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Managing Human Resources


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Managing Human Resources

Human Resource Management

Planning for staffing needs

Recruiting and hiring

Training and development

Appraising performance

Managing compensation and benefits

Overseeing employment status

Human resources management (HRM) encompasses all the tasks involved in acquiring, maintaining, and developing an organization’s human resources. Because of the accelerating rate at which today’s workforce, economy, and corporate cultures are being transformed, the role of HRM is increasingly viewed as a strategic one.

Human resources (HR) managers must figure out how to attract qualified employees from a shrinking pool of entry-level candidates; how to train less-educated, poorly skilled employees; how to keep experienced employees when they have few opportunities for advancement; and how to lay off employees equitably when downsizing is necessary. They must also retrain employees to cope with increasing automation and computerization, manage increasingly complex (and expensive) employee benefits programs, shape workplace policies to address changing workforce demographics and employee needs, and cope with the challenge of meeting government regulations in hiring practices and equal opportunity employment.

Planning for Staffing Needs

One of the six functions of the human resources staff members is to plan for a company’s staffing needs. Proper planning is critical because a miscalculation could leave a company without enough employees to keep up with demand, resulting in customer dissatisfaction and lost business. Yet if a company expands its staff too rapidly, profits may be eaten up by payroll, or the firm may have to lay off people who were just recruited and trained at considerable expense.

Forecasting Supply and Demand

Part-Time Employees

Temporary Workers


Planning begins with forecasting demand, the numbers and kinds of employees that will be needed at various times. The next task is to estimate the supply of available employees. In many cases, that supply is within the company already—perhaps just needing training to fill future requirements.

More and more businesses try to save money and increase flexibility by building their workforces around part-time and temporary employees, or “temps,” whose schedules can be rearranged to suit the company’s needs. Outsourcing is another way that companies fulfill their human resources needs without hiring permanent employees. Companies outsource some tasks or projects because the outside source can provide materials, parts, or services better, at a lower price, and more efficiently.

Evaluating Job Requirements

Job Analysis

Job Specification

Job Description

The second step of the planning function is to evaluate job requirements. Management needs a formal and objective method of evaluating job requirements. That method is called job analysis. To obtain the information needed for a job analysis, the human resources staff asks employees or supervisors several questions:

What is the purpose of the job?

What tasks are involved in the job?

What qualifications and skills are needed to do it effectively?

In what kind of setting does the job take place?

Is there much public contact involved?

Does the job entail much time pressure? Sometimes they obtain job information by observing employees directly. Other times they ask employees to keep daily diaries describing exactly what they do during the workday.

Once job analysis has been completed, the human resources staff develops a job description, a formal statement summarizing the tasks involved in the job and the conditions under which the employee will work. In most cases, the staff will also develop a job specification, a statement describing the skills, education, and previous experience that the job requires.

Recruiting Employees

Internal Searches


The Internet

Employment Agencies

Union Halls


Trade Shows



Having forecast a company’s supply and demand for employees and evaluated job requirements, the human resource manager’s next step is to match the job specification with an actual person or selection of people. This task is accomplished through recruiting, the process of attracting suitable candidates for an organization’s jobs.

Recruiters are specialists on the human resources staff who are responsible for locating job candidates. They use a variety of methods and resources, including internal searches, newspaper and Internet advertising, public and private employment agencies, union hiring halls, college campuses and career offices, trade shows, corporate “headhunters” (people who try to attract people at other companies), and referrals from employees or colleagues in the industry. One of the fastest-growing recruitment resources for both large and small businesses is the Internet.

How Employers and Job-Seekers Approach the Recruiting Process

Generally, employers prefer to look for candidates within their organizations. When hiring outside the company, they rely heavily on referrals from people they know and trust.

Placing want-ads is often viewed as a last resort. In contrast, typical job seekers begin their job-search process from the opposite direction (starting with reading a newspaper or Internet ads).

The Hiring Process

Select Qualified Candidates

Screen Candidates

Conduct Interviews

Evaluate Candidates

Check References

Select the Best Candidate

Most companies go through the same basic stages in the hiring process as they sift through applications to come up with the person (or persons) they want.

The first stage is to select a small number of qualified candidates from all of the applications received. The second stage in the hiring process is to interview each candidate to clarify qualifications and to fill in any missing information.

After the initial prescreening interviews comes the third stage, when the best candidates may be asked to meet with someone in the human resources department who will conduct a more probing interview. For higher-level positions, candidates may go through a series of interviews with managers, potential co-workers, and the employees who will make up the successful candidate’s staff.

After all the interviews have been completed, the process moves to the final stages. In the fourth stage, the department supervisor evaluates the candidates, sometimes in consultation with a higher-level manager, the human resources department, and staff. During the fifth stage, the employer checks the references of the top few candidates. The employer may also research the candidates’ education, previous employment, and motor vehicle records. A growing number of employers are also checking candidates’ credit histories.

In the sixth stage, the supervisor selects the most suitable person for the job. Now the search is over-provided the candidate accepts the offer.

Background Checks

Violence in the workplace is an increasing threat that can harm employees and customers, hurt productivity, and lead to expensive lawsuits and higher health care costs. This means that companies need to be especially careful about negligent hiring.

Employers conduct a variety of background checks on job applicants, including verifying all educational credentials and previous jobs, accounting for any large time gaps between jobs, and checking references. Background checks are particularly important for jobs in which employees are in a position to possibly harm others.

Hiring and the Law

Equal Employment Opportunity Commission

Negligent Hiring

Immigration Reform and Control Act

Federal and state laws and regulations govern many aspects of the hiring process. In particular, employers must be careful to avoid discrimination in the wording of their application forms, in interviewing, and in testing. Employers must also respect the privacy of applicants.

Asking questions about unrelated factors such as citizenship, marital status, age, and religion violates the Equal Employment Opportunity Commission’s regulations because such questions may lead to discrimination. In addition, employers are not allowed to ask questions about whether a person has children, whether a person owns or rents a home, what caused a physical disability, whether a person belongs to a union, whether a person has ever been arrested, or when a person attended school. The exception is when such information is related to a bona fide occupational qualification for the job.

On the other hand, employers must also obtain sufficient information about employees to avoid becoming the target of a negligent-hiring lawsuit. Moreover, the Immigration Reform and Control Act (passed in 1986) forbids almost all U.S. companies from hiring illegal aliens. The act also prohibits discrimination in hiring on the basis of national origin or citizenship status. This creates a difficult situation for employers who must try to determine their applicants’ citizenship, so they can verify that the newly hired are legally eligible to work, without asking questions that violate the law. As you can imagine, striking the balance can be quite a challenge.

Preemployment Testing

Job-Skills Tests

Psychological Tests

Drug Tests

Many companies rely on pre-employment testing to determine whether applicants are suited to the job and whether they’ll be worth the expense of hiring and training. Companies use three main procedures: job-skills testing, psychological testing, and drug testing.

Job-skills tests are the most common type, designed to assess competency or specific abilities needed to perform a job. Psychological tests usually take the form of questionnaires. These tests can be used to assess overall intellectual ability, attitudes toward work, interests, managerial potential, or personality characteristics--including dependability, commitment, and motivation.

To avoid the increased costs and reduced productivity associated with drug abuse in the workplace (estimated to cost industry some $100 billion a year), many employers require applicants to be tested for drug use. Companies with mandatory testing have found real advantages, including lower accident rates, fewer disability claims, and decreased violence and absenteeism. Nevertheless, some employers prefer not to incur the extra expense to administer drug tests; others consider such tests an invasion of privacy.

Training and Development




To make sure that all new employees understand the company’s goals, policies, and procedures, most large organizations and many small ones have well-defined orientation programs.

In addition to orientation programs, most companies offer training (and retraining), because employee competence has a direct effect on productivity and profits. The more training given to employees, the more likely they will want to stay, because training gives them a sense that they are going somewhere in their careers, even if they’re not getting a promotion.

Appraising Performance

How do employees know whether they are doing a good job? How can they improve their performance? What new skills should they learn? Most human resources managers attempt to answer these questions by developing performance appraisal systems to objectively evaluate employees according to set criteria. The ultimate goal of performance appraisals is not to judge employees but rather to improve their performance. Thus, experts recommend that performance reviews be an ongoing discipline--not just a once-a-year event linked to employee raises.

Most companies require regular written evaluations of each employee’s work. To ensure objectivity and consistency, firms generally use a standard company performance appraisal form to evaluate employees.

Many performance appraisal systems require the employee to be rated by several people (including more than one supervisor and perhaps several co-workers). This practice further promotes fairness by correcting for possible biases. One appraisal format that moves the review process from a one-dimensional perspective to a multidimensional format is the 360-degree review. Designed to provide employees with a broader range of perspectives, the 360-degree review solicits feedback from colleagues above, below, and around the employee to provide observations of the person’s performance in several skill and behavioral categories. This means that employees rate the performance of their superiors as well as that of their peers.

Administering Compensation

Wages and Salaries

Incentive Programs

Administering compensation, a combination of payments in the form of wages or salaries, incentive payments, employee benefits, and employer services, is another major responsibility of a company’s human resources department.

Many blue-collar (production) and some white-collar (management and clerical) employees receive compensation in the form of wages, which are based on calculating the number of hours worked, the number of units produced, or a combination of both time and productivity.

Employees whose output is not always directly related to the number of hours worked or the number of pieces produced are paid salaries. As with wages, salaries base compensation on time, but the unit of time is a week, two weeks, a month, or a year. Salaried employees such as managers normally receive no pay for the extra hours they sometimes put in; overtime is simply part of their obligation.

To encourage employees to be more productive, innovative, and committed to their work, many companies provide managers and employees with incentives, cash payments that are linked to specific individual, group, and company-wide goals; overall productivity; and company success. These payments take the form of commissions, bonuses, and profit sharing. The success of these programs often depends on how closely incentives are linked to actions within the employee’s control.

Incentive Programs

To encourage employees to be more productive, innovative, and committed to their work, many companies provide managers and employees with incentives, cash payments that are linked to specific individual, group, and company-wide goals; overall productivity; and company success.

For both salaried and wage-earning employees, one type of incentive compensation is the bonus, a payment in addition to the regular wage or salary.

In contrast to bonuses, commissions are a form of compensation that pays employees a percentage of sales made.

Employees may be rewarded for staying with a company and encouraged to work harder through profit sharing, a system in which employees receive a portion of the company’s profits.

Similar to profit sharing, gain sharing ties rewards to profits (or cost savings) achieved by meeting specific goals such as quality and productivity improvement.

A variation of gain sharing, pay for performance, requires employees to accept a lower base pay but rewards them with bonuses, commissions, or stock options if they reach production targets or other goals.

Another approach to compensation being explored by companies is knowledge-based pay, or skill-based pay, which is tied to employees’ knowledge and abilities rather than to their job per se.

Like knowledge-based pay, broadbanding gives pay raises without promoting employees. Instead of having many narrow pay grades, the company has fewer, broader pay grades.

These incentive programs are so popular in today’s workplace that many employees consider their dollar value as part of their overall salary package.

Employee Benefits and Services


Retirement Benefits

Employee Stock Ownership Plans

Stock Options

Family Benefits

Employee Assistance Benefits

Insurance is the most popular employee benefit. Many businesses offer substantial compensation in the form of life and health insurance.

Studies show that 72 percent of workers at large firms have some form of company-sponsored retirement coverage. Three of the most popular types of company-sponsored pension plans are defined contribution plans, defined benefit plans, and 401(k) plans.

Another employee benefit is the employee stock-ownership plan (ESOP), under which a company places a certain amount of its stock in trust for some or all of its employees, with each employee entitled to a certain share. A related method for tying employee compensation to company performance is the stock option plan. Stock options grant employees the right to purchase a set number of shares of stock at a specific price during a certain time period.

The Family Medical and Leave Act (FMLA) requires employers with 50 or more workers to provide up to 12 weeks of unpaid leave per year for childbirth, adoption, or the care of a family member with a serious illness. Day care or elder care is another important benefit, especially for two-career couples.

According to the U.S. Labor Department, 48 percent of all employers with more than 100 workers offer employee assistance programs (EAPs). EAPs offer private and confidential counseling to employees who need help with personal problems.

Overseeing Changes in Employment Status





Of course, providing competitive compensation and good employee benefits is no guarantee that employees will stay with the company. Employees leave companies for a variety of reasons. Some may decide to retire. Others may resign voluntarily to pursue a better opportunity. Still others may make a change because they are promoted, reassigned, or terminated. Whatever the reason, when a vacancy occurs, companies must go to the trouble and expense of finding a replacement, whether from inside or outside the company. Overseeing changes in the employment status is another responsibility of the human resources department.


Bonus - cash payment, in addition to the regular wage or salary, that serves as a reward for achievement

Broad banding - payment system that uses wide pay grades, enabling the company to give pay raises without promotions

Commissions - payments to employees equal to a certain percentage of sales made

Compensation - money, benefits, and services paid to employees for their work

Employee assistance programs (EAPs) - company-sponsored counseling or referral plans for employees with personal problems

Employee benefits - compensation other than wages, salaries, and incentive programs

Employee stock ownership plan (ESOP) - program enabling employees to become partial owners of a company

Gain sharing - plan for rewarding employees not on the basis of overall profits but in relation to achievement of goals such as cost savings from higher productivity

Human resources management (HRM) - specialized function of planning how to obtain employees, oversee their training, evaluate them, and compensate them

Incentives - cash payments to employees who produce at a desired level or whose unit (often the company as a whole) produces at a desired level

Job analysis - process by which jobs are studied to determine the tasks and dynamics involved in performing them

Job description - statement of the tasks involved in a given job and the conditions under which the holder of the job will work

Job specification - statement describing the kind of person who would be best for a given job including the skills, education, and previous experience that the job requires

Knowledge-based pay - pay tied to an employee's acquisition of skills; also called skill-based pay

Layoffs - termination of employees for economic or business reasons

Mandatory retirement - required dismissal of an employee who reaches a certain age

Orientation - session or procedure for acclimating a new employee to the organization

Pay for performance - accepting a lower base pay in exchange for bonuses based on meeting production or other goals

Pension plan - company-sponsored program for providing retirees with income

Performance appraisal - evaluation of an employee's work according to specific criteria

Profit sharing - system for distributing a portion of a company's profits to employees

Recruiting - process of attracting appropriate applicants for an organization's jobs

Salaries - fixed weekly, monthly, or yearly cash compensation for work

Stock options - contract allowing the holder to purchase or sell a certain number of shares of a particular stock at a given price by a certain date

Termination - act of getting rid of an employee through layoffs or firing

Wages - cash payment based on the number of hours the employee has worked or the number of units the employee has produced

Worker buyout - distribution of financial incentives to employees who voluntarily depart, usually undertaken in order to reduce the payroll

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