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. All Rights Reserved. Manufactured in the United States of America.
This publication is protected by copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in
a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise. For information
regarding permissions, request forms, and the appropriate contacts within the Pearson Education Global Rights and Permissions department,
please visit www.pearsoned.com/permissions/.
Acknowledgments of third-party content appear on the appropriate page within the text, which constitutes an extension of this copyright page.
PEARSON, ALWAYS LEARNING, and MYLAB are exclusive trademarks owned by Pearson Education, Inc. or its affiliates in the U.S. and/or
other countries.
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 ...
Purchase answer to see full
attachment