responding to communications from employees, and with collective
bargaining and contract administration.

• Establishing and administering personnel policies depend on HR departments. Careful and discreet
record keeping is required in all aspects of HRM.

• Ensuring compliance with Labor Laws includes filling reports, displaying posters and avoiding
unlawful behavior (government requirements).

• Supporting the organization’s strategy with:

o HR planning that identifies the numbers and types of employees the organization will
require to meet its objectives;
o Change management;
o Evidence-based HR that collects and uses data to show that HR practices have a positive
influence on the company’s bottom line or key stakeholders.

ROLE OF SUPERVISORS IN HRM

• Supervisors:
o Help define jobs;
o Forecast HR needs;
o Provide training;
o Interview (and select) candidates;
o Appraise performance;
o Recommend pay increases and promotions;
o Communicate policies;
o Motivate with support from pay & benefits and other rewards.

ETHICS & EMPLOYEE RIGHTS

• Ethics are the fundamental principles of right and wrong. Many ethical issues involve HRM. An ethical
behavior is consistent with those principles: right of free consent; right of privacy; right of freedom
of conscience; right of freedom of speech; right to due process.

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LABOR FORCE COMPOSITION IN HRM

Internal & External Labor Force:

• Internal LF has been drawn from the external LF and comprises an organization’s workers
(employees and people with contracts to work at the organization).
• External LF comprises individuals who are actively seeking employment. The number & kinds of
people in the external labor market determine the kinds of HR available to an organization.

Changes in the Labor Force & HRM Implications:

• Aging workforce:
o Need to find ways to attract, retain and prepare the youth labor force;
o HR professionals have more concerns related to retirement planning, retraining older
workers, and motivating workers whose careers reached a plateau (=fixed level);
o Organizations will struggle with ways to control the rising costs of health care and other
benefits;
o Tomorrow’s managers will supervise employees much older than themselves…

• Diverse workforce: (HRM practices that support diversity management)

o Communication – communicate with employees from a variety of backgrounds;
o Development – provide career development for employees with different backgrounds and
abilities;
o Performance appraisal – provide feedback based on objective outcomes;
o Employee relations – create a work environment that is comfortable for all, fosters creativity.

• Skill deficiencies in the workforce:

o Today, employers are looking for mathematical skills, verbal skills, interpersonal skills and
computer skills.
o The gap between skills needed and skills available has decreased companies’ abilities to
compete: companies lack the capacity to upgrade technology, to reorganize work and to
empower employees…

STRATEGIC BUSINESS ISSUES AFFECTING HRM

• Internal changes to which HRM has to respond to and make sure they are well implemented:
o Total quality management;
o Mergers and acquisitions (integration of employees from acquired companies);
o Reengineering (processes that have changed have an impact on the job design);
o International expansion (make sure that expatriation work);
o Downsizing;
o Outsourcing.

CHANGES IN THE EMPLOYMENT RELATIONSHIP

• New psychological contract for what employees and employers expect from the employment
relationship: the trend goes from relational to transactional.

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 • Flexible staffing levels are alternatives to the traditional employment relationship (outsourcing,
temporary, contract workers).

• Flexible work schedules that allow employees to adjust work hours to meet personal and family
needs (e.g. shortened work weeks).

2. SELECTION

SELECTION PROCESS

• Personal selection is the process through which organizations make decisions about who will or will
not be allowed to join the organization.

• Selection begins with the candidates identified through recruitment. It attempts to reduce their
number to the individuals best qualified to perform the available jobs, and ends with the selected
individuals placed in jobs within the organization.

• Steps in the selection process:

o Screening applications and resumes
o Testing & reviewing work samples
o Interviewing candidates
o Checking references & background
o Making a selection

MEASURING EFFECTIVENESS OF SELECTION TOOLS & METHODS

Criteria for measuring the effectiveness of selection tools & methods:

• Method provides reliable and valid information;

• Information can be generalized to all the candidates;
• Method offers high utility;
• Selection criteria are legal.

Reliability & Validity:

• Reliability is the extent to which a measurement is free from random error. A reliable measurement
generates consistent results (“today’s results = tomorrow’s results). Organizations use statistical tests
to compare results over time (correlation coefficients: the higher, the greater the degree of
reliability).

• Validity is the extent to which the performance on a measure (e.g. a test score) is related to the
assessment purpose of the measure (e.g. a job performance). Three ways of measuring validity:
o Criterion-related validity: based on showing a substantial correlation between test scores
and job performance scores.

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 Predictive validation is the research that uses the test scores of all applicants and
that looks for a relationship between test scores and job performances of all the
hired applicants: test on newly hired workers.
Concurrent validation is the research that consists of administering a test to people
who currently hold a job, and then comparing their test scores to existing measures
of job performances: test on current workers.

o Content validity is the consistency between the test items/problems and the kinds of
situations/problems that occur on the job.

o Construct validity is the degree to which a test measures what it intends to measures:
Convergent validity: is the construct related to other constructs that should be
related?
Discriminant validity: is the construct unrelated to other constructs that should be
unrelated?

Ability to generalize:

• A generalizable selection method applies not only to the conditions in which the method was
originally developed (job, organization, people, time period…), but it also applies to other conditions
(jobs, organizations, applicants…). Thus, is a selection method that was valid in one context also valid
in other contexts?

Utility & practical value:

• Being valid, reliable, and generalizable adds value to a selection method. Another consideration is the
cost of using the selection method. Selection methods should cost significantly less than the benefits
of hiring new employees: methods that provide economic value greater than the cost of using them
have utility.

Legal standards for selection criteria:

• Selection criteria must adhere to applicants’ legally guaranteed rights and interests, and capture only
characteristics relevant for the job (e.g. principle of equal chances: AGG Allgemeines
Gleichbehandlungsgesetz)
o Examples of impermissible questions for applications and interviews: religion, pregnancy,
feeling toward working for someone younger…

METHODS OF SELECTION, EMPLOYMENT TESTS & WORK SAMPLES

Application forms:

• Low-cost way to gather basic data from many applicants. It ensures that the organization has certain
standard categories of information: contact information, work experience, educational background,
technical experience, memberships in professional or trade groups… Often the first step!

Interview panels / Personal interviews:

• Forms of implementation:
o Structured/standardized interviews:

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 Applicant is rated on BARS (behaviorally anchored rating scale);
Or with a trimodal approach: trait approach (intelligence and conscientiousness),
biographical approach (past behavior/experiences to predict future behavior), and
behavioral approach (behavior in hypothetical situations);
Best to compare between candidates.
o Unstructured interviews: best to know the individual person.
o Semi-standardized interviews: ??

• Goals of the interview:

o Getting to know each candidate personally;
o Social validity;
o Realistic job preview (information on positive and negative aspects of the job position);
o Possibility of negotiation of job conditions (salary).

• But not all types of questions are allowed (e.g. pregnancy, religion, political party)!

• Components of multimodal interviews:

o Start of the conversation: informal, small talk, clarification of upcoming course of events;
o Applicant’s self-introduction: brief description of professional background, expectations;
o Free part: open questions regarding self-introduction and application documents;
o Professional interests, vocational and organizational choice;
o Questions concerning biography, related to the vacant position;
o Realistic job preview;
o Situational questions: explanation of incidents critical for success, applicant describes own
behavior in this situation;
o End of the conversation

Personality tests:

• Big Five of the personality test:

o Neuroticism (sensitive/nervous vs secure/confident): tendency to experience unpleasant
emotions easily such as anger, anxiety, depression, or vulnerability;
o Extraversion (outgoing/energetic vs solitary/reserved): energy, positive emotions, tendency
to seek stimulation in the company of others;
o Openness for experiences (inventive/curious vs consistent/cautious): appreciation for art,
emotion, adventure, unusual ideas, curiosity, and variety of experience;
o Conscientiousness (efficient/organized vs easy-going/careless): tendency to show self-
discipline, act dutifully, aim for achievement, planning rather than spontaneous behavior;
o Agreeableness (friendly/compassionate vs cold/unkind): tendency to be compassionate and
cooperative rather than suspicious and antagonistic towards others).

• Example of personality test (BFI-10 by Rammsted & John):

o How well does the following statements describe your personality? Disagree strongly,
disagree a little, neither agree nor disagree, agree a little, agree strongly.
o I see myself as someone who is… reserved… generally trusted… relaxed, handles stress well…

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Cognitive performance tests: Intelligence tests / tests of GMA:

• They measure GMA (general mental abilities). Intelligence tests are performance tests
(concentration, memory, learning, language tests) and assume that differences in cognitive abilities
have an influence on work performance.
o Direct effect: people with higher cognitive abilities perform better, even if the extent of task-
relevant knowledge is identical
o Indirect effect: people with higher cognitive abilities acquire more task-relevant skills and
faster.

Assessment centers:

• Usually a seminar over 1-3 days, with 8-12 applicants/employees who are observed and evaluated
by executives/HR professionals, in role-plays and case studies.

• The objective is to evaluate strengths and weaknesses for job requirements, with an application for
personnel selection and personnel development.

• AC exercises: presentations, role-plays, in-basket exercises, group discussions. Supplemented by

further practices such as interview methods, personality & ability tests, performance tests…

VALIDITY & EFFECTIVENESS OF SELECTION INSTRUMENTS

• Meta analysis by Schmidt & Hunter (1998):

o Question: Which selection tools are best suited for personnel selection?
o Assumption: Predictive validity is the most important criterion to determine most suitable
selection instruments.
o Approach:
Summary of numerous studies on the validity of single selection tools
Determination of average predictive validity of selection instruments by a meta-
analysis.

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 3. PERFORMANCE MANAGEMENT

ACTIVITIES INVOLVED IN PERFORMANCE MANAGEMENT

Performance management:

• PM is the process through which managers ensure that employee’s activities and outputs contribute
to the organization’s goals.
o It requires knowing what activities and outputs are desired, observing whether they occur,
and providing feedback to help employees meet expectations.
o An employee’s performance differs from job to job: e.g. a car dealer’s performance is
measured by the amount of sales/number of new customers/customer satisfaction surveys.

• Stages of the PM Process:

o Step 1 – Define performance outcomes for company division and department
o Step 2 – Develop employee goals, behavior, and actions to achieve outcomes
o Step 3 – Provide support and ongoing performance discussions
o Step 4 – Evaluate performance
o Step 5 – Identify improvements needed
o Step 6 – Provide consequences for performance results

PURPOSES OF PERFORMANCE MANAGEMENT SYSTEMS (PFS)

• Strategic purpose means effective PM helps the organization achieve its business objectives.

• Administrative purpose refers to the ways in which organizations use the system to provide
information for day-to-day decisions about salary, benefits, and recognition programs.

• Developmental purpose means that it serves as a basis for developing employees’ knowledge and
skills.

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FIVE CRITERIA FOR MEASURING THE EFFECTIVENESS OF A PFS

1. Fit with strategy

2. Validity
o Contamination process: might also measure other aspects that do not measure performance
(e.g. the manager who rates you likes you; changes in market demand)
o Deficiency: beneficial behaviors that are not reflected (e.g. employees helping each other)
3. Reliability
4. Acceptability (all parts of the company need to be fine with it, else managers may not give accurate
measurements!)
5. Specific feedback (without this, employees would not be able to improve)

METHODS FOR MEASURING PERFORMANCE

Measuring job performance:

A performer (individual Trait Individual traits and Only good when other
or team) approach attributes such as creativity measures don’t work

(In a given situation) Behaviour How they perform the job Allows easy identification
Engages in certain approach of where to improve
behaviours
That produce various Results What employees produce Gives a clear picture of
results approach resulting performance

• Measuring performance – Traits & Attributes:

o Graphic rating scale lists traits and provides a rating scale for each trait. The employer uses
the scale to indicate the extent to which an employee displays each trait.

o Mixed-standard scale uses several statements describing each trait to produce a final score
for that trait.

• Measuring performance – Rating behaviors:

o Critical-incident method is based on managers’ records of specific examples of the employee
acting in ways that are either effective or ineffective. Employees receive feedback about
what they do well and how they are helping the organization achieve its goals.

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 o BARS (Behaviorally Anchored Rating Scale) rates behaviors in terms of a scale showing
specific statements of behavior that describe different levels of performance.

BOS (Behavioral Observation Scale) is a variation of a BARS, which uses all

behaviors necessary for effective performance to rate performance at a task. It also
asks the manager to rate the frequency with which the employee has exhibited the
behavior during the rating period.

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 • Measuring performance – Measuring results & Fixed standards vs Comparisons
o Absolute Measures:
Predefined standard measure compares each employee to predefined standards,
and performance of colleagues does not affect individual scores.
o Relative Measures:
Simple ranking measure requires managers to rank employees in their group from
the highest performer to the poorest performer.
Forced distribution measure assigns a certain percentage of employees to each
category in a set of categories.
Paired comparison measure compares each employee with each other employee to
establish rankings.
o Example: MBO (Management By Objectives). People at each level of the organization set
goals in a process that flows from top to bottom, so that all levels are contributing to the
organization’s overall goals. These goals become the standards for evaluating each
employee’s performance.

• Sources of performance information:

o 360-degree performance appraisal is a performance measurement that combines
information from the employees (managers, peers, subordinates, self, customers).

TYPES OF PERFORMANCE MEASUREMENT – RATING ERRORS

• Contrast errors happen when the rater compares an individual, not against an objective standard, but
against other employees.

• Distributional errors happen when the rater tends to use only one part of a rating scale:
o Leniency error happens when the rater rates everyone near the top.
o Strictness error happens when the rather favors lower rankings.
o Central tendency error happens when the rater puts everyone near the middle of the scale.

• Rater bias errors happen when raters let their opinion of one quality color their opinion of others:
o Halo error happens when the bias is in a favorable direction, and can mistakenly tell
employees they don’t need to improve in any area.

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WAYS FOR IMPROVEMENT IN UNSATISFACTORY PERFORMANCE

• Low motivation / Low ability = Deadwood:

o Withholding pay increases, demotion, outplacement, firing, specific and direct feedback on
performance problems.

• High motivation / High ability = Solid performers:

o Reward good performance, identify development opportunities, provide honest and direct
feedback.

• Low motivation / High ability = Under-utilizers:

o Give honest and direct feedback, provide counseling, use team building and conflict
resolution, link rewards to performance outcomes, offer training for needed knowledge or
skills, manage stress levels.

• High motivation / Low ability = Misdirected effort:

o Coaching, frequent performance feedback, goal setting, training or temporary assignment for
skill, restructured job assignment.

4. COMPENSATION

• Pay is a powerful tool for meeting the organization’s goals.

o Pay has a large impact on employee attitudes and behaviors. It influences the kinds of
people who are attracted to (or remain with) the organization.
o Employees attach great importance to pay decisions when they evaluate their relationship to
their employer.

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ISSUES IN DEVELOPING A PAY STRUCTURE

• Legal requirements:
o Equal employment opportunity: two employees who do the same job cannot be paid
different wages because of gender, race, or age.
o Minimum wages: the lowest amount that employers may pay under federal or state law,
stated as an amount of pay per hour.
o Overtime pay: pay for overtime is required, whether or not the employer specifically asked
or expected the employee to work more than (usually) 40 hours: exempt (e.g. managers) and
non-exempt employees.
o Restrictions on child labor

• Market forces – Economic influences on pay:

o Product markets: the organization’s product market includes organizations that offer
competing goods and services. Organizations compete on quality, service, and price. The cost
of labor is a significant part of an organization’s costs.
o Labor markets: organizations must compete to contain HR in labor markets. Competing for
labor establishes the minimum an organization must pay to hire an employee for a particular
job.

• Organization’s goals:
o High-quality workforce
o Cost control
o Equity and fairness
o Legal compliance

• Pay level decision:

o Pay level is the average amount the organization pays for a particular job.
Pay can be at the rate set by the market, or at a rate above or below the market.
To gather information about market pay, one can use benchmarking (procedure in
which an organization compares its own practices against those of successful
competitors), pay surveys, trade and industry groups, and professional groups.

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 o Job structure decision:
Job structure is the relative pay for different jobs within the organization.
Job evaluation is an administrative procedure for measuring the relative internal
worth of the organization’s jobs.
Compensation factors are the characteristics of a job that the organization values
and chooses to pay for, such as experience, education, complexity, working
conditions and responsibility.

Key jobs are jobs that have relatively stable content and are common among many
organizations. Organizations can make the process of creating the job and pay
structures more practical by defining key jobs. Research for creating the pay
structure is limited to the key jobs that play a significant role in the organization.

o Pay structure decisions

Putting it all together: Job evaluation > Job structure > Key job definition > Pay
survey > Pay policy line > Pay rates > Pay grades > Pay ranges > Pay structure

Pay rate: the organization obtains pay survey data for its key jobs > pay policy line is
established > pay rates for non-key jobs are then determined!
Pay policy line is a graphed line that shows the mathematical relationship between
job evaluation points and pay rate.

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 Pay grades are sets of jobs that have similar worth or content, grouped together to
establish rates of pay.
Pay ranges are sets of possibly pay rates defined by a minimum, a maximum and a
midpoint of pay, for employees that hold a particular job or a job within a particular
pay grade.

PAY STRUCTURE & ACTUAL PAY

• Pay structure is the pay policy resulting from job structure and pay level decisions.
o However, what the organization actually does may be different. The HR department should
compare actual pay to pay structure, making sure that policies and practices match! Compa-
ratio is the common way to do this.
o Compa-ratio (CR) is the ratio of average pay to the midpoint of the pay range. If the average
pay equals the midpoint, CR = 1. If the average pay is above the midpoint, CR > 1. If the
average is below the midpoint, CR < 1.

ALTERNATIVES TO JOB-BASED PAY

• Delayering reduces the number of levels in the organization’s job structure. More assignments are
combined into a single layer. These broader groupings are called broad bands and emphasize more
the acquisition of experience, rather than promotions.

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 • Skill-based pay systems are pay structures that set pay according to the employees’ levels of skill or
knowledge and what they are capable of doing. This is appropriate in organizations where changing
technology requires employees to continually widen and deepen their knowledge.

INCENTIVE PAY

• Incentive pay is a form of pay linked to an employee’s performance as an individual, group member,
or organization member.
o It is influential because the amount paid is linked to certain predefined behaviors or
outcomes.
o The plan pay must be well designed to motivate employees to contribute to the
organization’s success.

• Effective incentive play plans to meet the following requirements:

o Performance measures are linked to the organization’s goals.
o Employees believe they can meet performance standards.
o The organization gives employees the resources they need to meet their goals.
o Employees value the rewards given.
o Employees believe the reward system is fair.
o The pay plan takes into account that employees may ignore any goals that are not rewarded.

INDIVUAL PERFORMANCE PAY

• Piecework rate is a wage based on the amount workers produce.

o Straight piecework plan is an incentive pay in which the employer pays the same rate per
piece, no matter how much the worker produces.
o Differential piece rate is an incentive pay in which the piece rate is higher when a greater
amount is produced.

• Standard hour plan is an incentive plan that pays workers extra for work done in less than a preset
“standard time”. These plans are much like piecework plans, they encourage employees to work as
fast as they can, but not necessarily to care about quality or service.

• Merit pay is a system that links pay increases to ratings on a performance scale. It makes use of a
merit increase grid. The system gives the lowest paid best performers the biggest pay increases!

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 • Performance bonuses are not rolled into base pay. The employee must re-earn them during each
performance period. Sometimes the bonus is a one-time reward. Bonuses may also be linked to
objective performance measures, rather than subjective ratings.

• Sales commission is an incentive pay calculated as a percentage of sales. Some salespeople earn a
commission in addition to a base salary. Some salespeople earn only commissions (straight
commission plan). Some salespeople earn no commissions at all, but a straight salary.

GROUP PERFORMANCE PAY

• Gainsharing is a group incentive program that measures improvements in productivity and

effectiveness and distributes a portion of each to employees. Freedom given to employees to
determine how to improve their own and their group’s performance.

• Group bonuses tend to be for smaller work groups. These bonuses reward the members of a group
for attaining a specific goal, usually measured in terms of physical output.

• Team awards are similar to group bonuses but are more likely to use a broad range of performance
measures such as cost savings, successful completion of a project and meeting deadlines.

OVERALL PERFORMANCE PAY

• Profit sharing is an incentive pay in which payments are a percentage of the organization’s profits and
do not become part of the employees’ base salary.

• Stock ownership:
o Stock options are rights to buy a certain number of shares of stock a specified price.
o Employee stock ownership plans (ESOPs) are arrangements in which the organization
distributes shares of stock to all its employees by placing it in a trust.

BALANCE SCORECARD

• Balanced scorecard is a combination of performance measures that is directed toward the company’s
long and short-term goals and that is used as the basis for awarding incentive pay.
o The four categories of a BS include:
Financial;
Customer;
Internal;
Learning and growth.
o It combines the advantages of different incentive pay plans and helps the employees to
understand the organization’s goals.
o By communicating the BS to employees, the organization shows employees information
about what its goals are and what it expects employees to accomplish.

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THE IMPORTANCE OF PAY IN EMPLOYEE MOTIVATION – EMPIRICAL EVIDENCE (RYNES,
GERHART, & MINETTE, 2004)

• Pay is four times more effective than interventions designed to make work more interesting (Guzzo,
Jette, & Katzell, 1985; meta-analysis)

• Introduction of individual pay incentives increased productivity by an average of 30% (Locke, Feren,
McCaleb, Shaw, & Denny, 1980; meta-analysis)
o Job enrichment of 9-17%
o Employee participation programs of less than 1%

• Incentive systems yielded productivity 1.36 standard deviations higher in manufacturing firms and
0.42 in service firms (Stajkovic & Luthans, 1997; meta-analysis)
o Similar effect sizes were found for feedback and social rewards

• Average correlation of 0.32 between incentives and quantity of production, but no consistent
relationship between incentives and product quality (Jenkins, Mitra, Gupta, & Shaw, 1998; meta-
analysis)

GENERAL PRINCIPLES (RYNES ET AL ., 2004)

• Take complaints about pay seriously.

• Do not fall very far below market pay levels.
• Realize that most of the best employees want strong pay-performance relationships, evaluate current
pay systems with respect to the strength of pay-performance relationships.
• Examine whether executive pay is moving in the same direction, and at roughly proportionate rates,
as employee pay increases.

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 5. EMPLOYEE RELATIONS AND LEADERSHIP

ROLE OF UNIONS & LABOR RELATIONS

• Most workers act as individuals to select jobs that are acceptable to them and to negotiate pay,
benefits, flexible hours, and other work conditions.
o At times, workers have believed their needs and interests do not receive enough
consideration from management.
o One response by workers is to act collectively by forming and joining labor unions.

• Unions are organizations formed for the purpose of representing their members’ interests in dealing
with employers.

• Labor relation is a field that emphasizes skills managers and union leaders can use to minimize costly
forms of conflict (e.g. strikes) and seek win-win solutions to disagreements.

EMPLOYEE REPRESENTATIVES IN GERMANY

• Work council (“Betriebsrat”) must be tolerated in businesses with no less than five regular employees
(with some exceptions) and is elected for four years by the staff.
o Its tasks are to ensure social protection for employees and to supervise compliance with
collective labor agreement.
o The factual influence of work council varies between companies.

• Co-determination at enterprise level (“Unternehmensmitbestimmung”) is an institutionally

anchored exertion of influence by employee representatives.
o Its form and degree of participation depends on the form and size of the organization.

COLLECTIVE BARGAINING

• In collective bargaining, a union negotiates on behalf of its members with management

representatives to arrive at a contract defining: recognition, management rights, compensation and
benefits, grievance procedure, employee security.

• When bargaining breaks down…

o Strike is a collective decision by union members not to work until certain demands or
conditions are met. Alternatives to strikes:
Mediation is a conflict resolution procedure in which a mediator hears the views of
both sides and facilitates the negotiation process but has no formal authority to
dictate a resolution.
Fact finder is a third party to collective bargaining who reports the reasons for a
dispute, the views and arguments of both sides, and possibly a recommended
settlement, which the parties may decline.
Arbitration is a conflict resolution procedure in which an arbitrator or arbitration
board determines a binding settlement.

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 • Collective bargaining process in Germany:

• Examples of pay claims and settlements:

Contract Administration & Grievance Procedures:

• Contract administration includes carrying out the terms of the agreement and resolving conflicts over
interpretation or violation of the agreement.

• Grievance procedure is the process of resolving union-management conflicts over interpretation or

violation of a collective bargaining agreement.

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LEADERSHIP

The Nature of Leadership:

• Leadership is a process in which leader and follower interact in a way that enables the leader to
influence the actions of the follower in a non-coercive way, towards the achievements of certain aims
or objectives.
o Leadership style is about specific behaviors in which a manager chooses to influence people.

Leadership and Power:

• Power is the capability or potential to influence.

o It is an ability to affect others’ beliefs, attitudes and actions.
o Power is a relational concern for both leaders and followers.

• Five bases of social power (French & Raven, 1959):

o Personal power is derived from being seen as likable and knowledgeable.
Referent power is based on followers’ identification and liking for the leader.
Expert power is based on followers’ perceptions of the leader’s competence.

o Position power is derived from office or rank in an organization.

Legitimate power is associated with having status or formal job authority.
Reward power is derived from having the capacity to provide rewards to others.
Coercive power is derived from having the capacity to penalize or punish others.

Trait Model of Leadership:

• It focuses on identifying the personal characteristics that cause effective leadership.

• “Great man theories”: traits from a good leader….
• Examples for traits and personal characteristics related to effective leadership: intelligence,
knowledge and expertise, dominance, self-confidence, high energy, tolerance of stress, integrity and
honesty, maturity.
• Several traits have been found to be related to leadership, but no definitive list exists.

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Behavioral Model of Leadership – the Ohio State studies:

• Analyzing how leaders act instead of assessing leadership traits. Two distinct and independent types
of leading behaviors:
o Consideration (low/high): building relationships, respect and trust, liking between leaders
and followers.
o Initiating structure (low/high): organizing work, giving structure to the work context,
defining role responsibilities, scheduling work activities.

Fiedler’s Contingency Model:

• Contingency theory in leadership creates a fit between leader and environment. Situations can be
described by three factors:
o Leader-member relations refers to the group atmosphere and the degree of confidence,
loyalty, and attraction of followers towards the leader. There is a good group atmosphere,
with high degree of subordinate trust, liking and positive relationships.
o Task structure concerns the degree to which requirements of a task are clear and spelled
out. For a high task structure, requirements/rules are clearly stated and known, there is a
limited number of correct solutions and few alternatives in task completion.
o Position power designates the amount of authority a leader has to reward or punish
followers. For a strong position power, a leader has the authority to hire and fire, and to give
raises in rank or to pay.
o Together, these situational factors capture the favorableness of various situations!
o Least preferred coworker (LPC) scale

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House’s Path-Goal Theory:

• Basic assumptions:
o Focus on what leaders can do to motivate their subordinates
o Ways how leaders can increase followers’ motivation:
Increase number and kinds of payoffs that subordinates receive from their work
Making the path to the goal clear and easy to travel, which makes the work itself
more satisfying!

• Leaders must choose a leadership style that best meets subordinates’ motivational needs:
o Choose behaviors that complement or supplement what is missing in the work setting
o Enhance goal attainment by providing information or rewards
o Provide subordinates with the elements they need to reach their goals

• Leadership styles:
o Directive leadership sets clear standards of performance and clarify how a task is to be done.
o Supportive leadership requires to be friendly and approachable.
o Participative leadership invites subordinates to share in the decision-making.
o Achievement-oriented leadership challenges subordinates to perform work at the highest
level possible and to seek continuous improvement.
o Examples:
Group members are autonomous, and the task is unstructured > participative
leadership.
Group members are dogmatic and the task is complex > directive leadership.

House’s Path-Goal Theory – Summary:

• Set of assumptions about how different leadership styles will interact with subordinate
characteristics & the work situation to affect employee motivation.
• Leaders should choose a leadership style that best fits the needs of subordinates and their work:
o Leader’s job is to help subordinates reach their goals by directing, guiding, and coaching
them along the way.
o Theory suggest which style is most appropriate for specific characteristics.

• “Leaders, to be effective, engage in behaviors that complement subordinates’ environments and

abilities in a manner that compensates for deficiencies and is instrumental to subordinate satisfaction
and individual and work unit performance.” (House, 1996)

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Leader Substitutes Model:

• Assumption: Leadership is sometimes unnecessary because substitutes for leadership are present.
• It is a type of contingency model (contingent on situation). Substitutes can be individual or situational
characteristics. Examples:
o Employee’s motivation, expertise, and enjoyment of their work can make forms of leadership
redundant.
o Self-managed teams don’t need a leader.

Transformational Leadership:

• Transformational managers…
o make subordinates aware of how important their jobs are for the organization;
o make their subordinates aware of their own needs for personal growth, development, and
accomplishment;
o motivate their subordinates to work for the good of the organization as a whole;
o are charismatic;
o intellectually stimulate subordinates.
• Transformational vs transactional leadership:
o Transactional focuses on exchange between leader and followers (e.g. promotions for
performance).
o Transformational is a connection between leader and followers that raises the level of
motivation and morality in both parties (e.g. Gandhi raises the hope of millions and in the
process was changed himself).

Gender and Leadership:

• Glass ceiling (=limit on ability to raise in work hierarchy): “invisible” barrier that prevents women and
minorities from entering higher hierarchical positions. Possible reasons for the leadership gap (i.e. few
women in leadership positions):
o Human capital
o Gender differences
o Prejudice
• Research suggest that there are very small differences between leadership styles of men and women.
• Male and female managers tend to be equally effective as leaders.

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RESEARCH PAPERS

1. EXPLORING HUMAN CAPITAL: PUTTING HUMAN BACK INTO STRATEGIC HRM

(PATRICK M. WRIGHT, GARY C. MCMAHAN)

Method: Conceptual Study (no data collection nor analysis)

Main research questions:

• What is meant by “human”? Why is “human” essential for a competitive advantage?

Background:

• McKinsey “War for Talent” (1998):

o Strategic HRM is “the pattern of planned HR developments and activities intended to enable
the firm to achieve its goals”
o Research focused almost exclusively on examining the tools and techniques to build that
resource (HC) rather than on HC itself
o Resulting in a “black box” between HR practices and performance!

Key findings:

• In order to make HC a valuable resource, we need to understand that:

o There are two types of HC: firm-specific HC (hard skills) & general HC (soft skills).
o There is a “free will” component: considering HC alone is not sufficient! Consider
motivation, behavior, perceived fairness and satisfaction as well.
o HC can be measured in 3 different ways: subjective measures (e.g. questionnaires), proxies
(e.g. quality of university), direct assessment (e.g. personality traits).

Further research:

• Distinction between individual and organizational HC

• Empirical evidence suggests superiority of a certain measurement approach
• Distinct measurement approaches for the concepts of human capital, human capability and
organization capability.

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 2. INITIAL INVESTIGATION INTO COMPUTER SCORING OF CANDIDATE ESSAYS FOR
PERSONNEL SELECTION (MICHAEL C. CAMPION, MICHAEL A. CA MPION, EMILY D.
CAMPION, MATTHEW H. REIDER)

Method: Quantitative paper (using structured data, text that is converted in numbers)

Background:

• Accomplishment Records (AR) are too costly

• Development of Natural Language Processing (NLP) as reasoning for why this paper is needed
• Adverse impact validity dilemma: discriminating certain groups and harming a diverse workforce

Main research questions:

• Can a computer program replace a human rater in the selection process?

• Applied to AR
o Requires job candidates to provide a narrative description of an accomplishment they have
achieved in the past
o High validity (0.45) but lower than GMA tests
o Key measurements match the lecture

Notes:

• How does the algorithm work?

o Measures communication skill, critical thinking, people skill, leadership skill, managerial skill
and factual knowledge based on 200 words of AR each:
Algorithm identifies relationships among words
Researcher groups concepts together into synonyms
Algorithm identifies categories (=concepts that commonly occur together)
Based on categories, algorithm assigns scores to AR
Iteration of step 1&2
o The algorithm is reproducing the raters’ answers using machine learning by training

• Effectiveness criteria:
o Reliability:
Method for checking: compare computer and human rater scores for each
competency using a training and a test set
Reliability is comparable to a human rater. However, are humans reliable: not
perfect since 0.6 and not 1!
o Validity (measure what we want to measure):
Examine correlations with other selection procedures
Analysis of extreme mis-predictions:
Computer high score – human low score: leadership with authority or force,
exaggeration, etc.

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 Computer low score – human high score: unusual or unique answers
o Generalizability:
Leadership, communication and other common measures can easily be generalized
Other job-specific criteria not very much, since at least 500 samples needed
o Cost savings:
Cost saving for studied organization of about 200 000 USD
Largely dependent on the average number of candidates
Consulting firms may develop generalizable software
o Ethical question:
It needs to be considered if subjects find that the procedure is fair
This is important to decide if the algorithm should be supervised or autonomous in
the decision-making

Key findings:

• Advances in NLP and machine learning open up new possibilities: in the case of three human raters, a
computer can replace one of these raters without loss in effectiveness criteria!
• Effective reduction of adverse impact validity dilemma
• When AR is already used (with three raters), application of algorithm can reduce costs. If AR is not
used yet, not only there are costs for development but also costs for the other two raters: high cost
problem that is not solved!
• Limited generalizability and adaptability to change and high up-front costs
• Interesting method & this research may show future development in selection, scholarly and
practically.

3. PERFORMANCE MANAGEMENT AND EMPLOYEE ENGAGEMENT (GRUMAN AND

SAKS, 2010)

Method: Conceptual study (no data collection nor analysis)

Background:

• Accomplishment Records (AR) are too c Many contemporary organizations are placing a greater
emphasis on their performance management systems as a means of generating higher levels of job
performance
• Contemporary challenges facing organizations have led many of them to refocus attention on their
performance management systems

Main research questions:

• Is the promotion of employee engagement the best way to produce performance increments?
• What are the key drivers of employee engagement at each state of the performance management
process?

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The model (drivers of employee engagement):

• Performance Agreement:
o Goal Setting:
Try to set goals that are motivating for the employee.
Shared agreement is preferable.
Employees should be able to relate the goals to their own values and interests to
achieve a feeling on ownership
o Psychological contracts
Employees should be granted more autonomy to incorporate their individuality
Autonomy informally requires the employee to have a higher productivity in return

• Engagement facilitation:
o Job design:
Work design should be challenging, varied, creative and autonomous
Should be done with the employee where tasks are not fixed in job announcements:
flexibility!
o Coaching, Training and social support:
Organization agrees to help employees develop (e.g. consulting firms provide
training despite having a large employee turnover)
Buddy system may be implemented
Good interpersonal relationships needed
o Leadership:
Leadership needs to be trained in creating a good team atmosphere
Transformational leadership should be employed

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 • Performance and Engagement Appraisal and Feedback:
o Performance appraisal:
Allowing employees to participate increases perceived fairness
Irrelevant criteria are perceived as unfair by employees
o Engagement appraisal:
Agreement between employees and organization and shared creation process
o Feedback:
360-degree multisource feedback

Key findings:

• Traditional measurement works best in stable environments, but does not work in service- and
knowledge-based jobs
• Proximal outcome should be used in these jobs
• Model uses employee engagement as proximal outcome (employee engagement is thought to predict
job performance)
• Only uses evidence from other studies
• Configurational approach to strategic HRM: a bundle of activities shapes employee engagement, not
single activities

Limitations:

• There currently exists very little conceptual and empirical work on how the performance
management process can enhance performance by fostering employee engagement.
• Is only fully applicable for larger organizations

4. PERFORMANCE PAY AND PRODUCTIVITY (LAZEAR, 2000)

Method: Quantitative Paper (using structured data)

Background:

• Personnel economics states that paying on the basis of output will induce workers to supply more
output
• Many sophisticated models have been offered, yet largely untested due to a lack of data
• Many studies showing effect of a payment scheme on profit/earnings
• Few studies showing effect of a payment scheme on output

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Main research questions:

• Does the prediction that a switch to piece rate payment will lead to an increase in average
productivity, attracting a more able workforce and variance in output across individuals will rise hold
true in a real-life context of the firm Safelite?

Methodology:

• Using a new dataset from the Safelite Glass Corporation

• During 1994-5, the company changed the compensation method for its workforce moving them from
hourly wages to piece-rate pay

Model:

• Economic model
• Hourly wage is linked to the minimum required utility that does not cause your dismissal
• Piecework will thus allow higher output
• Both systems have the reward of potential promotions that allow for higher pay in the future (reason
why not working at minimum required)
• Utility functions used to show the different utility of piecework pay to workers with high capabilities
compared to the ones with low capabilities

Key findings:

• Incentive pay can increase output levels as predicted by theory

• Pay system affects behaviour and motivation of employees as well as the organizational performance
and profitability
• Real organizational settings require complicated models and methods to control for many factors and
alternative explanations
• Piecework rates require higher monitoring costs, for example, output measurement and quality
control and are not well suited for all jobs

Results:

• The effect of the change was dramatic and completely in line with economic theory
o A switch to piece-rate pay has a significant effect on average levels of output per worker. This is
in the range of a 44-percent gain. (does NOT mean that the cost of wages is 44% smaller)
About half of the increase in productivity (lower time per unit) results from the average
worker producing more because of incentive effects.
Some of the increase results from an ability to hire the most productive workers and
possibly from a reduction in quits among the highest output workers (sorting) –
replacement of low skill workers with higher skill workers

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 Some of the increase results from workers learning more skills to take advantage of the
new pay
o The firm shares the gains in productivity with its workforce. A given worker receives about a 10-
percent increase in pay as a result of the switch to piece rates. (Employers and employees are
sharing the profit of the productivity gain)
o Moving to piece-rate pay increases the variance in output. More ambitious workers have less
incentive to differentiate themselves when hourly wages are paid than when piece-rate pay is
used
• Firms choose the compensation scheme by comparing the costs and benefits of each scheme
o Benefit is a productivity gain
o Costs may be associated with measurement difficulties, undesirable risk transfers, or quality
declines
• No significant difference in turnover rates
o highest output workers are more likely to stay (not significant)
o lowest output workers are less likely to stay (not significant)
• Quality issues can be avoided by keeping employees responsible for the quality (employee needs to
fix mistakes without getting paid)

Limitations:

• Only one data point

• Model based on rational choice assumptions
• The performance management system was already in place before the switch. Having to implement a
system to monitor employee output could be a cost factor that reduces the effects mentioned in the
study
• Piecework is not always profitable
o Only good when output easily manageable
o Blame needs to be easily assignable
o Not good for managerial and professional jobs

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