CHAPTER 6
Human Resource Decision Making in
Organizations
Learning Objectives
After studying this chapter, the student should be able to:
1. Discuss the role of ethics in human resource decision making.
2. Describe the concept of rightsizing and identify organizational strategies for rightsizing.
Chapter Outline
Opening Case: It’s More Than Just a Place to Work
If one is looking for the best Parmesan cheese for his or her chicken parmigiana recipe, one
might try Wegmans, especially if one happens to live in the vicinity of Pittford, New York.
Cheese department manager Carol Kent will be happy to recommend the best brand because her
job calls for knowing cheese as well as managing some twenty subordinates. Wegmans Food
Markets, a family-owned East Coast chain with nearly 83 outlets in 6 states, prides itself on its
commitment to customers, and it shows: It ranks at the top of the latest Consumer Reports survey
of the best national and regional grocery stores.
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Chapter 6: Human Resource Decision Making in Organizations
Introduction
This chapter looks at decisions about the size of an organization; that is, the focus here is the
decisions about how many employees should be on payroll at any time. This is often referred to
I. Ethics and Human Resource Management
Ethics is another important aspect of decision making for all managers, not just human resource
(HR) managers. Ethics refers to an individual’s beliefs about what is right and wrong and what
is good and bad. Ethics are formed by the social context in which people and organizations
II. Rightsizing the Organization
Whether a company is forecasting revenue growth or decline, the number of its employees must
be adjusted to fit the changing needs of the business. In all cases, therefore, it is essential that the
organization, through the HRM function, manage the size of its workforce effectively. This
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Chapter 6: Human Resource Decision Making in Organizations
By the middle of 2002, the Dow Jones Industrial Average had its sharpest decline since the Great
Depression, and layoffs and reductions were again the order of the day. This time, however, most
organizations took a more strategic approach than they had in the 1980s; as a result, many were
in a good position to capitalize when markets rebounded again in 2006. In late 2008 and early
2009, however, things took a turn for the worse. If it had not been for the intervention of the U.S.
government, many large banks and financial institutions would have failed during 2009.
A. Dealing with Increased Demand for Employees
When an organization anticipates an increased need for employees, the traditional approach
has been to recruit and hire new permanent employees. In recent years, that model has
changed. Specifically, if the demand for new employees is not expected to last, or if it would
take a long time to find the permanent employees, then a firm may try a more temporary
solution—at least for awhile.
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Chapter 6: Human Resource Decision Making in Organizations
On the other hand, labor costs per hour are likely to increase. Furthermore, if the organization
doesn’t really need all the members of a work group for overtime, then it may face a
complicated situation in deciding who gets to work the overtime. Finally, there is the problem
of potential increased fatigue and anxiety on the part of employees, particularly if the
overtime is not particularly welcome and if they have to work for an extended period of time.
Employee leasing is yet another alternative. An organization can pay a fee to a leasing
company that provides a pool of employees to the client firm. This pool of employees usually
constitutes a group or crew intended to handle all or most of the organization’s work needs in
a particular area.
times and have a smaller staff on hand during sometimes.
Each group of employees described in the preceding can be considered to be part of the
contingent workforce, which includes (1) all temporary employees, (2) all part-time
employees, and (3) all part-time employees who are employed by organizations to fill in for
permanent employees during peak demand. Thus, these contingent workers are considered
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Chapter 6: Human Resource Decision Making in Organizations
alternatives to recruiting, but usually as alternatives to recruiting, but usually as alternatives
that are less desirable.
B. Dealing with the Declining Need for Employees
There are also cases in which an organization needs fewer employees. Early retirements and
natural attrition can be used when it is possible to plan systematically for a gradual decrease
in the workforce. In some cases, organizations can even conduct planning exercises that may
suggest the need to reduce the workforce over the next few years. This reduction may result
from anticipated changes in technology or customer bases or even to anticipated changes in
corporate or business strategies. The organization can attempt to manage the reduction by
simply not replacing workers who leave voluntarily, or by providing incentives for other
employees to retire early, or both.
C. Strategies for Layoffs
In many cases, there is not enough warning to rely on early retirements, or the early
retirement strategy simply does not result in enough decrease in employee numbers. In these
cases, it is usually necessary to reduce workforce through layoffs. When notified of a layoff,
some employees decide to sue the organization for wrongful termination. In these cases, the
former employee alleges that the organization violated a contract or a law in deciding who to
terminate.
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Chapter 6: Human Resource Decision Making in Organizations
The human resource manager who has to deal with layoffs should consider these justice
issues. Basically, they suggest that necessary layoffs should be implemented using a well-
formulated strategy that can be communicated to and understood by the employees and
follows the rules implied by the dimensions of procedural justice in Table 6.1. Finally, the
decisions should be communicated in a way that conveys respect and caring for the people
involved.
The Worker Adjustment and Retraining Notification or (WARN) Act requires at least 60
days’ notice for a facility closure or mass layoff. Failure to provide this notification can result
in serious financial penalties, especially for a firm facing pressure to reduce costs. From the
organization’s perspective, however, some potential costs come with announcing layoff.
HR in the 21st Century: Making Good Decisions
Managers today use more information to make decisions than ever before. It should come as
B. Is Downsizing Effective?
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Chapter 6: Human Resource Decision Making in Organizations
Given the prevalence of downsizing as a way to reduce labor costs and make a firm more
efficient, it would seem that the effectiveness of downsizing as a strategy would get a lot of
support. The data on the effectiveness of downsizing is rather mixed, however, and most of
the data suggests that downsizing is not an effective strategy.
A phenomenon known as survivor syndrome can counteract many of the presumed cost
savings that led to the layoffs in the first place. This syndrome describes employees who feel
guilty over keeping their jobs (that is, they survived) when others lost their jobs. Their morale
and commitment to the organization drop dramatically.
III. Managing Terminations and Retention
There are times when an organization wants to sever the employment relationship, not with a
large number of employees but with specific employees. Terminating employees whose services
are no longer desired is also known as involuntary turnover.
A. Managing Involuntary Turnover
Any time an employee is terminated, it represents a failure of some part of the HR system. It
can also be costly because the firm must then seek to recruit, hire, and train a replacement.
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Chapter 6: Human Resource Decision Making in Organizations
Most organizations have some type of employee assistance program (EAP) designed to either
help such employees directly or refer them to competent professionals who can provide that
help. Originally, many EAPs focused on alcoholism, but more recently they have expanded to
deal with drugs and more general problems of mental health. But, more important, these
programs make it possible for potentially valuable employees to be brought back to
productive levels, thus ensuring their continued employment and yielding savings for the
organization.
B. Progressive Discipline
Disciplinary problems in organizations are designed to try to improve performance through
the use of punishment.
• Punishment simply refers to following unacceptable behavior with some type of
People refer to these programs as progressive discipline plans because, almost invariably,
the severity of the punishment increases over time or across the seriousness of the problem. A
list of typical steps in the progressive disciplinary program is provided in Table 6.2. Whatever
the infractions, the steps in the disciplinary process are almost always the same.
• The first step in a progressive disciplinary program is a verbal warning, or a caution
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Chapter 6: Human Resource Decision Making in Organizations
C. Employment at Will
The only real legal perspective on employee termination is a nineteenth-century common-law
rule known as employment-at-will. Basically, this view asserts that, because an employee
can terminate an employment relationship at any time (i.e., quit a job); the employer should
If an employer does not follow the proper steps and document each one, the employee may
well get his or her job back. Some organizations have begun to adopt an approach referred to
as positive discipline, which has somewhat different orientation. Positive discipline
D. Employee Retention
Sometimes the focus of human resource decisions is on ways to retain valued employees
IV. Managing Voluntary Turnover
Managers cannot always control who leaves the organization or why they leave, but they should
not assume that all turnover is negative even in the case of voluntary turnover. In fact, although
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Chapter 6: Human Resource Decision Making in Organizations
A. Models of the Turnover Process
The basic reason people leave their jobs is because they are unhappy with them. Thus, the
simplest view of the employee turnover process would suggest that if one increases job
satisfaction, then it will decrease turnover. Exhibit 6.1, A Model of the Turnover Process
presents the basic concepts of proposed models of turnover. The prevailing unemployment
rate is as big a factor in whether a person leaves a job at the level of dissatisfaction. Even if an
employee is extremely dissatisfied, he or she is not likely to quit without real prospects of
finding another job.
Another interesting model that deviates a bit from the basic model in Figure 6.1 focuses on
“shocks” to the individual. First, this model proposes that several paths can lead to turnover,
and they do not all require shocks. This model begins with shock and not with job
dissatisfaction. In fact, the dissatisfaction occurs only because the employee started thinking
about the job in response to the shock.
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Chapter 6: Human Resource Decision Making in Organizations
B. The Causes of Job Dissatisfaction
A common thread in these models of the turnover process is job dissatisfaction. For example,
one line of research, using identical twins, has (cautiously) suggested that a certain component
of job dissatisfaction may be genetic. A related line of research has suggested that some
C. The Effects of Job Dissatisfaction
Job dissatisfaction is a major determinant of turnover, but it is also predictive of other types of
withdrawal behavior. For example, a strong relationship exists between job dissatisfaction and
absenteeism, partly because employees who are dissatisfied may not always be able to leave
their jobs (because of a lack of alternatives); thus, they choose to withdraw partially by being
absent.
Job dissatisfaction has been found to be strongly linked to stress, job burnout (the condition of
physical, emotional, and mental exhaustion on the job), and (through the first two processes)
employee health. The most intriguing possibility, however, is the link between job satisfaction