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Chapter 6: Human Resource Decision Making in Organizations

Chapter 6

Human Resource Decision-Making

in Organizations

Learning Objectives

Opening Case: Making the Decision to Engage

Chapter Outline

Closing Case: Hard Facts and Half-Truths

Discussion Questions

Additional Resource: How a New Lens on “HR” Can Reduce Turnover and the Cycle of

Poverty

Learning Objectives

After studying this chapter, students should be able to accomplish the following objectives.

1. Discuss the role of ethics in human resource decision-making

3. Describe how to manage termination and retention

5. Discuss the key human resource issues during mergers and acquisitions

Opening Case: Making the Decision to Engage

Case Summary

Employee engagement is a popular topic these days. In general, engagement refers to the extent

to which an employee feels committed to and a part of the organization. Best Buy, the giant

consumer electronics retailer, has been using annual surveys to track levels of employee

engagement since 2003. In 2003, Best Buy launched a fairly radical initiative allowing

employees to shape their own jobs and define their own career paths according to their own

needs and talents. In 2010, an independent study concluded that Best Buy had “doubled the rate

of increase in employee engagement.” In the same year, another study linked increased employee

engagement to increased productivity: The researchers found that a 0.1 percent increase in

employee engagement at a given store correlated with an annual increase in sales of $100,000.

Chapter 6: Human Resource Decision Making in Organizations

Findings like those at Best Buy have been confirmed on a much broader scale by a wealth of

independent research. It may seem fairly obvious at this point, but according to Gartner, a

consulting firm specializing in information technology research, “the positive correlation

between employee engagement and organization performance suggests that there is a substantial

upside for organizations that focus on enhancing employee engagement.” “Many executives and

line managers,” says Gartner, “still view improving employee engagement as a soft and fuzzy

concept,” failing to understand “why it’s important and what a vital role it plays in driving

business success.”

Think It Over

1. What role might HR play in helping to enhance employee engagement?

2. How easy or difficult would you expect it to be to transform disengaged workers into

engaged workers?

Students’ answers will vary. Some students might say that it is easy to transform

Chapter Outline

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

as the head count. The chapter also discusses both temporary and permanent decisions that can

be made about headcounts and some special problems about the size of an organization’s

workforce after a merger or acquisition.

I. Ethics and Human Resource Management

Chapter 6: Human Resource Decision Making in Organizations

Ethics refers to an individual’s beliefs about what is right and wrong and what is good and bad.

Ethics are formed by the societal context in which people and organizations function. In recent

years, ethical behavior and ethical conduct on the part of managers and organizations have

received considerable attention, usually fueled by scandals at firms such as Enron, WorldCom,

Imclone, and Tyco International and unscrupulous managers such as Kenneth Lay, Jeffrey

Skilling, and Bernard Madoff.

II. Rightsizing the Organizations

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 human resource management (HRM) function, manage the size of its

workforce effectively. This process is called rightsizing, and it is the process of monitoring and

adjusting the organization’s workforce to its optimal size and composition.

Chapter 6: Human Resource Decision Making in Organizations

more on recommendations for recruiting and retaining valuable employees. Then came

September 11, 2001, and its aftermath: The economy slowed, and workforce reductions began

again.

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

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 needed permanent employees, then a firm may try a more

temporary solution—at least for a while.

The easiest way to deal with a temporary increase in the demand for employees is to offer

overtime opportunities, which simply means asking current workers to put in longer hours for

Chapter 6: Human Resource Decision Making in Organizations

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 the overtime for an extended period of time.

Another increasingly popular alternative to hiring permanent employees is a growing reliance

on temporary employees. The idea behind temporary employment is that an organization can

hire someone for only a specific period of time, and a major advantage to the organization is

that such workers can usually be paid a lower rate, although they are now more likely to be

entitled to the same benefits as full-time workers. Considerable flexibility comes from the fact

that employees themselves realize their jobs are not permanent, so the organization can

terminate their relationship as work demands mandate. On the other hand, temporary

employees tend not to understand the organization’s culture as well as permanent employees.

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.

The basic advantage to the organization is that it essentially outsources to the leasing firm the

HR elements of recruiting, hiring, training, compensating, and evaluating those employees.

On the other hand, because the individuals are not employees of the firm, they are likely to

have less commitment and attachment to it. In addition, the cost of the leasing arrangement

might be a bit higher than if the employees have been hired directly by the firm itself.

Chapter 6: Human Resource Decision Making in Organizations

In this view, whenever a firm, requires additional human resources unrelated to its core

competencies or required to have skills or knowledge that is generally available in the

marketplace, then it may be to the firm’s competitive advantage to add resources through

some other arrangement besides permanent hires.

B. Dealing with a 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 from anticipated changes in

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 the 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.

A critical determinant of an employee’s reaction to being laid off is his or her perceptions of

the justice involved in the layoff process. Three types of justice—distributive, procedural, and

interactional—seem to be related reactions to layoffs.

Chapter 6: Human Resource Decision Making in Organizations

organization has not violated any other type of justice—procedural justice—or

perceptions that the process used to determine the outcomes was fair.

• Interactional justice refers to the quality of the interpersonal treatment people receive

when a decision is implemented.

The HR 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.

Of course, the actual strategy used for determining who will be laid off must also be

reasonable. A layoff strategy that targets older workers is probably illegal and would rarely be

considered as fair. Sometimes, layoff decisions are made on the basis of performance; that is,

Contemporary Challenges in HR: Making Good Decisions

Managers today use more information to make decisions than ever before. It should come

as no surprise, then, that HR managers are also getting into the act. HR managers

essentially use two kinds of data. One type they gather themselves: For instance, they can

collect, store, and access objective data related to employee education, skills, experience,

demographics, and so forth. HR managers also often rely on the second type of information,

from external sources. FedEx is a great example of a firm that relies heavily on HR

information in making decisions.

Think It Over

Chapter 6: Human Resource Decision Making in Organizations

schedules for equipment, or actually getting out of some lines of business. Some firms find

even more productive ways to reduce costs. Some years ago, a DuPont plant was facing

layoffs or closure because of high labor costs. The plant manager (subsequently promoted

several times) asked the employees to get involved in the decision about reducing costs. The

employees suggested a combination of job sharing, salary reductions (the plant was

nonunion), early-retirement plans, and part-time work, which resulted in almost no employees

losing their jobs. At the same time, the plant became extremely profitable and the employees

developed a loyalty to the company that was the envy of the manufacturing sector.

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.

Therefore, termination should be seen as the last resort. For example, in some cases, the

poorly performing employee might have the potential to perform effectively but he or she was

never properly trained or is not properly supervised. In such cases, the employee’s

performance may be brought up to standard by retaining or reassignment to a supervisor who

Chapter 6: Human Resource Decision Making in Organizations

B. Progressive Discipline

Disciplinary programs 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

negative consequences.

• Discipline refers to the system of rules and procedures for how and when punishment is

administered and how severe it should be.

Table 6.2 lists several kinds of behaviors that will typically warrant punishment or discipline.

Some behaviors, such as theft or sexual harassment, are likely to lead to immediate dismissal.

But others, such as problems with performance or problems with attendance, may be

correctable with the right programs on the part of the organization

These programs are referred to as progressive disciplinary plans because, almost invariably,

taken only after serious consideration and the decision that the employee cannot be

salvaged.

C. Employment at Will

The only real legal perspective on employee termination is a 19th-century common-law rule

known as employment at will. This view asserts that, because an employee can terminate an

written company rule or policy or is an objectively documented poor performer, then he or

she can be terminated in virtually every case. The key to a successful termination of an

employee is documentation.

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

D. Employee Retention

Sometimes the focus of HR decisions is on ways to retain valued employees instead of on

ways to terminate undesired employees. In fact, the two work together: Organizations must

seek ways to eliminate poorly performing employees while at the same time find ways to

retain highly performing 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

the organization does not want to force someone out, management may not be totally

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 job satisfaction is

increased, then turnover will be decreased. It has been noted that the prevailing