MediaShare for Business offers a curated collection of business videos that provide customizable, auto-scored assignments. Media -Share for Business helps students understand why they are learning key concepts and how they will apply those in their careers. 92% eText 93% 93% Dynamic Study Modules Personal inventory assessment 94% Pearson eText enhances student learning—both in and outside the classroom. Take notes, highlight, and bookmark important content, or engage with interactive lecture and example videos that bring learning to life (available with select titles). Accessible anytime, anywhere via MyLab or the app. Study Plan % of students who found learning tool helpful 86% of students would tell their instructor to keep using MyLab Management The MyLab Gradebook offers an easy way for students and instructors to view course performance. Item Analysis allows instructors to quickly see trends by analyzing details like the number of students who answered correctly/incorrectly, time on task, and median time spend on a question by question basis. And because it’s correlated with the AACSB Standards, instructors can track students’ progress toward outcomes that the organization has deemed important in preparing students to be leaders. “I was able to find myself actually learning at home rather than memorizing things for a class.” — Katherine Vicente, Student at County College of Morris For additional details visit: www.pearson.com/mylab/management This page intentionally left blank A01_THOM6233_05_SE_WALK.indd 9 1/13/17 6:50 PM Human Resource Management Joseph J. Martocchio Fifteenth Edition New York, NY Vice President, Business, Economics, and UK Courseware: Donna Battista Director of Portfolio Management: Stephanie Wall Editorial Assistant: Linda Siebert Albelli Vice President, Product Marketing: Roxanne McCarley Product Marketer: Kaylee Claymore Product Marketing Assistant: Marianela Silvestri Manager of Field Marketing, Business Publishing: Adam Goldstein Field Marketing Manager: Nicole Price Vice President, Production and Digital Studio, Arts and Business: Etain O’Dea Director of Production, Business: Jeff Holcomb Managing Producer, Business: Melissa Feimer Content Producer: Yasmita Hota Operations Specialist: Carol Melville Design Lead: Kathryn Foot Manager, Learning Tools: Brian Surette Content Developer, Learning Tools: Lindsey Sloan Managing Producer, Digital Studio and GLP, Media Production and Development: Ashley Santora Managing Producer, Digital Studio: Diane Lombardo Digital Studio Producer: Monique Lawrence Digital Studio Producer: Alana Coles Project Manager: Nicole Suddeth and Raja Natesan, SPi Global Interior Design: SPi Global Cover Design: SPi Global Cover Art: A-Digit/DigitalVision Vectors/Getty Images Printer/Binder: LSC Communications, Inc./Menasha Cover Printer: Phoenix Color/Hagerstown Copyright © 2019, 2016, 2014 by Pearson Education, Inc. or its affiliates. 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Unless otherwise indicated herein, any third-party trademarks, logos, or icons that may appear in this work are the property of their respective owners, and any references to third-party trademarks, logos, icons, or other trade dress are for demonstrative or descriptive purposes only. Such references are not intended to imply any sponsorship, endorsement, authorization, or promotion of Pearson’s products by the owners of such marks, or any relationship between the owner and Pearson Education, Inc., or its affiliates, authors, licensees, or distributors. Library of Congress Cataloging-in-Publication Data Names: Martocchio, Joseph J., author. | Mondy, R. Wayne, 1940- Human resource management. Title: Human resource management / Joseph J. Martocchio. Description: Fifteenth Edition. | Boston : Pearson, [2017] | Revised edition of Human resource management, [2016] Identifiers: LCCN 2017037154| ISBN 9780134739724 | ISBN 0134739728 Subjects: LCSH: Personnel management—United States. | Personnel management. Classification: LCC HF5549.2.U5 M66 2017 | DDC 658.3—dc23 LC record available at https://lccn.loc.gov/2017037154 1 17 ISBN 10: 0-13-473972-8 ISBN 13:978-0-13-473972-4 To my parents—for their sacrifices which have provided me with great opportunities. This page intentionally left blank A01_THOM6233_05_SE_WALK.indd 9 1/13/17 6:50 PM Brief Contents Part One Setting the Stage 1 Chapter 1 Human Resource Management: An Overview 2 Chapter 2 Business Ethics, Corporate Social Responsibility, and Sustainability Chapter 3 Equal Employment Opportunity, Affirmative Action, and Workforce Diversity 28 52 Part Two Staffing 89 Chapter 4 Strategic Planning, Human Resource Planning, and Job Analysis Chapter 5 Recruitment Chapter 6 Selection 90 120 146 Part Three Performance Management and Training Chapter 7 Performance Management and Appraisal Chapter 8 Training and Development 179 180 208 Part Four Compensation 243 Chapter 9 Chapter 10 Direct Financial Compensation (Monetary Compensation) Indirect Financial Compensation (Employee Benefits) 244 278 Part Five Labor Relations, Employee Relations, Safety, and Health Chapter 11 Labor Unions and Collective Bargaining Chapter 12 Internal Employee Relations Chapter 13 Employee Safety, Health, and Wellness 306 338 362 Part Six Operating in a Global Environment Chapter 14  305 391 Global Human Resource Management 392    vii This page intentionally left blank A01_THOM6233_05_SE_WALK.indd 9 1/13/17 6:50 PM Contents Part One Setting the Stage 1 Chapter 1 Human Resource Management: An Overview 2 Legislating Ethics Ethical Culture 34 Code of Ethics 35 Human Resource Management: What It is and Why It is Important 3 Human Resource Ethics 36 Linking Pay to Ethical Behavior Ethics Training 38 Why Study HRM? 4 Human Resource Management Functions 4 Who Performs Human Resource Management Activities? 6 Human Resource Management Professional 7 Line Managers 7 Human Resources Outsourcing 8 Human Resources Shared Service Centers 8 Professional Employer Organizations 9 More about HR Professionals 9 ■■HR Preparing for Exams/Quizzes 45 • Key Terms 46 Questions for Review 46 • Preparing for My Career 46 ■■ETHICS DILEMMA: A Selection Quandary 46 HRM Is Everyone’s Business 47 • HRM by the Numbers 47 • Working Together: Team Exercise 47 • INCIDENT 1: An Ethical Flaw 48 INCIDENT 2: Illegal Hiring 48 • Endnotes 49 13 Corporate Culture 16 Employer Branding 17 Human Resource Management in Small Businesses Country Culture and Global Business 18 Developing Skills for Your Career 20 18 Communication 20 Critical Thinking 20 Collaboration 20 Knowledge Application and Analysis 21 Business Ethics and Social Responsibility 21 Information Technology Application and Computing Skills 21 Data Literacy 21 Scope of This Book 21 Preparing for Exams/Quizzes 22 • Key Terms 23 Questions for Review 23 • Preparing for My Career 24 ■■ETHICS DILEMMA: Broken Promises 24 HRM Is Everyone’s Business 24 • HRM by the Numbers 25 Working Together: Team Exercise 25 • INCIDENT 1: HR After a Disaster 25 • INCIDENT 2: Parental Leave at Yahoo 26 • Endnotes 26 Business Ethics, Corporate Social Responsibility, and Sustainability 28 Defining Ethics and the Sources of Ethical Guidance  30 39 Conducting a Social Audit 44 The Role of HRM in Building Corporate Culture and Employer Branding 16 Business Ethics 29 Sources of Ethical Guidance ■■HR BLOOPERS: Sales Incentives at Pinser Pharmaceuticals 39 Corporate Social Responsibility 40 Corporate Sustainability 42 Human Resources as a Strategic Business Partner in a Dynamic Environment 12 Chapter 2 37 Corporate Social Responsibility and Sustainability BLOOPERS: Staffing Stone Consulting 9 Capital and Human Capital 13 Dynamic Human Resource Management Environment 31 Creating an Ethical Culture and a Code of Ethics 34 29 Chapter 3 Equal Employment Opportunity, Affirmative Action, and Workforce Diversity 52 Equal Employment Opportunity and the Federal Laws Affecting EEO 54 Constitutional Amendments and the Civil Rights Act of 1866 54 Title VII of the Civil Rights Act of 1964, Amended in 1972 54 Equal Pay Act of 1963, Amended in 1972 57 Lilly Ledbetter Fair Pay Act of 2009 58 Pregnancy Discrimination Act of 1978 58 Civil Rights Act of 1991 59 Age Discrimination in Employment Act of 1967, Amended in 1978, 1986, and 1990 60 Age Can Actually Be a Bona Fide Occupational Qualification 60 Rehabilitation Act of 1973 61 Vietnam Era Veteran’s Readjustment Assistance Act of 1974 61 Vietnam Era Veterans’ Readjustment Assistance Act of 1974, as Amended 61 Americans with Disabilities Act of 1990 62 Americans with Disabilities Act Amendments Act of 2008 62 Immigration Reform and Control Act of 1986 63 Uniformed Services Employment and Reemployment Rights Act of 1994 63 Genetic Information Nondiscrimination Act of 2008 63 State and Local Laws 63 Who’s Responsible for Ensuring Equal Employment Opportunity? 64 Equal Employment Opportunity Commission 64    ix x    CONTENTS Office of Federal Contract Compliance Programs Employers 65 65 Illegal Discrimination and Affirmative Action Job Analysis Methods Job Descriptions 66 Uniform Guidelines on Employee Selection Procedures 66 Types of Unlawful Employment Discrimination 66 Affirmative Action 68 Uniform Guidelines on Preventing Specific Illegal Employment Discrimination 70 Guidelines on Sexual Harassment 71 Guidelines on Discrimination Because of National Origin 72 Guidelines on Discrimination Because of Religion 73 Guidelines on Caregiver (Family Responsibility) Discrimination 74 Discrimination Because of Disability 74 Diversity and Diversity Management 75 Elements of the Diverse Workforce 76 Single Parents and Working Mothers 76 Women in Business 76 Mothers Returning to the Workforce (on Ramping) 77 Dual-Career Families 77 Ethnicity and Race 77 Older Workers 78 People with Disabilities 78 Immigrants 78 Foreign Workers 79 Young Persons, Some with Limited Education or Skills 79 Baby Boomers, Gen X, Gen Y, and Gen Z 80 ■■HR BLOOPERS: Affirmative Action and Workforce Diversity 80 Multi-generational Diversity 81 Lesbian, Gay, Bisexual, and Transgender Employees 82 Preparing for Exam/Quizzes 82 • Key Terms 83 Questions for Review 83 • Preparing for My Career 84 ■■ETHICS DILEMMA: How About Me? 84 HRM Is Everyone’s Business 84 • HRM by the Numbers 85 Working Together: Team Exercise 85 • INCIDENT 1: You’re Not a Good Employee 86 • INCIDENT 2: So, What’s Affirmative Action? 86 Endnotes 87 Part Two Staffing Chapter 4 Strategic Planning, Human Resource Planning, and Job Analysis 90 89 HR Strategic Planning Process Mission Determination 91 92 Human Resource Planning 96 Job Identification 107 Date of the Job Analysis 107 Job Summary 108 Duties Performed 108 Job Specification 108 Standard Occupational Classification (SOC) 109 The Occupational Information Network (O*NET) 110 Competencies and Competency Modeling 110 Job Design Concepts 112 Preparing For Exam/Quizzes 114 • Key Terms 115 Questions for Review 115 • Preparing For My Career 116 ■■ETHICS DILEMMA: Which “Thinker” Should Go? 116 HRM Is Everyone’s Business 116 • HRM by the Numbers 117 • Working Together: Team Exercise 117 INCIDENT 1: Competitive Strategy at Buddy Dog Foods 1 17 INCIDENT 2: Who’s Flying the Plane? 118 • Endnotes 118 Chapter 5 Recruitment 120 Recruitment and the Recruitment Process 121 Environment of Recruitment 122 Labor Market Conditions 122 Active or Passive Job Seekers 123 Legal Considerations 124 Internal Recruitment Methods 124 Human Resource Databases 124 Job Posting and Job Bidding 124 ■■HR BLOOPERS: Recruiting Skilled Machinists 125 Employee Referrals 125 External Recruitment Sources 126 High Schools and Vocational Schools 127 Community Colleges 127 Colleges and Universities 127 Competitors in the Labor Market 128 Former Employees 128 Unemployed 128 Military Personnel 129 Self-Employed Workers 129 Ex-Offenders 129 External Recruitment Methods 130 Online and Mobile Recruiting 130 Traditional Methods 134 Tailoring Recruitment Methods to Sources 138 Alternatives to Recruitment 138 Forecasting Human Resource Requirements 97 ■■HR BLOOPERS: Workforce Planning at Master Cleaners 97 Forecasting Human Resource Availability 98 Shortage or Surplus of Workers Forecasted 98 Succession Planning: A Component of Strategic Planning 101 Job Analysis: Process and Methods 105 107 102 Reasons for Conducting Job Analysis 103 Promotion Policies Overtime 139 139 Preparing for Exam/Quizzes 140 • Key Terms 140 Questions for Review 141 • Preparing for My Career 141 ■■ETHICS DILEMMA: Unfair Advantage? 141 HRM Is Everyone’s Business 141 • HRM by the Numbers 142 • Working Together: Team Exercise 142 INCIDENT 1: A Problem Ad? 142 • INCIDENT 2: I Am Qualified, Why Not Me? 143 • Endnotes 143 CONTENTS    xi Chapter 6 Selection 146 Selection and Environmental Factors Affecting the Selection Process 147 The Selection Process 147 The Environment of Selection 148 Preliminary Screening and Review of Applications and Résumés 151 Selection Tests 153 Preliminary Considerations 153 Advantages and Disadvantages of Selection Tests 154 Characteristics of Properly Designed Selection Tests 154 Test Validation Approaches 155 Employment Tests 156 Unique Forms of Testing 158 Legal Considerations 159 Employment Interview Interview Planning ■■HR 160 160 BLOOPERS: The First Interview 160 Content of the Interview 161 Candidate’s Role and Expectations 161 General Types of Interviews 162 Methods of Interviewing 163 Potential Interviewing Problems 164 Concluding the Interview 166 Pre-Employment Screening and Background Checks 166 Employment Eligibility Verification (Form I-9) 167 Continuous Background Investigation 167 Background Investigation with Social Media 167 Remembering Hiring Standards to Avoid 168 Selection Decision and Evaluating the Effectiveness of Selection Decisions 169 Making the Selection Decision 170 Evaluating Selection Decisions 170 Preparing for Exam/Quizzes 172 • Key Terms 173 Questions for Review 173 • Preparing for My Career 173 ■■ETHICS DILEMMA: Hiring with Incomplete Information 174 HRM Is Everyone’s Business 174 • HRM by the Numbers 174 • Working Together: Team Exercise 175 INCIDENT 1: A Matter of Priorities 175 • INCIDENT 2: National Career Day 176 • Endnotes 176 Part Three Performance Management and Training 179 Chapter 7 Performance Management and Appraisal 180 Performance Management, Performance Appraisal, and the Performance Appraisal Process 181 Performance Management 182 Performance Appraisal 182 Performance Appraisal Process 182 The Uses of Performance Appraisal and Performance Criteria 183 Uses of Performance Appraisal 183 Performance Criteria 184 Responsibility for Performance Appraisal 185 Performance Appraisal Period 187 Choosing a Performance Appraisal Method 188 Trait Systems 188 Comparison Systems 189 Behavioral Systems 191 Results-Based Systems 193 ■■HR BLOOPERS: Appraising Performance at Global Insurance 193 Assessing the Effectiveness and Limitations of Performance Appraisal Practices 195 Characteristics of an Effective Appraisal System 195 Limitations of Performance Appraisal 197 Legal Considerations 199 Performance Appraisal Interview 199 Scheduling the Interview 199 Interview Structure 200 Use of Praise and Criticism 200 Employees’ Role 200 Concluding the Interview 201 Trends in Performance Appraisal Practice 201 Preparing for Exams/Quizzes 202 • Key Terms 203 Questions for Review 203 • Preparing for My Career 204 ■■ETHICS DILEMMA: Abdication of Responsibility 204 HRM Is Everyone’s Business 204 • HRM by the Numbers 205 Working Together: Team Exercise 205 • INCIDENT 1: These Things Are a Pain 206 • INCIDENT 2: Good Job! 206 • Endnotes 207 Chapter 8 Training and Development 208 Training and Development and Related Practices 209 Training and Development Process 210 Determine Specific Training and Development Needs 211 Establish Training and Development Program Objectives 212 Training Methods 213 Training and Development Delivery Systems 217 Implementing Training and Development Programs 219 Metrics for Evaluating Training and Development 219 Factors Influencing Training and Development 221 Human Resource Management Training Initiatives 223 Careers and Career Planning Approaches and Methods 225 Traditional Career Path 225 Network Career Path 225 Lateral Skill Path 226 Dual-Career Path 226 Adding Value to Your Career 226 Demotion 226 Free Agents (Being Your Own Boss) 227 Career Planning Approaches 227 Career Development Methods 230 Management Development 231 Mentoring and Coaching 232 Reverse Mentoring 233 ■■HR BLOOPERS: Management Development at Trends Apparel 233 xii    CONTENTS Organization Development and the Learning Organization 234 at Barker Enterprise 274 • INCIDENT 2: The Controversial Job 274 • Endnotes 275 OD Interventions 234 Learning Organization 235 Chapter 10 Preparing for Exams/Quizzes 236 • Key Terms 237 Questions for Review 237 • Preparing for My Career 237 ■■ETHICS DILEMMA: Consequences of Inadequate Training Design 238 HRM Is Everyone’s Business 238 • HRM by the Numbers 239 • Working Together: Team Exercise 239 INCIDENT 1: Career Development at Meyers and Brown 239 INCIDENT 2: There’s No Future Here! 240 • Endnotes 240 Part Four Compensation 243 Chapter 9 Direct Financial Compensation (Monetary Compensation) 244 Total Compensation and the Environment of Compensation Practice 245 Direct and Indirect Financial Compensation 246 Structure of Direct Financial Compensation Plans 247 Contextual Influences 248 Direct Financial Compensation Components 252 Base Pay 252 Cost-of-Living Adjustments 252 Seniority Pay 252 Performance-Based Pay 253 ■■HR BLOOPERS: Motivating Software Development Teams 258 Person-Focused Pay 259 Building Job Structures 260 Ranking Method 260 Classification Method 261 Factor Comparison Method 261 Point Method 261 Establishing Competitive Compensation Policies 261 Pay Level Compensation Policies 262 Pay Mix 263 Building Pay Structures 263 Pay Grades 264 Pay Ranges 265 Broadbanding 265 Two-Tier Wage System 266 Adjusting Pay Rates 266 Pay Compression 267 Exceptions to the Rules: Sales Professionals, Contingent Workers, and Executives 267 Sales Professionals 267 Contingent Workers 268 Executive Compensation 268 Preparing for Exams/Quizzes 270 • Key Terms 271 Questions for Review 272 ■■ETHICS DILEMMA: Sales Tactics at Wells Fargo Bank 272 HRM Is Everyone’s Business 272 • Questions for Review 272 • HRM by the Numbers 273 • Working Together: Team Exercise 274 • INCIDENT 1: The Pay Gap Indirect Financial Compensation (Employee Benefits) 278 Indirect Financial Compensation (Employee Benefits) 279 Legally Required Benefits 280 Social Security 281 Unemployment Insurance 281 Workers’ Compensation 281 Health Care 282 Discretionary Benefits 285 Retirement Plans 286 Life Insurance and Disability Insurance 288 Paid Time-Off 288 Employee Services 291 Workplace Flexibility (Work–Life Balance) 293 Flextime 294 Compressed Workweek Job Sharing 295 Two-in-a-Box 295 Telecommuting 295 Part-Time Work 296 294 ■■HR BLOOPERS: The Job-Sharing Problem at SunTrust Bank 297 Customized Benefit Plans 297 Communicating Information about the Benefits Package 297 Preparing for Exams/Quizzes 298 • Key Terms 298 Questions for Review 299 ■■ETHICS DILEMMA: A Poor Bid 299 HRM Is Everyone’s Business 300 • HRM by the Numbers • 300 • Working Together: Team Exercise 301 • INCIDENT 1: Flextime 301 • INCIDENT 2: Communicating Benefits at Seaview Property Management Company 301 • Endnotes 302 Part Five Labor Relations, Employee Relations, Safety, and Health 305 Chapter 11 Labor Unions and Collective Bargaining 306 The Role of Labor Unions 307 Why Employees Join Unions Prevalence of Unions 309 308 Union Structure and Labor Strategies 310 Structure of Unions 310 Organized Labor’s Strategies for Promoting a Stronger Labor Movement 312 Laws Affecting Collective Bargaining 314 National Labor Relations Act 314 ■■HR BLOOPERS: Stopping Unionization at Packer Industries 315 Labor-Management Relations Act 315 Antidiscrimination Laws and Executive Orders 316 Bargaining Unit Formation and the Collective Bargaining Process 316 CONTENTS    xiii OSHA and Whistle-Blowers 366 OSHA and the Small Business 367 Forming a Bargaining Unit 316 Collective Bargaining Process 318 Bargaining Issues 319 Preparation for Negotiations 321 Negotiating the Agreement 322 Overcoming Breakdowns in Negotiations 324 Reaching the Labor-Management Agreement 327 Ratifying the Labor-Management Agreement 327 Administration of the Labor-Management Agreement Public Sector Collective Bargaining 328 Grievance Procedure in a Union Environment Union Decertification 330 ■■HR BLOOPERS: Health and Safety Problems at XIF Chemicals 367 The Economic Impact of Safety 368 Workplace Safety Programs 327 328 Preparing for Exams/Quizzes 331 • Key Terms 332 Questions for Review 333 • Preparing for My Career 333 ■■ETHICS DILEMMA: A Strategic Move 333 HRM Is Everyone’s Business 334 • HRM by the Numbers 334 • Working Together: Team Exercise 335 INCIDENT 1: Break Down the Barrier 335 • INCIDENT 2: We’re Listening 336 • Endnotes 336 Chapter 12 Internal Employee Relations Employment at Will 339 Discipline and Disciplinary Action 338 345 ■■HR BLOOPERS: Effective Discipline at Berries Groceries 346 347 Ombudspersons and Alternative Dispute Resolution 350 Ombudspersons 350 Alternative Dispute Resolution 351 More Considerations for Internal Employee Relations 351 Employee Stress and Burnout 376 Potential Consequences of Stress Stressful Jobs 377 Burnout 377 377 374 Alcohol Abuse 379 Drug Abuse 379 Substance-Abuse-Free Workplace and Drug Testing 379 Preparing for Exams/Quizzes 384 • Key Terms 385 Questions for Review 386 • Preparing for My Career ■■ETHICS DILEMMA: In Confidence 386 HRM Is Everyone’s Business 387 HRM by the Numbers 387 • Working Together: Team Exercise 388 • INCIDENT 1: Something Isn’t Quite Right 388 • INCIDENT 2: A Commitment to Safety? 388 • Endnotes 389 Chapter 14 Preparing for Exams/Quizzes 355 • Key Terms 356 Questions for Review 356 • Preparing for My Career 356 ■■ETHICS DILEMMA: To Fire or Not to Fire 356 HRM Is Everyone’s Business 357 • HRM by the Numbers 357 • Working Together: Team Exercise 359 INCIDENT 1: Employment at Will 359 • INCIDENT 2: To Heck with Them! 359 • Endnotes 360 Employee Safety, Health, and Wellness 362 Nature and Role of Safety, Health, and Wellness Occupational Safety and Health Administration Wellness Programs 382 Social Networking and Wellness 383 Employee Assistance Programs 384 364 386 Part Six Operating in a Global Environment 391 Transfers 351 Promotions 352 Resignations 352 Retirements 354 Chapter 13 Workplace Bullying 372 Workplace Violence 373 Legal Consequences of Workplace Violence Employee Wellness and Employee Assistance Programs 382 “Just Cause” as a Standard for Choosing to Terminate Employment 345 Considerations in Communicating the Termination Decision 346 Termination of Employees at Various Levels 346 Demotion as an Alternative to Termination Downsizing 348 Workplace Bullying and Violence 372 Substance Abuse, Substance-Abuse-Free Workplaces, and Drug-Testing Programs 378 340 Disciplinary Action Process 341 Approaches to Disciplinary Action 342 Problems in the Administration of Disciplinary Action 344 Employment Termination 368 Unsafe Employee Actions 368 Unsafe Working Conditions 368 Developing Safety Programs 368 Accident Investigation 370 Evaluation of Safety Programs 370 Musculoskeletal Disorders 370 Ergonomics 371 363 Global Human Resource Management 392 Evolution and Context of Global Business and Human Resource Management 393 Evolution of Global Business 393 Context of Global Business 395 Global Staffing 400 Expatriate 400 Host-Country National 400 Third-Country National 400 Approaches to Global Staffing 400 Recruiting Host-Country Nationals 401 Selecting Expatriates 401 Background Investigation 402 xiv    CONTENTS ■■HR BLOOPERS: United Architect’s Expatriate Problems 402 Global Performance Management and Human Resource Development 403 Performance Management 403 Expatriate Human Resource Development 403 Pre-Move Orientation and Training 404 Continual Development: Online Assistance and Training Repatriation Orientation and Training 405 Global E-learning 405 Virtual Teams in a Global Environment 406 Global Compensation Globalization for Small to Medium-Sized Businesses 410 Preparing for Exams/Quizzes 411 • Key Terms 412 Questions for Review 412 • Preparing for My Career 413 ■■ETHICS DILEMMA: Meeting Customer Demand at Any Cost 413 HRM Is Everyone’s Business 413 • HRM by the Numbers 414 Working Together: Team Exercise 414 • INCIDENT 1: My Darling 414 • INCIDENT 2: Was There Enough Preparation? 415 • Endnotes 415 407 Compensation for Host-Country Nationals Expatriate Compensation 408 407 Global Safety, Health, and Employee and Labor Relations 408 Safety and Health 408 404 Global Employee Relations 409 Global Labor Relations 410 Glossary 418 Name Index 429 Company Index 430 Subject Index 432 Preface New to this Edition Four new features appear in each chapter that enable students to integrate knowledge and valuable skills regardless whether choosing a career in the HRM profession or other business function in smaller or larger organizations, all available in MyLab. 47 CHAPTER 2 • BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY, AND SUSTAINABILITY 47 CHAPTER 2 • BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY, AND SUSTAINABILITY HRM Business HRMIsIs Everyone’s Everyone’s Business CHAPTER 2 • BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY, AND SUSTAINABILITY 47 Most andemployees employeeswill will face ethical challenges oneortime or another. Some employees will intentionally Mostcompany company leaders leaders and face ethical challenges at oneattime another. Some employees will intentionally commit forpersonal personalgain. gain. Other employees unknowingly do so. Whether areHRM aormanager or HR profes- Business commitethics ethicsviolations violations for Other employees may may unknowingly do so. Whether you are ayou manager HR profesIs Everyone’s sional—anemployee employee may about possible ethical violations to yourtoattention or you may observe yourself. sional—an may bring bringconcerns concerns about possible ethical violations your attention or you maythem observe them yourself. Most company leaders and employees will face ethical challenges at one time or another. Some employees will intentionally Once youare areaware aware of of aa situation ethics are are in question, you are to respond. Once you situationwhere where ethics in question, youobligated are obligated to respond. commit ethics violations for personal gain. Other employees may unknowingly do so. Whether you are a manager or HR profes- $$ concerns HRMabout Ispossible Everyone’s Business. feature explains Actionchecklist checklist for HR—responding to allegations of unethical behavior sional—anbehavior employee may bring ethical violations to your attentionThis or you may observe them yourself. Action for managers managersand and HR—responding to allegations of unethical Once you are aware of a situation where ethics are in question, you are obligated to respond. HR takes the lead HR takes the lead Work with managers to ensure that they understand the company’s code of ethics and communicate theAction procedures for checklist for managers and HR—responding to allegations of unethical behavior Work with managers ensureethical that they understand the company’s code of ethics and communicate the procedures for addressing instances oftopotential violations. HR takes the lead addressing ofshare potential ethical violations. Encourageinstances managers to the company’s code of ethics with employees, lead open discussions about everyone’s obligaWork with managers to ensure that they understand the company’s code of ethics and communicate the procedures for Encourage managers share theacompany’s codefor of employees ethics with lead open discussions about everyone’s obligation to behave ethically,toand create safe environment to employees, report their concerns about possible ethical violations addressing instances of potential ethical violations. to the appropriate authority. tion to behave ethically, and create a safe environment for employees to report their concerns about possible ethical violations Encourage managers to share the company’s code of ethics with employees, lead open discussions about everyone’s obligamanagers through the process of handling employees who are suspected of committing ethical violations. toGuide the appropriate authority. tion to behave ethically, and create a safe environment for employees to report their concerns about possible ethical violations Guide managers Managers take thethrough lead the process of handling employees who are suspected of committing ethicaltoviolations. the appropriate authority. Guide managers through the process of handling employees who are suspected of committing ethical violations. Educate HR on certain Managers take the leadaspects of employee roles to better understand how unethical behavior may manifest in your department. Bringing HR up to speed creates a partnership for more effectively responding to possible ethical violations. Managers take the lead Educate on certain aspects employee roles to better how unethical behavior may in your departDiscussHR concerns with HR about of possible ethical violations andunderstand follow through based on company policy andmanifest procedures. Educate HR on certain aspects of employee roles to better understand how unethical behavior may manifest in your department. HR HR up to creates a partnership forcompany’s more effectively to possible ethical violations. WorkBringing together with to speed implement a training plan on the code of responding ethics and creating hypothetical scenarios ment. Bringing HR up to speed creates a partnership for more effectively responding to possible ethical violations. Discuss concerns HR about possible ethical violations and follow through based on company policy and procedures. illustrating ethicalwith and unethical behavior relevant to your departmental activities. Discuss concerns with HR about possible ethical violations and follow through based on company policy and procedures. how HR professionals and managers throughout the organization work together to address important workplace issues by highlighting specific connections and the reality that HR activities are never performed in isolation. Work together with HR to implement a training plan on the company’s code of ethics and creating hypothetical Work together scenarios with HR to implement a training plan on the company’s code of ethics and creating hypothetical scenarios illustrating ethical and unethical behavior relevant to your departmental activities. illustrating ethical and unethical behavior relevant to your departmental activities. HRM by the Numbers 42 PART 1 • SETTING THE STAGE Paying the Price for Underpaying Workers HRM by the Numbers An additional HRM by the Numbers exercise can be found on MyLab Management. Also, long before the enormous oil spill in 2010, BP promoted itself as being eco-friendly. HRM by the Numbers Its literature stated that BP stood for “Beyond Petroleum.” BP marketed itself as a producer of energies, an image that was seriously damaged by the devastating oil spill in the Gulf Paying the Price alternative for Underpaying Workers HR professionals shouldfor ensure that workers are paid for their work on a timely basis. Sometimes, companies pay workers less Paying the Price Underpaying Workers in 2010. Instead spending billions on eco-friendly energy and building an employer Management An additional HRM of by Mexico the Numbers exercise can beoffound on MyLab . than what they should and there are various possible reasons such as intent to save money or in error. Either way, paying employAn additional HRM by the Numbers exercise can be found on MyLab Management. brand campaign around it, many believe that BP would have been much better off if it had spent ees lesser amounts than owed may violate the law. For instance, the Fair Labor Standards Act (FLSA), which we discuss in should HRwill professionals ensure that workers are paid for their work on a timely basis. Sometimes, companies pay workers less more time effort in training employees oil drilling platforms, establishing stronger 3, requires employers to pay workers a higher pay for overtime work. Specifically, the overtime paywhat rate they equals than and there are and various possible reasons its such as intent toon saveitsmoney or in error. Either way, paying employHRChapter professionals should ensure thateligible workers are paid for their work on a timely basis. Sometimes, companies payshould workers less safety protocols, and waiting until they were safe to operate. Even during this public relations 1.5 times the regular hourly pay rate for each additional hour exceeding 40 in a work week. ees lesser amounts than owed than what they should and there are various possible reasons such as intent to save money or in error. Either way, paying employ-may violate the law. For instance, the Fair Labor Standards Act (FLSA), which we will discuss in campaign, BP had a history of safety violation. BP had been “fined more than $100 million You’ve learned that the company has not been paying employees appropriately for overtime work hours. It is your responsibil, requires employers to pay eligible workers a higher pay for overtime work. Specifically, the overtime pay rate equals for ees lesser amounts than owed may violate the law. For instance, the Fair Labor Standards Act (FLSA)Chapter , which3we will discuss in 1.5 the times the regular hourly pay rate for each hour exceeding 40 in a work week. ity$ to calculate the amount of overtime pay owed to workers. After reviewing the payroll records, you discovered following safety violations thatadditional led to deaths of workers, explosions of refineries, and leaking pipelines.”102 $ Chapter 3 , requires employers to pay eligible workers a higher pay for overtime work. Specifically, the overtime pay rate You’ve learned that equals the company hasWatch not beenItpaying for overtime workofhours. It is oil yourcompany’s responsibil-spill details: The following video employees describesappropriately the environmental impact another 1.5 times the regular hourly pay rate for each additional hour exceeding 40 in a work week. ity to calculate the amount of overtime pay owed to workers. After reviewing the payroll records, you discovered the following and leadership’s reaction to the disaster. 1. Grouplearned 1: 225 workers. Each worker a regular hourly pay rate ofappropriately $18.00. For each the past work 15 work weeks, everyYou’ve that the company hasearns not been paying employees for of overtime hours. It is your responsibildetails: one worked 45 hours. ity to calculate the amount of overtime pay owed to workers. After reviewing the payroll records, you 1. discovered theworkers. following Group 1: 225 Each worker earns a regular hourly pay rate of $18.00. For each of the past 15 work weeks, every2. Group 2: 310 workers. Each worker earns a regular hourly pay rate of $21.00. For each of the past 20 work weeks, everydetails:one worked 47 hours. one worked 45 hours. Watch It 2 a regular hourly pay rate of $21.00. For each of the past 20 work weeks, every2. Group 2: 310 workers. Each worker earns 1.Every Group 1: 225 workers. Each earns a regular pay of $18.00. For eachovertime of the past work weeks, everyworker received regular pay worker for all their hours worked,hourly but they didrate not receive an additional pay 15 amount. one worked 47 hours. If your instructor has assigned this, go to www.pearson.com/mylab/management to watch one worked 45 hours. a video titled Co Responsible for Oil Spill Under Fire and to respond to questions. Questions Every workerweeks, received regular pay for all their hours worked, but they did not receive an additional overtime pay amount. 2. Group 2: 310 workers. Each worker earns a regular hourly pay rate of $21.00. For each of the past 20 work every2-13. thehours. hourly overtime pay rate for each worker in (a) group 1 and (b) group 2. one Calculate worked 47 Questions 2-14. How much money does the company owe all the workers in (a) group 1 over 15 weeks and (b) group 2 over 20 weeks? 2-13.pay? Calculate the hourly overtime rate fora each worker in (a)technology group 1 and company, (b) group 2.discovered in a recent survey that Brighterpay Planet, sustainability 2-15.worker How much money did thepay company byhours not paying all the (groups 1 and 2 an combined) overtime Every received regular for allsave their worked, butworkers they did not receive additional overtime pay amount. 2-14. How much money does the company owe all the workers in (a) group 1 over 15 weeks and (b) group 2 over 20 weeks? although more firms are engaging in green activities, the effectiveness of these efforts has 2-15. How much money did the company save by not paying all the workers (groups 1 and 2 combined) overtime pay? Questions 103 HRM by the Numbers. This feature provides an excellent opportunity to think through concepts and their applications as well as analyze quantitative data to facilitate problem solving. declined. Some believe that the problem with CSR is that it consists of a universal set of 2-13. Calculate the hourly overtime pay rate for each worker in (a) group 1 and (b) group 2. guidelines such as the “triple bottom line” (society, environment, and economy) mentioned previ2-14. How much money doesTeam the company owe all the workers in (a) group 1 over 15 weeks and (b) group 2 over 20 weeks? ously. To be “socially responsible,” each firm should follow the same guidelines instead of what Working Together: Exercise 2-15. How much money did the company save by not paying all the workers (groups 1 and 2 combined) overtime pay? would be the most appropriate strategy for each firm. Using this logic, it would be more logical Together: Team Exercise In small groups of three or four, come up with specific answers to the following questions. Talk through your Working perspectives and for oil companies such as BP to focus on being profitable, yet be an environmentally conscious come up with a brief team response. Be prepared to share your ideas with the class. In small groups of threeoilorcompany. four, comeFast-food up with specific answers to the following questions. Talk through your perspectives andeach restaurants such as McDonald’s and retailers such as Walmart should come up with a brief team response. Be $ prepared to share your ideas with the class. $ Working Together. This feature offers opportunities for students to collaborate through sharing ideas, listening to others’ ideas, and coming up with a cohesive team response to the assignment. use a different set of rules to do the same thing in their own industries. There are those who believe that all shareholders should not be required to be involved in CSR investments. They think that only investors who want to be involved should participate. These In small groups of three or four, come up with specific answers to the following questions. Talk through your perspectives and would do so with the understanding that the objective is not just to make money but also investors come up with a brief team response. Be prepared to share your ideas with the class. to do good. For example, an oil company such as Exxon could establish an alternative-energy subsidiary. Exxon would own a controlling stake, but funding would come from new investors who want to support alternative energy and thus be socially responsible. If the subsidiary was unsuccessful, the losses would be confined to the new investors. If it succeeded, the profits would be shared by all shareholders.104 Working Together: Team Exercise ☛ FYI $$ FYI. This feature provides tidbits of information from survey research and extensive databases (e.g., employment statistics) that illuminate trends, opinions, and the use of specific HR practices. The 2017 Global 100 Most Sustainable Corporations were most commonly found in the following countries: ● ● ● ● ● United States: 19 companies France: 12 companies United Kingdom: 11 companies Canada and Germany: 6 companies Netherlands: 5 companies105 Corporate Sustainability  Corporate sustainability has evolved from the more traditional view of CSR. According to the World Commission on Environment and Sustainability, the narrow definition of sustainability    xv is, “meeting the needs of the present without compromising the ability of future generations to meet their own needs.”106 The Dow Jones World Sustainability Index (DJSI) provides a good working definition of this term. They define it as, “An approach to creating long-term shareholder value by embracing opportunities and managing risks deriving from economic, 2 xvi    PREFACE Updates to the 15th Edition There are three significant updates made to this edition of the textbook; revised learning objectives, updates to HRM practices, and new content in the majority of special features. First, the learning objectives in each chapter have been revised to be consistent across chapters (there are now six learning objectives per chapter with the exception of chapter 1) in order to better integrate the chapter material together in a more effective manner to improve learning. Second, there are substantial updates that highlight evolving HRM practices, statistics, and business professionals’ perspectives. For instance, Chapter 7 (performance management and performance appraisal) includes a section on trends in performance appraisal practice. In a nutshell, some companies are providing performance feedback more frequently and as needed on a less structured basis rather than putting off providing feedback until structured annual reviews are given. This section also addresses the pros and cons of this more contemporary thinking as well the same of longstanding approaches to provide students a balanced view. Third, fifty percent of the Ethics Dilemma and fifty percent of the Incident features are new. Business ethics are sets of guiding principles that influence the way individuals and organizations behave within the society that they operate. Analysis of the incidents, which depict realistic scenarios, requires interpretation and proposed actionable responses. Many new Watch It! videos appear throughout this edition. Solving Teaching and Learning Challenges Increasingly, students expect to see the applicability of their coursework to life and work after graduation. When the connection is not clear to students, many may lose interest and, perhaps, choose to do as little as possible to earn a good enough grade on quizzes and exams. How the author conveys content and the choice of pedagogical features can pique interest in the subject matter and enhance learning and development of seven critical employability skills, which I have 34 PART 1 • discussed SETTING THE STAGE in the Developing Employability Skills section in Chapter 1. I approach the study of HRM in a realistic, practical, interesting, and stimulating manner. Creating an Ethical Culture and a Code of Ethics 2.2 Explore human resource I focus on showing how HRM is practiced in the real world. Throughout the book, you will management’s (HRM) role in Ethics is an important component of an organization’s culture. And it’s turning out to be more creating an ethical culture a see and examples how organizations practice HRM. In explaining a concept, I often quote HRM keyof for organizations to conduct LEARNING OBJECTIVES After completing this chapter, students should be able to: business in an ethical fashion. Why? The public insists on it. code of ethics. Customers call for it.business Most companies that take ethics seriously a code ofdiscussion ethics that codifies professionals and other professionals, yet allhaveHRM is based on sound ethical principles and guides employees to behave ethically. Let’s explore HR professionals’ roles 2.1 Discuss what ethics means and the theoretical and practice. Where appropriate, the strategic role of HRM is apparent in 2.4 Explainconcepts the concepts and practices in facilitating ethical cultures and codes of ethics. sources of ethical guidance. related to corporate social responsibility the discussion of each major HRM function. In addition, I show how HRM topics are related and corporate sustainability. Ethical Culture 2.2 Explore human resource management’s to other HRM topics. For instance, a firm that emphasizes recruiting top-quality candidates but Twain once said, “Always do right. This will gratify some people and astonish the rest.”37 (HRM) role in creating an ethical culture 2.5 DescribeMark a social audit. neglects to This provide satisfactory compensation is employers wastingif time, and money. If a firm’s is certainly good advice for both employees and the firmeffort, wants to create an and a code of ethics. ethical culture. Saying a company has anwages, ethical culture having onealways may be two compensation system pays that below-market the and firm will bedifferhiring and training 2.3 Define human resource ethics. ent things. Culture is concerned with the way people think, which affects the way that they act. new employees only to see the best leave for a competitor’s higher wages. Changing an organization’s culture thus requires modifying the common way of thinking of itsBesides this one 38 members. Organizations with strong ethical cultures set take steps ensure that their standardsenvironment will example, the interrelationship of HRM practices in atodynamic business are widely accessible, promoted, and followed by their leaders and employees.39 For example, MyLab Management become more obvious as these topics are addressed throughout the book. These interrelationthe Volkswagen debacle was not supposed to happen. The Volkswagen Code of Conduct was 24 Improve Your Grade! pages long and foreword by Martin Winterkorn, who was then thewithin company’s CEO, and environment. I ships are also shown tohad bea important as organizations operate the global other top executives saying, “We stand for respectable, honest, and actions in everyday business If your professor is using MyLab Management, visit www.pearson.com/mylab/management included several features that appear in the textbook and MyLab, designed to enhance student that are in accordance with rules, and we commit ourselves to the following Code of Conduct.”40 for videos, simulations, and writing exercises. learning by Even actively with theengaging ethical code,students. it is apparent that Volkswagen’s top management pursued business Business Ethics, Corporate Social Responsibility, and Sustainability as usual. One way for a firm to create and sustain an ethical culture is to audit ethics, much like a Learn It Practice 41 company audits its finances each year. An ethics audit is simply a systematic, independent, Learn It and documented process for obtaining evidence regarding the status ofthe an organization’s Students can be assigned Chapter Warm-Up before If your professor has chosen to assign this, go to www.pearson.com/mylab/management ethical2 culture. It. takes a closer look at a firm’s ethical culture instead of just allowing it to see what you should particularly focus on and to take the Chapter Warm-Up coming to class. Assigning these questions ahead of time to remain unexamined. An ethical culture is made up of factors such as ethical leadership, with top management is fundamental to a company’s accountability, and values. The climate will ensure that students are coming to class prepared. ethical culture.42 Ethical leadership begins with the board of directors and CEO and continues to middle managers, supervisors, and employees.43 Building an ethical culture that lasts Watch It Videos requires a foundation of practices that continue even when leaders change.44 The following Watch It video illustrates how employees and members of management are brought together Recommends a video clip that can be assigned to students for outside classroom viewing or that to enact a change within the company. Their goal is to limit the negative environmental can be watched in ofthe classroom. Theasvideo corresponds the chapter material impacts their company as much possible by applying theto best practices concept to their and is accompaeveryday activities. nied by multiple choice questions that reinforce student’s comprehension of the chapter content. Watch It 1 If your instructor has assigned this, go to www.pearson.com/mylab/management to watch a video titled Patagonia: Ethics and Social Responsibility and to respond to questions. According to the Corporate Executive Board in Arlington, Virginia, companies with weak ethical cultures experience 10 times more misconduct than companies with strong ethical cultures.45 In workplaces with a strong ethical culture, only 4 percent of employees feel pressure support of minority enterprises, pollution control, corporate giving, involvement in selected community projects by executives, and a hard-core unemployment program. The ideal social audit would go well beyond a simple listing and involve determining the true benefits to society of any socially oriented business activity. PREFACE    xvii Try It Mini Simulations Try It! If your instructor has assigned this, go to www.pearson.com/mylab/management to complete the Management & Ethics simulation and test your application of these concepts when faced with real-world decisions. 46 Recommends a mini simulation that can be assigned to students as an outside classroom activity or it can be done in the classroom. As the students watch the simulation they will be asked to make choices based on the scenario presented in the simulation. At the end of the simulation the student will receive immediate feedback based on the answers they gave. These simulations reinforces the concepts of the chapter and the students’ comprehension of those concepts. PART 1 • SETTING THE STAGE Key Terms ethics 29 RING FOR EXAMS/QUIZZES code of ethics 35 corporate social responsibility (CSR) 39 corporate sustainability social audit 44 39 CHAPTER 2 • BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY, AND SUSTAINABILITY 39 human resource ethics 36 r Summary by Learning Objectives HR BLOOPERS s what ethics means and the sources of ethical and compliance a process for determining how employees HR BlooperswhatExercises Sales Incentives at Pinser Pharmaceuticals ce. Ethics is the discipline dealing with are compensated. MyLabis Management nd bad, right and wrong, with moral duty and scenarios 3. Definethat human resource ethics. Human resource ethics is Quarterly sales reports are in at Pinser PharApparently, many of the sales representatives are using some of HRorBloopers present describe If your instructor is using MyLab Management , go to www.pearson.com/mylab/ their own extra earnings to earn the favor of the doctors. Gifts, dinners, maceuticals and and Ben Ross looks forward to sharing the reports with on. Business ethics addresses matters of choices to completethe of ethical principles management theapplication problems marked with this icon . to HR relationships and other incentives are provided to the doctors to encourage them to the sales team. As a compensation analyst, Ben calculates sales potential mistakes that may occur in HR ight and wrong made by business leaders. One activities. write Pinser prescriptions. At first he thought there might be a problem commissions for the sales representatives, and high sales mean big with this practice, but Ben knows that Pinser has a Code of Ethics and the team. The sales representatives receive incentive pay use numerous sourcespractice. to determineQuestions what is right that 4.follow Explain the and practices related paychecksfor to corporate in concepts MyLab provides ethics training to all employees, so the sales representatives bonuses based on how many times doctors in their sales territory preng, good or bad, and moral or immoral, such social responsibility and corporate sustainability. Cormust know that their practices are acceptable. Ben understands that scribe Pinser drugs. The number of prescriptions has increased with Management provide students with the this is just the way business is done, and Ben’s job is just to make sure several of theor popular drugs Pinser makes and the sales representatives books or one’s conscience. Another source of porate social responsibility is the implied, enforced, Questions for Review they get paid what they have earned. that have the doctors writing the most prescriptions stand to benefit opportunity test their understanding and acting in their official guidance is the behavior and advice ofto people, felt obligation of managers, capacsignificantly. Ben knows that they have steep competition on some of 2-and 1. What are ethics and 2-the 7. What are the in which HR professionals can have ng our parents, friends, role models andbusiness ethics? ity, tobased serve or protect interests ofareas groups other than their products, but he has also heard some rumors about how they stay recall of the chapter material on the 22. What are some sources of ethical guidance? a major impact on ethics? ahead of rs of our churches, clubs, and associations. For themselves, and corporate sustainability focuses oncompetitors. the 23. What laws have been passed to legislate ethics? 28. What is corporate social responsibility? contained in the scenarios. ofessionals, there areinformation codes of ethics that prepossible future impact of an organization on society, includ2-4. Why is it important to have a code of ethics? 2-9. What does corporate sustainability mean? professor has assigned this, go to www.pearson.com/mylab/management to complete the HR Bloopers exercise and test your ap174 the PART 2If •your STAFFING certain behavior. social welfare, the economy, 2-5. Regarding business ethics, what does theing statement 2-10. What areand some of environment. the plication practices usefaced to with real-world decisions. of companies these conceptscan when e human resource management’s (HRM) in you get” mean? According to the World Commission on Environment and “what you rewardrole is what promote sustainability? Whatof areethics. HR ethics? g an ethical culture and2-a6.code An ethiSustainability, the narrow definition of sustainability is, ET HI CS D I L EMMA ure is made up of factors such as ethical leadership, “meeting the needs of the present without compromising from more than 120 people from departments across the organization, including legal, human ability, and values. The climate at the top is fundathe ability of future generations to meet their own needs.” resources, IT security, and records management.80 Personalorganizations Inventory Assessments Ethics training for global is more complicated than preparing the training for to a company’s ethical culture. Ethical leadership In recent years, sustainability has been expanded to include Hiring withU.S.Incomplete Information employees. One must also train for the country in which the global company operates. Since with the board of directors and CEO and continues the social, economic, environmental, and cultural systems Assessment feature, 1994, LRN The has helpedPersonal 15 million people atInventory 700 companies across the world simultaneously PREPARING FOR MY CAREER Roberta decided to streamline the process. Dropping background Roberta Blythe recently opened a new business managers, all other managers, and supervisors. needed to support an organization. navigate legal and regulatory environments and foster ethical cultures.81 A few of their customers checks would reduce the waitCampbell, time by gives 15 days. Feeling intense pressure named “Assisting You.” The company is a referral agency, matching included in most chapters, students the include CBS, Dow Chemical, eBay, 3M, and Siemens. Chris creative director at LRN, g an ethical culture thatPlasts a foundation 5. Describe a social audit. A socialservice audit providers is a systematic I Arequires Personal Inventory Assessment to succeed, Robertaofbegan hiring providers withoutneed firsttoconducting with customers who have home Roberta’s says, projects. “Localization is as important as the accuracy the translation process. Learners be ices that continue even when leaders change. assessment of a company’s activities in terms of its social opportunity for self-assessment personal 82Roberta feels confident inand background checks. her decision because strategy is to build a large clientele quickly by offering lower prices able to connect in a way that is believable to them.” An additional Personal Inventory Assessment can be found on MyLab Management. code of ethics establishes the rules that the organiimpact. has heard about many of the service providers, but certainly not all. and shorter wait times than the competing agencies. Before long, clireflection.she Understanding yourself and finding 6-22. What would you do? ents’ requests began coming in faster than she could meet them on Ethical Leadership Assessment ives by. Only a few companies have made ethics 2.4 you’ll Explain see the concepts and thoughtCorporate Social Responsibility and Sustainability Organizations need ethical leadership from all employees, but especially from managers. In this PIA, how much to make asocial less-than-ethical finish increased from related 30 days to 50 days. Desperate totomeet demand, practices to corporate Related ethics are the concepts of corporate responsibilitydecision? and corporate sustainability. and effort goes into being ethical in your workplace behavior. social responsibility and corpo- 6-23. What factor(s) in this ethics dilemma might influence a person your voice will help you approach situations within and(CSR) outside theenforced, employment setting Corporate social responsibility is the implied, or felt obligation of managers, with acting in their official capacity, to serve or protect the interests of groups other than themselves, greater confidence. and corporate sustainability focuses on the possible future impact of an organization on society, a timely basis. Also, the recruiting and selection process from start to rate sustainability. corporate social responsibility (CSR) including social welfare, the economy, and the environment. CSR and corporate sustainability differ from ethics in an important way. Ethics focus on individual decision making and behavior and the impact of ethical choices on employee welfare. As noted, CSR and corporate sustainability consider the broader impact of corporate activities on society. Ethics, CSR, and corporate sustainability are everyone’s business. HR professionals particularly concern themselves with establishing policies to promote ethical behavior and discourHR professionals and managers in the recruitment process. Together, identified the best age unethical behavior. In addition, the HRM function’s leadership works with other executive approaches to building a pool of qualified candidates. Now,training it’s time to make for selection (hiring) decisions. Successful selection corporate sustainability leadership to identify opportunities educating employees about how they may make Action checklist for managers and HR—understanding and applying the legal landscape to Randy if the feelings of the are other workers keptcollaboration him from getting You are being promoted to a new assignment Concerns with future decisions based on possible the between HR professionals and hiringand managers who bring complementary expertise positive contributions to these objectives developing performance-based pay programs that and HR takes the lead impact of an organization a deserved promotion. At the same time, you feel that your primary within your company, and your boss has asked you to nominate one perspectives to the task. HR professionals areemployee experts performance on every aspect of the process (e.g., align with CSR andselection social responsibility goals.reliability and validity), and onof society, including social with the as legal to conduct training sessions to educateshould managers some the most important responsibility be to on maintain the productivity of the work unit. Ifwith their staffing needs. of yourWork subordinates yourdepartment replacement. The possible candidates aredesigned hiring managers are most well-acquainted welfare, the economy, thehurt your thatiswill governmore employee-related Civil Rights ADEA, your Acts, former divisionand fellADA). apart after your departure, it and would Randylegislation Carlton, who obviously qualified, andactions James (e.g., Mitchell, environment. Conductnot anasaudit to identifyis potential for liked disparate impact; disparate impact training is conducted to ensure that managers reputation, not to mention the company. who, though experienced, much better by the workers. Action checklist for managers and HR—understanding and applying selection concepts andisother makers you are aware the pitfalls. ☛ FYI If Randy givendecision the promotion, are notofcertain the workers will 2-11. What would you do? private sector companies that hold contracts 2to12. understand whatand additional standards be placed acceptConsider him as their leader. James, on the other hand,government is a hard worker What factor(s) in thismethods ethics dilemmamay might influence a person ● Eighty-eight percent feel their job is more fulfilling when they are provided opportunities to make them because of their relationship withincluding the federal government. and ison well liked and respected by the others, Randy. As to make a less-than-ethical decision? HR takes the lead a positive impact on social or environmental issues.83 Provide updates you to managers because legislation is changing quickly (particularly in these times). Many law firms you labor over legal the decision, think about how unfair it would be Review thethese appropriate guidelines for evaluating applications and résumés. Communicate what should and should not be provide these services via pro bono teleconferences. In-house employment lawyers can also provide updates. For considered. For example, some people list birthdate or marital status on their résumés and this information should never be instance, we learned in this chapter that the EEOC considers treating gay, lesbian, bisexual, and transgender employees less favorably than others as a form of sex discrimination under the Civil Rights Act of 1964. considered when formulating interview questions or making the selection decision. Make sure that the legislative necessities create a starting point for establishing company policy and notwhether merely the justificaDiscuss testing will add useful information for making more accurate selection decisions. tion for doing the bare minimum. Review the guidelines for conducting effective interviews and coordinate the types of interview questions that will be asked Implied, enforced, or felt obligation of managers, acting ETHICS DILEMMA in their official capacity, to serve CHAPTER 3 • EQUAL EMPLOYMENT OPPORTUNITY, AFFIRMATIVE ACTION, AND WORKFORCE or protectDIVERSITY the interests of 85 groups than themselves.the role of In Chapter other 5, we explained HRM Is Everyone’s Business As noted earlier, HRMQuandary Is Everyone’s A Selection Business explains how HR professionals and managers throughout the organization work together to address important workplace issues. This feature highlights some of the specific connections between managers and HR professionals, and the reality that HR activities are never performed in isolation. HRM Is Everyone’s Business by HR and the questions that will be asked by managers. Managers take the lead HR professionals conduct background checks. Speak openly about the importance of mutual respect and lead by example. HRADA) professionals their evaluations of the job candidates, and inform managers whether the results of the background Identify employees who fall into a group addressed specifically by law or company policy (e.g., which mayshare be a new check warrant consideration. experience for you to work with as a manager (e.g., in most jobs, you will have more experience working further with minority employees than disabled employees or transgender employees). thehave leadabout Encourage employees to discuss in confidence with managers and HR professionalsManagers any concernstake they may instances of possible illegal discrimination whether it be about themselves or out of concern for their coworkers. It is impor-with HR after prescreening applications and résumés. Review the top candidates tant to provide a safe haven for employees who come forward. If testing is considered relevant, explain the minimum performance standards expected of successful employees. Share interview questions with HR to ensure job-relatedness. Consider all the job-related information and discuss whether a job offer should be made. HRM by the Numbers Detecting Adverse Impact HRM By The Numbers Exercises An additional HRM by the Numbers exercise can be found on MyLab Management. HRM by the Numbers As noted earlier, HRM by the Numbers provides an excellent opportunity to sharpen problem solving skills through An additional HRM by the Numbers exercise can be foundof on MyLab Management. the analysis numerical data, creating the foundation Sex Total Applicants Selected Applicants Selection Rate You were hired to develop a new recruitment and selection system to fill marketing assistant jobs. The Vice President of HR Female 750 375 for quantifying HRM concepts and practices. There are Male 1,050 450 asked you to calculate various metrics to judge the effectiveness of the system using data from the previous calendar year. You Total 1,800 825 have the following data to judge the effectiveness of the selection system: two data-driven exercises per chapter, one in the book and both in MyLab Management. Answers are found in 3-18. Calculate (a) the selection rate for females and (b) the selection rate for males. 3-19. What is the ratio of the female selection rate to the male selection rate? the Instructor’s Manual and in MyLab Management. 3-20. Based on your answer to question 3-19, is there evidence of possible adverse impact? Adverse impact usually takes place when an employment decision, practice, or policy has a disproportionately negative effect on a protected group. HR professionals rely on the “four-fifths” or “80 percent” rule to judge whether adverse impact may have occurred. Consider the situation for men and for women: Measuring Selection Outcomes Working Together: Team Exercise In small groups of three or four, come up with specific answers to the following questions. Talk through your perspectives and come up with a brief team response. Be prepared to share your ideas with the class. xviii    PREFACE Working Together Exercise As noted earlier, Working Together offers opportunities for students to collaborate through sharing ideas, listening to others’ ideas, and coming up with a cohesive team response to the assignment. If assigned by the instructor, students may make brief oral presentations of their ideas to the class, creating an additional opportunity for working together. Assisted Graded Writing Questions These are short essay questions which the students can complete as an assignment and submit to you, the professor for grading. MyLab Management Reach every student with MyLab MyLab is the teaching and learning platform that empowers you to reach every student. By combining trusted author content with digital tools and a flexible platform, MyLab personalizes the learning experience and improves results for each student. Learn more at MyLab Management. Deliver trusted content You deserve teaching materials that meet your own high standards for your course. That’s why we partner with highly respected authors to develop interactive content and course-specific resources that you can trust — and that keep your students engaged. Empower each learner Each student learns at a different pace. Personalized learning pinpoints the precise areas where each student needs practice, giving all students the support they need — when and where they need it — to be successful. Teach your course your way Your course is unique. So whether you’d like to build your own assignments, teach multiple sections, or set prerequisites, MyLab gives you the flexibility to easily create your course to fit your needs. Improve student results When you teach with MyLab, student performance improves. That’s why instructors have chosen MyLab for over 15 years, touching the lives of over 50 million students. Learn more. Developing Employability Skills For students to succeed in a rapidly changing job market, they should be aware of their career options and how to go about developing a variety of skills. In this book and MyLab, I focus on developing these skills in the following ways: In this course, and, specifically in this text, ­students will have the opportunity to develop and practice seven important skills based on various learning features that are summarized in the matrix and subsequently illustrating some of the connections between the employability skills and learning features: PREFACE    xix Critical Thinking Communication Collaboration FYI ✓ ✓ ✓ Chapter Review ✓ Personal Inventory Assessment ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ HRM by the Numbers Working Together ✓ ✓ Ethics Dilemma ✓ ✓ ✓ HR Bloopers HRM Is Everyone’s Business Business Ethics Information and Social Technology and Data Responsibility Computing Skills Literacy ✓ Watch It! Try It! Simulation Knowledge Application and Analysis ✓ ✓ ✓ ✓ ✓ ✓ ✓ Case Incident 1 ✓ ✓ ✓ Case Incident 2 ✓ ✓ ✓ Instructor Teaching Resources Human Resource Management comes with the following teaching resources. Supplements available to instructors at www.pearsonhighered.com/ Instructor’s Manual Features of the Supplement $$ $$ $$ $$ Test Bank Chapter-by-chapter summaries Examples and activities not in the main book Teaching outlines Solutions to all questions and problems in the book More than 2,000 multiple-choice, true/false, and short-answer questions with these annotations: Difficulty level (1 for easy, 2 for moderate, 3 for difficult) $$ Type (Multiple-choice, true/false, short-answer, essay $$ Topic (The term or concept the question supports) $$ Learning outcome $$ AACSB learning standard (Written and Oral Communication, Ethical Understanding and Reasoning; Analytical Thinking; Information Technology; Diverse and Multicultural Work; Reflective Thinking; Application of Knowledge; Interpersonal Relations and Teamwork) $$ Computerized TestGen TestGen allows instructors to: Customize, save, and generate classroom tests $$ Edit, add, or delete questions from the Test Item Files $$ Analyze test results $$ Organize a database of tests and student results. $$ PowerPoints Slides include many of the figures and table in the textbook PowerPoints meet accessibility standards for students with disabilities. Features include, but not limited to: $$ Keyboard and Screen Reader access $$ Alternative text for images $$ High color contrast between background and foreground colors xx    PREFACE Acknowledgments I wish to give a special thank you to R. Wayne Mondy whose dedication and expertise in the first 14 editions have positively impacted thousands of students’ educational experiences. I am thrilled and honored to carry the torch forward in pursuit of doing the same for thousands more. At Pearson, I wish to thank my editor, Dan Tylman, who provided excellent insights throughout the preparation of this edition. Many others at Pearson provided excellent advice throughout the process and project management oversight, including Yasmita Hota, Ashley Santora, Melissa Feimer, and Stephanie Wall. At SPi Global, I thank Raja Natesan and Nicole Suddeth. In a­ ddition, student feedback has made this book an invaluable resource. Finally, the support and encouragement of many practicing HRM professionals and faculty members has helped to make this book possible. About Joseph J. Martocchio My interest in the human resource management field began while I was a junior at Babson College. I found myself wanting to practice in the field as well as to become a university ­professor and researcher. I pursued both professional desires starting with employment at Cameron and Colby (a reinsurance company) in Boston and General Electric’s Aerospace business group in Valley Forge, Pennsylvania. I advanced my education in the human resource management (HRM) field by earning a master’s degree and Ph.D. ­degree at Michigan State University. My master’s degree enabled me to build an even stronger foundation in practice and my doctoral degree provided me with the skills to conduct scholarly research and teach college-level courses. Since earning my graduate degrees, I have been a professor in the School of Labor and Employment Relations at the University of Illinois, Urbana–Champaign and assumed administrative roles as a Provost Fellow, Associate Dean for Academic Affairs, and Interim Dean. All the while, I have taught a variety of courses in the HRM field. These include compensation systems, employee benefits, employment systems (HRM and labor relations), HR planning and staffing, and statistics. I also teach the compensation and statistics courses online. For many years, I served as the faculty advisor to the student chapter of the Society for Human Resource Management at the University of Illinois during which time students earned Merit Awards and Superior Merit awards on multiple occasions. As a researcher, I have studied a variety of topics that include employee absenteeism, ­employee training and development, compensation systems, employee benefits, and generational ­diversity. My work appears in leading scholarly journals such as Academy of Management Journal, Academy of Management Review, Journal of Applied Psychology, Journal of Management, and Personnel Psychology. I received the Ernest J. McCormick Award for Distinguished Early Career Contributions from the Society for Industrial and Organizational Psychology (SIOP), and I was subsequently elected as a Fellow in both the American Psychological Association and SIOP. Following the attainment of this recognition, I served as the Chair of the HR Division of the Academy of Management as well as in various other leadership roles within that organization. Besides writing scholarly articles and Human Resource Management, I have two sole-­ authored textbooks: Strategic Compensation: A Human Resource Management Approach (Pearson Higher Education), which is in its 9th edition, and Employee Benefits: A Primer for Human Resource Professionals (McGraw-Hill), which is in its 6th edition. Part Four Compensation Chapter 9 Direct Financial Compensation (Monetary Compensation) Chapter 10 Indirect Financial Compensation (Employee Benefits) 9 Direct Financial Compensation (­Monetary Compensation) LEARNING OBJECTIVES After completing this chapter, you should be able to: 9.1 Summarize the usual components of a total compensation plan and the environment of compensation practice. 9.2 Explain the direct financial compensation practices. 9.3 Discuss job structures and how they are established. 9.4 Summarize competitive pay policies: pay level and pay mix. 9.5 Explain what pay structures are and how they are created. 9.6 Review exceptions to the rules: compensation for sales representatives, contingent workers, and executives. MyLab Management Improve Your Grade! If your professor is using MyLab Management, visit www.pearson.com/mylab/management for videos, simulations, and writing exercises. Learn It If your professor has chosen to assign this, go to www.pearson.com/mylab/management to see what you should particularly focus on and to take the Chapter 9 Warm-Up. 244     A Society of Human Resource Management (SHRM) survey of human resource (HR) executives identified recruiting and retaining top talent in a competitive labor market as their number one challenge.1 Compensation is an important HR practice that helps firms address this and other challenges. There are two mechanisms by which compensation contributes to recruitment and retention. First, pay helps define a person’s standard of living and sense of security. All else equal, higher pay enables people to meet their most basic needs such as food and shelter as well as save money for retirement more easily than those who earn less. Also, higher pay enables people to enjoy the finer things in life such as frequenting gourmet restaurants, driving a luxury car, and taking exotic vacations. Second, in most cases, employees and firms alike strive to maximize their earnings. The use of incentive compensation practices serves this common interest by aligning the interests of employees with a company’s mission. For instance, sales employees have the potential to earn greater amounts of incentive pay for the attainment of progressively higher sales goals. From the company’s perspective, higher sales contribute to increased earnings. In addition, highly successful companies, such as management consulting company Boston Consulting Group, provide highly competitive compensation packages that consist of lucrative pay amounts and employee benefits (e.g., paid family leave). In fact, Boston Consulting Group is among the top 25 companies known for offering extremely generous compensation amounts.2 9.1 Summarize the usual components of a total compensation plan and the environment of compensation practice. total compensation Both the intrinsic and extrinsic rewards employees receive for performing their jobs.  Total Compensation and the Environment of Compensation Practice At the broadest level, total compensation represents both the intrinsic and extrinsic rewards employees receive for performing their jobs. The components of a total compensation program are shown in Figure 9-1. These building blocks are embedded within a system of three structural elements: job structures, competitive compensation policies, and pay structures.    245 246    PART 4 • COMPENSATION FIGURE 9-1 Components of a Total Compensation Program Compensation Financial Direct Wages Salary Commissions Bonuses Indirect (Benefits) Legally Required Benefits Health Care Social Security Unemployment Compensation Workers‘ Compensation Family & Medical leave Nonfinancial The Job Meaningful Appreciated Satisfying learning Enjoyable Challenging Discretionary Benefits Paid Time Off life Insurance Retirement Plans Employee Stock Option Plans Employee Services Premium Pay Job Environment Sound Policies Capable Managers Competent Employees Congenial Coworkers Appropriate Status Symbols Working Conditions Workplace Flexibility Flextime Compressed Workweek Job Sharing Telecommuting Part-Time Work Direct and Indirect Financial Compensation direct financial compensation (monetary compensation) Pay that a person receives in the form of wages, salary, commissions, and bonuses. indirect financial compensation (employee benefits) All financial rewards that are not included in direct financial compensation. nonfinancial compensation Satisfaction that a person receives from the job itself or from the psychological and/or physical environment in which the person works. Extrinsic compensation refers to rewards that come from outside the person. There are two kinds. The first, direct financial compensation (monetary compensation) consists of the pay that a person receives in the form of wages, salaries, commissions, and bonuses. The second, indirect financial compensation (employee benefits), refers to extrinsic compensation other than hourly wages or annual salary. This form of compensation includes a wide variety of rewards of monetary value such as paid vacation and medical care. For instance, companies spend money to purchase medical care coverage for employees. HR professionals often refer to intrinsic rewards as nonfinancial compensation. Nonfinancial compensation derives from within an employee’s self. For example, nonfinancial compensation can come from the satisfaction that a person receives from the job itself or from the psychological or physical environment in which the person works. For instance, it is easy to imagine that a teacher derives great satisfaction from seeing his students excel. Although our focus will be on financial compensation, it is worth briefly considering nonfinancial compensation. Employers may choose to award nonfinancial compensation to complement an employee’s paycheck, especially when financial compensation budgets make it difficult to award higher pay. Some examples of simple nonfinancial compensation practices include recognition awards, team leadership opportunities, prizes, and gift cards. Other examples include training for employees who value professional development and flexible work scheduling for those who give high priority to work/life balance. As you will learn in the following Watch It video, the effectiveness of nonfinancial compensation practices significantly depends on knowing each employee as an individual to provide options of interest and value to them. Watch It 1 If your professor has assigned this, sign into www.pearson.com/mylab/management to watch a video titled Motivation (TWZ Role Play) and to respond to questions. Managers tend to view financial compensation as both an expense and an asset. It is an expense in the sense that it reflects the cost of labor. For example, on average, companies spent $35.28 per hour worked per employee in March 2017. Of this total, companies spent $24.10 on wages and $11.18 on all employee benefits.3 The costs of labor continually rise. For example, the cost of wages rose, on average, 9.7 percent between March 2014 and March 2017. The increase in the cost of employee benefits was greater, equaling 12.1 percent.4 Financial compensation is instrumental in recruiting and hiring good people and in encouraging them to put forth their best efforts and remain in their jobs. A firm that pays well attracts many applicants, enabling management to pick and choose the skills and traits it values. It holds on to these quality hires by equitably sharing the fruits of its financial success, not only among the management team but also with the rank and file. Compensation programs have top management’s attention because they have the potential to influence employee work attitudes and behavior that lead to improved organizational performance and achieving the firm’s strategic plan. We can find evidence for top management’s interest in identifying the right type of employees by reviewing  CHAPTER 9 • Direct Financial Compensation (­Monetary Compensation)    247 the “About Careers” sections of company Web sites. For example, software developer and manufacturer Adobe describes the role of their engineering professionals: You could work at a unicorn, a startup with a $1 billion valuation. Or you could work at Adobe, a 30-year-old company that’s home to a number of unicorns. Our size and trajectory mean exciting opportunities for you to feed your curiosity, stretch your creativity, and work with a diverse group of whip-smart people on the vanguard of technology engineering, research, and development. Define a rewarding career path while creating beautiful, usable products that touch millions of people.5 Structure of Direct Financial Compensation Plans Now that we have defined the components of direct financial compensation, it is important to consider how companies structure monetary compensation plans. There are many factors to consider, which are shown in Figure 9-2, starting with the environment of compensation practice. But, first, we briefly summarize the three structural elements of compensation plans here to round out the introduction of total compensation. These elements include job structures, competitive compensation policies, and pay structures, which are also shown in Figure 9-2 and will be examined in detail later in this chapter. Management techniques used for determining a job’s relative worth include job analysis, job descriptions, and job evaluation, and together, these lead to the creation of job structures. As we discussed in Chapter 4, an organization must first define and describe job content. HR professionals use job analysis for this purpose. The primary by-product of job analysis is the job description. Job descriptions serve many different purposes, including data for evaluating jobs. With job descriptions, HR professionals can use job evaluation to judge the relative worth of all jobs within the company. The primary basis for making value judgments is consideration of skill, knowledge, ability, and working conditions. JOB STRUCTURES After companies have clearly written job descriptions and they have specified job structures that show the relative worth of jobs, they move on to the next step, which is to decide on competitive compensation policies. HR professionals must consider the compensation policies that it will pursue, and these focus on pay level (for example, paying higher salaries, on average, than the competition for similar jobs) and pay mix (percentage of money that goes toward salary, employee benefits [Chapter 10], and adjustments such as incentive pay). COMPETITIVE COMPENSATION POLICIES Coupled closely with these choices is job pricing, which leads to the construction of pay structures. HR professionals conduct compensation surveys to identify what and how the competition is paying its employees. Once armed with information about market pay rates, HR professionals develop pay structures features that facilitate administration of pay policies. These include pay range and pay grades. PAY STRUCTURES FIGURE 9-2 Determinants of Direct Financial Compensation Labor Market Contextual Influences on Direct Financial Compensation Interindustry Wage Cost-of-Living Labor Unions Economy Differentials Job Structures Job Analysis Job Evaluation Competitive Pay Policies Compensation Surveys Pay-level Policies Pay Mix Policies Direct Financial Compensation Base Pay (hourly wage and salary) Cost-of-living Adjustment Pay-for-Performance Person-focused Pay Pay Structures Pay Grades Pay Ranges Legislation 248    PART 4 • COMPENSATION Contextual Influences HR Web Wisdom Calculate Salary Differences from City to City www.salary.com Web site to determine numerous costs of a move to another city. labor market Potential employees located within the geographic area from which employees are recruited. HR professionals build the compensation system in a dynamic environment. There are many contextual influences that must be considered. Among the most prominent considerations are labor market, cost-of-living differences between geographic locations, labor unions, the economy, interindustry wage differentials, and legislation. LABOR MARKET Potential employees located within the geographic area from which employees are recruited constitute the labor market. Labor markets for some jobs extend far beyond the location of a firm’s operations. An aerospace firm in St. Louis, for example, may be concerned about the labor market for engineers in Fort Worth or Orlando, where competitive firms are located. Managerial and professional employees are often recruited from a wide geographic area. As global economics increasingly sets the cost of labor, the global labor market grows in importance as a determinant of financial compensation for individuals. Companies’ demand for qualified individuals relative to supply often influences compensation decisions. There are upward pressures to raise starting pay when the demand for qualified workers is greater than supply. These market dynamics require that companies compete for limited qualified workers for skilled jobs. Oftentimes, base pay exceeds the national annual median pay—and pay levels are fastest growing.6 Many of these jobs are found in the healthcare and computer fields. This appears to be the case for information security analysts. According to the Occupational Outlook Handbook,7 demand for information security analysts is expected to be very high through at least the next 10 years. Annual median pay for information security analysts is approximately 2.5 times higher than the national median for all jobs. Cyberattacks have grown in frequency and sophistication over the last few years, and many organizations are behind in their ability to detect these attacks. For example, Eddie Bauer and Target experienced breaches of their databases that contained customers’ credit card numbers. Analysts will be needed to come up with innovative solutions to prevent hackers from stealing critical information or creating havoc on computer networks. Also, the federal government is expected to greatly increase its use of information security analysts to protect the nation’s critical information technology (IT) systems, particularly as it has recently experienced breaches that could compromise national security. Finally, as the healthcare industry expands its use of electronic medical records, ensuring patients’ privacy and protecting personal data are becoming more important. More information security analysts will be employed to create essential safeguards. The previous example focused on one of many highly skilled jobs in the computer profession. A common assumption is that high demand for workers applies only to highly skilled jobs. That assumption is incorrect. Recently, Starbucks raised base pay as much as 15 percent and awards company stock for most employees with at least two years of continuous employment.8 (We will review stock awards later in this chapter.) Starbucks made this decision, in part, because it has been more difficult to hire well-qualified workers at lower pay rates, particularly since the unemployment rate has declined in recent years. Other retailers have made similar moves. The following Watch It video describes Walmart’s rationale behind the decision to raise its starting hourly wage to $9. Watch It 2 If your professor has assigned this, sign into www.pearson.com/mylab/management to watch a video titled Walmart Boosts Entry-Level Pay and to respond to questions. Higher base pay has become increasingly more common in industries where business activity peaks around the holiday season. Online retailers such as Amazon.com Inc. and package delivery companies, including the United Parcel Service Inc. vigorously compete for seasonal workers. For instance, Amazon hired 120,000 temporary warehouse workers for whom they provide extensive training.9 Amazon also found ways to shorten the training time without sacrificing quality, thus, reducing costs. In turn, the company offered higher pay in hopes of attracting the best qualified candidates. Cost-of-living differences between geographic locations may account for variations in compensation for similar jobs, and HR professionals sometimes consider cost-of-living when competing for talent in a competitive labor market. For example, let’s assume that a firm offers equal starting pay to two equally qualified individuals who have been hired COST-OF-LIVING DIFFERENCES CHAPTER 9 • Direct Financial Compensation (­Monetary Compensation)    249  to perform the same job. The only difference is their placement—Jackson, Mississippi, and Washington, D.C. The cost-of-living difference between these cities is staggering. An individual earning $100,000 annually in Jackson would need to earn approximately $175,000 in D.C. to maintain a similar standard of living. If a differential was to be considered, it might be based on housing costs. Housing costs—rent or mortgage—are among the largest financial obligations most individuals assume. In D.C., average housing prices are about 230 percent higher than in Jackson.10 The company may consider offering the D.C.-based employee a higher salary to help offset cost-of-living differences. The National Labor Relations Act declared legislative support, on a broad scale, for the right of employees to organize and engage in collective bargaining. Unions normally prefer to determine compensation through the process of collective bargaining, which describes the negotiations between the labor union that represents employee interests and company management. An excerpt from the National Labor Relations Act prescribes the areas of mandatory collective bargaining between management and unions as, “wages, hours, and other terms and conditions of employment.” These broad bargaining areas obviously have great potential to impact compensation decisions. When a union uses comparable pay as a standard in making compensation demands, the employer needs accurate labor market data. For example, unions often rely on the Consumer Price Index (CPI) as the criterion for awarding cost-of-living adjustments. The U.S. Bureau of Labor Statistics publishes the CPI monthly.11 Unions’ gains also influenced compensation practices in non-union companies. Many nonunion companies offered similar compensation to their employees. This phenomenon is known as a spillover effect. Non-union companies’ motivation is to minimize employees’ interests in seeking union representation.12 LABOR UNIONS spillover effect Non-union companies’ offer of similar compensation unionized companies with the goal of reducing the likelihood that nonunion workforces will seek union representation. ECONOMY The economy affects compensation decisions. For example, a depressed economy generally increases the labor supply, and this condition serves to lower the market rate. In addition, companies often choose not to award pay raises to contribute to cost containment objectives in a slow economic environment where business activity is likely to suffer. A booming economy, on the other hand, results in greater competition for workers and the price of labor is driven upward. ☛ F YI Average weekly compensation varies by industry: $$ $$ $$ $$ $$ Mining: $1,434 Construction: $1,109 Manufacturing: $1,075 Retail: $557 Leisure and Hospitality: $39513 In competitive labor markets, companies attempt to attract and retain the best individuals for employment partly by offering lucrative wage and benefits packages. Some companies, unfortunately, find it difficult to compete based on wage and benefits. Indeed, there are noteworthy wage differences among industries. These differences are known as interindustry wage differentials or compensation differentials. Interindustry differentials can be attributed to many factors, including the industry’s product market, degree of capital intensity, profitability of the industry, unionization, and gender mix of the workforce.14 Companies that operate in product markets in which there is relatively little competition from other companies tend to pay higher wages because these companies exhibit substantial profits. This phenomenon can be attributed to such factors as higher barriers to entry into the product market and an insignificant influence of foreign competition. Government regulation and extremely expensive equipment represent entry barriers in such industries as mining. The U.S. defense industry and the public utilities industry have high entry barriers and no threats from foreign competitors. Capital intensity also explains pay differentials between industries. The average pay amount varies with the degree of capital intensity. On average, capital-intensive industries such as construction pay more than industries that are less capital intensive such as retail. Capital-intensive INTERINDUSTRY WAGE DIFFERENTIALS interindustry wage or compensation differentials Pattern of pay and benefits associated with characteristics of industries. 250    PART 4 • COMPENSATION businesses require highly capable employees who have the aptitude to learn how to use complex technology. Service such as retail industries are not capital intensive, and most have the reputation of paying low wages. The operation of service industries depends almost exclusively on employees with relatively common skills rather than on employees with specialized skills to operate such physical equipment as casting machines or robotics. The discussion of environmental factors, thus far, concisely conveys various dynamics in the pay setting process. However, the picture has become somewhat more complicated. Increasingly, technologies and market demand have led to the formation of (very small) niche industries. Many of these industries rely on newly created jobs that did not exist in the recent past.15 Take, for instance, remote control vehicle and drone operators. In addition, cost-of-living differentials extend beyond the comparison of two geographic locations as described earlier because members of work teams are distributed across the globe. Federal and state laws can also affect the amount of compensation a person receives and how that amount is determined. For example, prevailing wage laws specify how pay rates should be calculated. The Equal Pay Act prohibits an employer from paying a female employee less money than a male employee if both employees do work that is substantially the same. As we discussed in Chapter 3, equal employment legislation, including the Civil Rights Act, the Age Discrimination in Employment Act, and the Americans with Disabilities Act, prohibits discrimination against specified groups in employment matters, including ...
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