CH 9 Human Resource Management – Flashcards

How do you get hired by one of the companies on Fortune magazine's annual "100 Best Companies to Work For" list—companies such as Google, Boston Consulting Group, SAS Institute, and Wegmans Food Markets, which are on the 2012 list? You try to get to know someone in the company, suggests one guide. You play up volunteer work on your résumé. You get ready to interview and interview and interview. And you do extensive research on the company (far more than just online research, as by talking to customers). And what kinds of things does an employee of a Fortune "Best" company get? At Google, the Mountain View, California, search engine company (ranked No. 1 in 2007, 2008, and 2012 and No. 4 in 2009, 2010, and 2011), you're entitled to eat in 1 of 11 free gourmet cafeterias, as well as to visit free snack rooms that contain various cereals, candy, nuts, fresh fruit, and other snacks. You can bring your dog to work, get haircuts on-site, work out at the gym, and attend subsidized exercise classes. You can study Mandarin or other languages, have your laundry done free, or consult five on-site doctors for a checkup, free of charge. The company has also launched numerous compensation incentives, special bonuses, and founders' awards that can run into millions of dollars. The reason for this exceptional treatment? "Happy people are more productive," says former CEO Eric Schmidt. That productivity has made Google an earnings powerhouse; in 2011, for example, it reported a 29% growth in revenue and 31% profits. Google has discovered, in other words, that its biggest competitive advantage lies in its human resources—its people.

Human resource (HR) management consists of the activities managers perform to plan for, attract, develop, and retain an effective workforce. The fact that the old Personnel Department is now called the Human Resources Department is not just a cosmetic change. It is intended to suggest the importance of staffing to a company's success. Although talking about people as "resources" might seem to downgrade them to the same level as financial resources and material resources, in fact, people are an organization's most important resource.

No. 1 on Fortune magazine's Best Companies list—which, besides Google, include software developer SAS (2011 and 2010), data storage company NetApp (2009), biotechnology firm Genentech (2006), supermarket chain Wegmans Food Markets (2005), jam maker J. M. Smucker (2004), stockbroker Edward Jones (2003 and 2002), and box retailer The Container Store (2001 and 2000)—have discovered that putting employees first has been the foundation for their success. "If you're not thinking all the time about making every person valuable, you don't have a chance," says former General Electric head Jack Welch. "What's the alternative? Wasted minds? Uninvolved people? A labor force that's angry or bored? That doesn't make sense!"

At many companies, human resources has become part of the strategic planning process. Thus, HR departments deal not only with employee paperwork and legal accountability—a very important area, but also with helping to support the organization's overall strategy. For example, is it important, as Wegmans's owners think, to have loyal, innovative, smart, passionate employees who will give their best to promote customer satisfaction (the grocery chain's mission)? Who, then, should be recruited? How should they be trained? What's the best way to evaluate and reward their performance? The answers to these questions should be consistent with the firm's strategic mission. The purpose of the strategic human resource process, then—shown in the yellow-orange shaded boxes at right—is to get the optimal work performance that will help the company's mission and goals.

Three concepts important in this view of human resource management are human capital, knowledge workers, and social capital.

"We are living in a time," says one team of human resource management authors, "when a new economic paradigm—characterized by speed, innovation, short cycle times, quality, and customer satisfaction—is highlighting the importance of intangible assets, such as brand recognition, knowledge, innovation, and particularly human capital." Human capital is the economic or productive potential of employee knowledge, experience, and actions. Thinking about people as human capital has an obvious basis: "Attracting, retaining, and developing great people is sometimes the only way our organizations can keep up with the competition across the street or around the globe," says Susan Meisinger, president and CEO of the Society for Human Resource Management. "Research has shown that highly educated, knowledgeable workers—the most in demand—are the hardest to find and easiest to lose.

Human capital is the economic or productive potential of employee knowledge, experience, and actions.

A knowledge worker is someone whose occupation is principally concerned with generating or interpreting information, as opposed to manual labor. Knowledge workers add value to the organization by using their brains rather than the sweat of their brows, and as such they are the most common type of worker in 21st-century organizations. Because of globalization and information technology, the United States no longer has an advantage in knowledge workers. Indeed, because of the advancement of China, India, Russia, and Brazil; the offshoring of sophisticated jobs; the decrease in math and science skills among today's younger Americans; and other factors, the United States may be in danger of slipping behind.

A knowledge worker is someone whose occupation is principally concerned with generating or interpreting information, as opposed to manual labor.

Social capital is the economic or productive potential of strong, trusting, and cooperative relationships. Among aspects of social capital are goodwill, mutual respect, cooperation, trust, and teamwork. Relationships within a company are important: In one survey, 77% of the women and 63% of the men rated "good relationship with boss" extremely important, outranking such matters as good equipment, easy commute, and flexible hours. That relationships matter is shown by the brothers running family-owned J. M. Smucker, who follow a simple code of conduct set forth by their father: "Listen with your full attention, look for the good in others, have a sense of humor, and say thank you for a job well done."20 (The company's voluntary employee turnover rate is a mere 3%.)

Social capital is the economic or productive potential of strong, trusting, and cooperative relationships.

When a building contractor, looking to hire someone for a few hours to dig ditches, drives by a group of idle day laborers standing on a street corner, is that a form of HR planning? Certainly it shows the contractor's awareness that a pool of laborers usually can be found in that spot. But what if the builder needs a lot of people with specialized training—to give him or her the competitive advantage that the strategic planning process demands? Here we are concerned with something more than simply hiring people on an "as needed" basis.

Strategic human resource planning consists of developing a systematic, comprehensive strategy for (a) understanding current employee needs and (b) predicting future employee needs.

To plan for the future, you must understand the present—what today's staffing picture looks like. This requires that you (or a trained specialist) first do a job analysis and from that write a job description and a job specification. This process can produce some surprises. Jobs that might seem to require a college degree, for example, might not after all. Thus, the process of writing job analyses, descriptions, and specifications can help you avoid hiring people who are overqualified (and presumably more expensive) or underqualified (and thus not as productive) for a particular job. In addition, by entering a job description and specification with their attendant characteristics into a database, an organization can do computer searching for candidates by matching keywords (nouns) on their résumés with the keywords describing the job. A position in desktop publishing, for instance, might be described by the kinds of software programs with which applicants should be familiar: Adobe FrameMaker, Adobe InDesign, Adobe PageMaker, Corel Ventura, QuarkXPress, and so on.

The purpose of job analysis is to determine, by observation and analysis, the basic elements of a job. Specialists who do this interview job occupants about what they do, observe the flow of work, and learn how results are accomplished. For example, package deliverer UPS has specialists who ride with the couriers and time how long it takes to deliver a load of packages and note problems encountered (traffic jams, vicious dogs, recipients not home, and so on).

Once the fundamentals of a job are understood, then you can write a job description, which summarizes what the holder of the job does and how and why he or she does it. Next you can write a job specification, which describes the minimum qualifications a person must have to perform the job successfully.

Job descriptions change, of course: auto mechanics, for instance, now have to know how computer chips work in cars. (A C-class Mercedes may have 153 processors on board.) And new jobs are created: Who could have visualized the position of "e-commerce accountant" 10 years ago, for example? As you might expect, predicting future employee needs means you have to become knowledgeable about the staffing the organization might need and the likely sources for that staffing

You could assume your organization won't change much. In that case, you can fairly easily predict that jobs will periodically become unoccupied (because of retirement, resignations, and so on) and that you'll need to pay the same salaries and meet the same criteria about minority hiring to fill them. Better, however, to assume the organization will change. Thus, you need to understand the organization's vision and strategic plan so that the proper people can be hired to meet the future strategies and work.

You can recruit employees from either inside or outside the organization. In looking at those inside, you need to consider which employees are motivated, trainable, and promotable and what kind of training your organization might have to do. A device for organizing this kind of information is a human resource inventory, a report listing your organization's employees by name, education, training, languages, and other important information. In looking outside, you need to consider the availability of talent in your industry's and geographical area's labor pool, the training of people graduating from various schools, and such factors as what kind of people are moving into your area. The U.S. Bureau of Labor Statistics and the U.S. Census Bureau issue reports on such matters.

A report listing your organization's employees by name, education, training, languages, and other important information.

Whatever your organization's human resource strategy, in the United States (and in U.S. divisions overseas) it has to operate within the environment of American law. Four areas you need to be aware of are as follows. Some important laws are summarized in the table opposite.

The earliest laws affecting employee welfare had to do with unions, and they can still have important effects. Legislation passed in 1935 (the Wagner Act) resulted in the National Labor Relations Board, which enforces procedures whereby employees may vote to have a union and for collective bargaining. Collective bargaining consists of negotiations between management and employees about disputes over compensation, benefits, working conditions, and job security. A 1947 law (the Taft-Hartley Act) allows the president of the United States to prevent or end a strike that threatens national security.

Which enforces procedures whereby employees may vote to have a union and for collective bargaining.

Collective bargaining consists of negotiations between management and employees about disputes over compensation, benefits, working conditions, and job security.

Gives employees legal right to examine letters of reference concerning them

Requires employers to verify the eligibility for employment of all their new hires (including U.S. citizens)

Prohibits employers from demoting or firing employees who raise accusations of fraud to a federal agency

The Social Security Act in 1935 established the U.S. retirement system. The passage of the Fair Labor Standards Act of 1938 established minimum living standards for workers engaged in interstate commerce, including provision of a federal minimum wage (currently $7.25 an hour; several states have higher minimums) and a maximum workweek (now 40 hours, after which overtime must be paid), along with banning products from child labor. Salaried executive, administrative, and professional employees are exempt from overtime rules.

Established minimum living standards for workers engaged in interstate commerce, including provision of a federal minimum wage

Sets rules for managing pension plans; provides federal insurance to cover bankrupt plans

Requires employers to provide 12 weeks of unpaid leave for medical and family reasons, including for childbirth, adoption, or family emergency

Allows employees to switch health insurance plans when changing jobs and receive new coverage regardless of preexisting health conditions; prohibits group plans from dropping ill employees

Increased federal minimum wage to $7.25 per hour on July 24, 2009

From miners risking tunnel cave-ins to cotton mill workers breathing lint, industry has always had dirty, dangerous jobs. Beginning with the Occupational Safety and Health Act (OSHA) of 1970, a body of law has grown that requires organizations to provide employees with nonhazardous working conditions. Later laws extended health coverage, including 2010 health care reform legislation, which requires employers with more than 50 employees to provide health insurance.

Establishes minimum health and safety standards in organizations

Requires an extension of health insurance benefits after termination

Employers with more than 50 employees must provide health insurance

The effort to reduce discrimination in employment based on racial, ethnic, and religious bigotry and gender stereotypes began with Title VII of the Civil Rights Act of 1964. This established the Equal Employment Opportunity (EEO) Commission, whose job it is to enforce antidiscrimination and other employment-related laws. Title VII applies to all organizations or their agents engaged in an industry affecting interstate commerce that employs 15 or more employees. Contractors who wish to do business with the U.S. government (such as most colleges and universities, which receive federal funds) must be in compliance with various executive orders issued by the president covering antidiscrimination. Later laws prevented discrimination against older workers and people with physical and mental disabilities. Three important concepts covered by EEO laws are workplace discrimination, affirmative action, and sexual harassment.

Equal Employment Opportunity (EEO) Commission, whose job it is to enforce antidiscrimination and other employment-related laws.

Requires men and women be paid equally for performing equal work

Prohibits discrimination on basis of race, color, religion, national origin, or sex

Prohibits discrimination in employees over 40 years old; restricts mandatory retirement

Prohibits discrimination against essentially qualified employees with physical or mental disabilities or chronic illness; requires "reasonable accommodation" be provided so they can perform duties

Amends and clarifies Title VII, ADA, and other laws; permits suits against employers for punitive damages in cases of intentional discrimination

A large gap exists in perceptions between the sexes as to whether men or women have more opportunities for advancement. In a survey of 1,834 business professionals worldwide, 66% of men said opportunities to move to top management were gender neutral, compared with 30% of women. (In actuality, only 3% of CEOs and 13.5% of executive-officer positions in Fortune 500 companies are occupied by women.) Workplace discrimination occurs when people are hired or promoted—or denied hiring or promotion—for reasons not relevant to the job, such as skin color or eye shape, gender, religion, national origin, and the like. (Recently, employment discrimination based on gender identity was also banned in federal jobs.) Two fine points to be made here are that (1) although the law prohibits discrimination in all aspects of employment, it does not require an employer to extend preferential treatment because of race, color, religion, and so on; and (2) employment decisions must be made on the basis of job-related criteria. There are two types of workplace discrimination: Adverse Impact & Disparate Treatment When an organization is found to have been practicing discrimination, the people discriminated against may sue for back pay and punitive damages. In 2011, such complaints rose to an all-time high, led by an increase in bias charges based on religion and national origin. Charges to the Equal Employment Opportunity Commission (EEOC) of discrimination based on religion increased by 9.5% and those based on ancestry or national origin by 5%. Allegations of age discrimination were also up, by 1%, and claims of disability bias rose by 2%. Pregnancy bias complaints to the EEOC increased 35% in the last decade. The good news is that sexual discrimination claims fell by 2%. In recent years, pay discrepancies between women and men improved slightly, but as of 2010 women overall still earned only 77 cents to every $1 for a man. (In some sectors, such as financial services, women earn as little as 65 cents to a man's dollar.)

Adverse impact occurs when an organization uses an employment practice or procedure that results in unfavorable outcomes to a protected class (such as Hispanics) over another group of people (such as non-Hispanic whites). For example, requiring workers to have a college degree can inadvertently create adverse impact against Hispanics because fewer Hispanics graduate from college than non-Hispanic whites. This example would not be a problem, however, if a college degree was required to perform the job.

Disparate treatment results when employees from protected groups (such as disabled individuals) are intentionally treated differently. An example would be making a decision to give all international assignments to people with no disabilities because of the assumption that they won't need any special accommodations related to travel.

Affirmative action focuses on achieving equality of opportunity within an organization. It tries to make up for past discrimination in employment by actively finding, hiring, and developing the talents of people from groups traditionally discriminated against. Steps include active recruitment, elimination of prejudicial questions in interviews, and establishment of minority hiring goals. It's important to note that EEO laws do not allow use of hiring quotas. Affirmative action has created tremendous opportunities for women and minorities, but it has been resisted more by some white males who see it as working against their interests. Affirmative action plans are more successful when employees view them as being fair and equitable and when whites are not prejudiced against people of color. In addition, research shows that women and minorities hired on the basis of affirmative action felt stigmatized as unqualified and incompetent and experienced lower job satisfaction and more stress than employees supposedly selected on the basis of merit.

Sexual harassment consists of unwanted sexual attention that creates an adverse work environment. This means obscene gestures, sex-stereotyped jokes, sexually oriented posters and graffiti, suggestive remarks, unwanted dating pressure, physical nonsexual contact, unwanted touching, sexual propositions, threatening punishment unless sexual favors are given, obscene phone calls, and similar verbal or physical actions of a sexual nature. The harassment may be by a member of the opposite sex or a member of the same sex, by a manager, by a coworker, or by an outsider.36 If the harasser is a manager or an agent of the organization, the organization itself can be sued, even if it had no knowledge of the situation. According to the EEOC, the number of sexual harassment claims has decreased from 15,889 claims in 1997 to 11,364 in 2011.

There are two types of sexual harassment, both of which violate Title VII of the 1964 Civil Rights Act. In the quid pro quo harassment type, the person to whom the unwanted sexual attention is directed is put in the position of jeopardizing being hired for a job or obtaining job benefits or opportunities unless he or she implicitly or explicitly acquiesces. More typical is the hostile environment type, in which the person being sexually harassed doesn't risk economic harm but experiences an offensive or intimidating work environment. According to one survey, 38% of women said they heard sexual innuendo, wisecracks, or taunts at the office. Another growing problem is bullying on the job, experienced by 37% of workers, male as well as female.

•Don't suggest sexual favors for rewards related to work or promotion. •Don't do uninvited touching, patting, or hugging of others' bodies—especially if they wince, frown, or pull away. •Don't make sexually suggestive jokes, demeaning remarks, slurs, or obscene gestures or sounds. •Don't display sexual pictures in your workplace or write notes of a sexual nature. •Don't laugh at others' sexually harassing words or behaviors.

To help prevent harassment from occurring, managers can make sure their companies have an effective sexual harassment policy in place. All current and new employees should understand that sexual harassment will not be tolerated under any circumstances. A formal complaint procedure should establish how charges will be investigated and resolved. Supervisors should be trained in Title VII requirements and the proper procedures to follow when charges occur. Charges should be investigated promptly and objectively, and an offender should be disciplined at once—no matter what his or her rank in the company.

"Hiring great people is brutally hard," write Jack and Suzy Welch. "New managers are lucky to get it right half the time. And even executives with decades of experience will tell you that they make the right calls 75% of the time at best." However difficult it may be, it's important to try to get hiring right. "We're essentially in an innovation economy where good people come up with really good ideas," says one CEO. "Companies want to hit home runs with the next greatest product, and the imperative is making sure you have great people to do that."

At some time nearly every organization has to think about how to find the right kind of people. Recruiting is the process of locating and attracting qualified applicants for jobs open in the organization. The word qualified is important: You want to find people whose skills, abilities, and characteristics are best suited to your organization. Recruiting is of two types: internal and external.

Internal recruiting means making people already employed by the organization aware of job openings. Indeed, most vacant positions in organizations are filled through internal recruitment, mainly through job posting, placing information about job vacancies and qualifications on bulletin boards, in newsletters, and on the organization's intranet. (Companies looking to make strategic changes do better hiring CEOs from within the ranks rather than from outside, according to a recent study.)

External recruiting means attracting job applicants from outside the organization. In years past, notices of job vacancies were placed through newspapers, employment agencies, executive recruiting firms, union hiring halls, college job-placement offices, and word of mouth. Today more and more companies are using social media as recruiting tools. For example, experts estimate that 89% of U.S. organizations use social networks to recruit. LinkedIn, a social network with 135 million members, accounts for 73% of the people hired via social media.46 In one survey of 3,500 U.S. college students, 80% said they use smartphones for job hunting or see themselves doing so in the future. Both internal and external methods have advantages and disadvantages, as indicated in the table on the next page.

Advantages: Employees tend to be inspired to greater effort and loyalty. Morale is enhanced because they realize that working hard and staying put can result in more opportunities. The whole process of advertising, interviewing, and so on is cheaper. There are fewer risks. Internal candidates are already known and are familiar with the organization. Disadvantages: Internal recruitment restricts the competition for positions and limits the pool of fresh talent and fresh viewpoints. It may encourage employees to assume that longevity and seniority will automatically result in promotion. Whenever a job is filled, it creates a vacancy elsewhere in the organization.

Advantages: Applicants may have specialized knowledge and experience. Applicants may have fresh viewpoints. Disadvantages: The recruitment process is more expensive and takes longer. The risks are higher because the persons hired are less well known.

In general, the most effective sources are employee referrals, say human resource professionals, because, to protect their own reputations, employees are fairly careful about whom they recommend, and they know the qualifications of both the job and the prospective employee. Other effective ways of finding good job candidates are e-recruitment tools, such as "dot-jobs" websites; membership directories for associations and trade groups; social networking sites; and industry-specific blogs, forums, and newsgroups.

A realistic job preview (RJP) gives a candidate a picture of both positive and negative features of the job and the organization before he or she is hired. This recruiting technique is very effective at reducing turnover within 30-90 days of employment. Many organizations, such as AT&T, Hilton, the Idaho State Police, and Assess Systems, reduced turnover and enhanced employee satisfaction by using RJPs.

Whether the recruitment process turns up a handful of job applicants or thousands, now you turn to the selection process, the screening of job applicants to hire the best candidate. Essentially this becomes an exercise in prediction: How well will the candidate perform the job and how long will he or she stay? Three types of selection tools are background information, interviewing, and employment tests.

Application forms and résumés provide basic background information about job applicants, such as citizenship, education, work history, and certifications. Unfortunately, a lot of résumé information consists of mild puffery and even outrageous fairy tales—as many as 35% of résumés, by one estimate. InfoLink Screening Services, which does background checks, reported that 14% of the tens of thousands of applicants it had screened had lied about their education. Vermont-based ResumeDoctor.com, a résumé-writing service, surveyed 1,133 résumés that had been uploaded to its site and found that nearly 42.7% had at least one inaccuracy and 12.6% had two or more factual errors.52 And Background Information Services, a preemployment screening company in Cleveland, found 56% of résumés contained falsehoods of some kind. It is risky to lie about your background information because it can be used as a reason for terminating your employment. Many companies are finding conventional résumés not all that useful (because they don't quantify an applicant's accomplishments or are too full of fluff descriptors such as "outstanding" or "energetic") and are increasingly relying on social networks such as LinkedIn, video profiles, or online quizzes to assess candidates. Other firms are so inundated with résumés that they now have to use résumé-filtering software, causing applicants to learn to game the system by loading their résumés with keywords from the job description. References are also a problem. Many employers don't give honest assessments of former employees, for two reasons: (1) They fear that if they say anything negative, they can be sued by the former employee. (2) They fear if they say anything positive, and the job candidate doesn't pan out, they can be sued by the new employer. Despite liability worries, HR recruiters know that if they get a former supervisor on the phone, they can find out a lot—such as the way he or she answers the question, "Can you enthusiastically recommend this person?" or "What were this person's strengths and weaknesses?" Many employers also like to check applicants' credit references, although there is no evidence that people with weak credit scores are apt to be unqualified or dishonest employees. (Note: Prospective employers need to get written consent to run credit checks on job applicants.

The interview, which is the most commonly used employee-selection technique, may take place face to face, by videoconference, or—as is increasingly the case—via the Internet. (In-depth phone interviews of an hour or more may be on the rise, perhaps for cost reasons. However, face-to-face interviews have been perceived as more fair and lead to higher job acceptance intentions than videoconferencing and telephone interviews.) To help eliminate bias, interviews can be designed, conducted, and evaluated by a committee of three or more people. The most commonly used employee-selection technique, interviewing, takes three forms: unstructured interviews and two types of structured interviews.

Like an ordinary conversation, an unstructured interview involves asking probing questions to find out what the applicant is like. There is no fixed set of questions asked of all applicants and no systematic scoring procedure. As a result, the unstructured interview has been criticized as being overly subjective and apt to be influenced by the biases of the interviewer. Equally important, it is susceptible to legal attack because some questions may infringe on non-job-related matters such as privacy, diversity, or disability. However, compared with the structured interview method, the unstructured interview has been found to provide a more accurate assessment of an applicant's job-related personality traits.

The structured interview involves asking all applicants the same questions and comparing their responses to a standardized set of answers.

In one type of structured interview, the situational interview, the interviewer focuses on hypothetical situations. Example: "What would you do if you saw two of your people arguing loudly in the work area?" The idea here is to find out if the applicant can handle difficult situations that may arise on the job.

In the second type of structured interview, the behavioral-description interview, the interviewer explores what applicants have actually done in the past. Example: "What was the best idea you ever sold to a supervisor, teacher, peer, or subordinate?" This question (asked by the U.S. Army of college students applying for its officer training program) is designed to assess the applicant's ability to influence others.

It used to be that employment selection tests consisted of paper-and-pencil, performance, and physical-ability tests. Now, however, employment tests are legally considered to consist of any procedure used in the employment selection decision process, even application forms, interviews, and educational requirements. Indeed, today applicants should expect just about anything, such as spending hours on simulated work tasks, performing role-playing exercises, or tackling a business case study.

Ability tests measure physical abilities, strength and stamina, mechanical ability, mental abilities, and clerical abilities. Telephone operators, for instance, need to be tested for hearing, and assembly-line workers for manual dexterity. Intelligence tests are also catching on as ways to predict future executive performance. Corporate-event company Windy City Fieldhouse uses a test that measures attention to detail, asking takers to do such things as "do a count of the letter 'l' in a three-sentence paragraph to measure how carefully a respondent works," according to one account.

Performance tests or skills tests measure performance on actual job tasks, as when computer programmers take a test on a particular programming language such as C++ or middle managers work on a small project. Some companies have an assessment center, in which management candidates participate in activities for a few days while being assessed by evaluators.

Personality tests measure such personality traits as adjustment, energy, sociability, independence, and need for achievement. Career-assessment tests that help workers identify suitable jobs tend to be of this type. One of the most famous personality tests, in existence for 65-plus years, is the 93-question Myers-Briggs Type Indicator, with about 2.5 million tests given each year throughout the world. Myers-Briggs endures, observers say, "because it does a good job of pointing up differences between people, offers individuals a revealing glimpse of themselves, and is a valuable asset in team-building, improving communication, and resolving personality-conflict." However, this and other personality tests need to be interpreted with caution because of the difficulty of measuring personality characteristics and of making a legal defense if the results are challenged.

Integrity tests assess attitudes and experiences related to a person's honesty, dependability, trustworthiness, reliability, and prosocial behavior. The tests are designed to identify people likely to engage in inappropriate, antisocial, or dishonest workplace behavior. Typically, integrity tests ask direct questions about past experiences related to ethics and integrity. You might be asked, for example, "What is the most you have ever stolen? (a) $0; (b) $1-$200; (c) $201-$500; (d) more than $500." Or interviewers may ask questions about preferences and interests from which inferences may be drawn about future behavior—so-called covert tests, where the answers give a sense of the person's conscientiousness, emotional maturity, and so on.

The list of employment testing techniques has grown to include—in appropriate cases—drug testing, polygraph (lie detectors), genetic screening, and even (a questionable technique) handwriting analysis. Human resource professionals need to be aware, incidentally, that there are a variety of products available on the Internet to help employees beat many kinds of drug tests. Recently, however, the hair test (of hair follicles) has begun to find favor, since it's said to be able to detect a pattern of repetitive drug use over a period of up to 90 days.

Two important legal considerations about any test are its reliability and its validity. Reliability—does it happen consistently? Reliability is the degree to which a test measures the same thing consistently—so that an individual's score remains about the same over time, assuming the characteristics being measured also remain the same. Validity—is it bias-free? Validity means the test measures what it purports to measure and is free of bias. If a test is supposed to predict performance, then the individual's actual performance should reflect his or her score on the test. Using an invalid test to hire people can lead to poor selection decisions. It can also create legal problems if the test is ever challenged in a court of law.

In muckraker Upton Sinclair's 1906 novel The Jungle, "employers barely paused when a worker swooned from overwork or fell into a rendering tank," writes columnist Sue Shellenbarger. "They just got another warm body to replace him." That's hardly the case anymore. Before the long recent economic downturn, when a hire was made, companies often resorted to what is known as "onboarding," rolling out a welcome by assigning "buddies," providing detailed orientations, even sending goody baskets, so as to bring rookies up to speed quickly and give them a fast introduction to company culture. Then and now, this is because, as we said, the emphasis is on "human capital." Only a third to half of most companies' stock-market value is accounted for by hard assets such as property, plant, and equipment, according to a Brookings Institution report. Most of a firm's value is in such attributes as patents, processes, and—important to this discussion—employee or customer satisfaction. The means for helping employees perform their jobs are orientation, training, and development.

The finalist candidate is offered the job, has accepted it, and has started work. Now he or she must begin, in that old sailor's phrase, to "learn the ropes." This is the start of orientation, helping the newcomer fit smoothly into the job and the organization.

"How well will I get along with other employees?" "What if I screw up on a project?" Coming into a new job can produce a lot of uncertainty and anxiety. In part this is because, depending on the job, a new hire can accomplish only 60% as much in the first three months as an experienced worker. The first six months on a job can be critical to how one performs over the long haul, because that's when the psychological patterns are established. Thus, employers have discovered that it's far better to give newcomers a helping hand than to let them learn possibly inappropriate behavior that will be hard to undo later.

Like orientation week for new college students, the initial socialization period is designed to give new employees the information they need to be effective. In a large organization, orientation may be a formal, established process. In a small organization, it may be so informal that employees find themselves having to make most of the effort themselves. Following orientation, the employee should emerge with information about three matters (much of which he or she may have acquired during the job-application process): 1. The job routine. At minimum, the new employee needs to have learned what is required in the job for which he or she was hired, how the work will be evaluated, and who the immediate coworkers and managers are. This is basic. 2. The organization's mission and operations. Certainly all managers need to know what the organization is about—its purpose, products or services, operations, and history. And it's now understood that low-level employees perform better if they, too, have this knowledge. 3. The organization's work rules and employee benefits. A public utility's HR department may have a brochure explaining formalized work rules, overtime requirements, grievance procedures, and elaborate employee benefits. A technology startup may be so fluid that many of these matters will have not been established yet. Even so, there are matters of law (such as those pertaining to sexual harassment) affecting work operations that every employee should be made aware of.

Which business strategy offers the highest returns: (1) downsizing; (2) total quality management, which focuses on work methods and process control; or (3) employee involvement, which focuses on upgrading workers' skills and knowledge? According to a study of 216 big firms, the winner is employee involvement, which had an average return on investment of 19.1% (versus 15.4% for downsizing and 15% for TQM). In hiring, you always try to get people whose qualifications match the requirements of the job. Quite often, however, there are gaps in what new employees need to know. These gaps are filled by training. The training process involves five steps, as shown below.

Step 1 - Assessment: Is training needed? Step 2 - Objectives: What should training achieve? Step 3 - Selection: Which training methods should be used? Step 4 - Implementation: How should training be effected? Step 5 - Evaluation: Is the training working? If the evaluation step determines that the training is not working, the second step in the training process, that is, the objectives of training, should be revised.

HR professionals distinguish between training and development. Training—upgrading skills of technical and operational employees. Electronics technicians, data processors, computer network administrators, and X-ray technicians, among many others, need to be schooled in new knowledge as the requirements of their fields change. Training, then, refers to educating technical and operational employees in how to better do their current jobs. Development—upgrading skills of professionals and managers. Accountants, nurses, lawyers, and managers of all levels need to be continually educated in how to do their jobs better not just today but also tomorrow. Development refers to educating professionals and managers in the skills they need to do their jobs in the future. Typical areas for which employee training and development are given are customer service, safety, leadership, computer skills, quality initiatives, communications, human relations, ethics, diversity, and sexual harassment.

There are all kinds of training and development methods, and their effectiveness depends on whether what is being taught are facts or skills. If people are to learn facts—such as work rules or legal matters—lectures, videotapes, and workbooks are effective. If people are to learn skills—such as improving interpersonal relations or using new tools—then techniques such as discussion, role-playing, and practice work better. Another way to categorize training methods is to distinguish on-the-job from off-the-job methods. On-the-job training. This training takes place in the work setting while employees are performing job-related tasks. Four major training methods are coaching, training positions, job rotation, and planned work activities. Off-the-job training. This training consists of classroom programs, videotapes, workbooks, and the like. Lots of off-the-job training consists of computer-assisted instruction (CAI), in which computers are used to provide additional help or to reduce instructional time.

Many employers offer employee training, whether internal or external, or funding to attend seminars. But research has shown that a surprisingly high percentage of employees simply don't know about it. For instance, while 92% of employers in one survey offered funding to attend seminars and trade shows, only 28% of employees were aware the funding existed. Clearly, then, employers need to find out whether the training offered fits with the majority of employee development goals.

If you're a member of Gen Y or the Millennial Generation (born after 1980), you tend to want "frequent and candid performance feedback," according to one survey, and having your managers provide "detailed guidance in daily work" is very important to you. Feedback about how you're doing at work is part of performance appraisal, which consists of (1) assessing an employee's performance and (2) providing him or her with feedback. Many performance reviews are worthless, says UCLA management professor Samuel Culbert, coauthor of Get Rid of the Performance Review! This is because evaluations are often dictated by a date on the calendar rather than need and are "one-sided, boss-dominated" assessments that come down to whether your superior "likes" you. A recent worldwide survey of 1,300 workers also revealed that 7 in 10 people believed that their managers did not remain calm and constructive when discussing performance. This is why 20% of the respondents dreaded having difficult conversations with their boss. It thus is no surprise that some firms (about 1%) have scrapped the practice altogether.

Clearly, performance appraisals need to be fair and accurate not just because it's right but also because it's essential to effective performance management, the continuous cycle of improving job performance through goal setting, feedback and coaching, and rewards and positive reinforcement. The purpose of performance management is to focus employees on attaining goals that are tied to the organization's strategic goals and vision, and to evaluate how successful they were in accomplishing those goals. Appraisals are of two general types—objective and subjective.

Objective appraisals, also called results appraisals, are based on facts and are often numerical. In these kinds of appraisals, you would keep track of such matters as the numbers of products the employee sold in a month, customer complaints filed against an employee, miles of freight hauled, and the like. There are two good reasons for having objective appraisals: They measure results. It doesn't matter if two appliance salespeople have completely different personal traits (one is formal, reserved, and patient; the other informal, gregarious, and impatient) if each sells the same number of washers and dryers. Human resource professionals point out that, just as in business we measure sales, profits, shareholder value, and other so-called metrics, it is likewise important to measure employee performance, benefit costs, and the like as an aid to strategy. They are harder to challenge legally. Not being as subject to personal bias, objective appraisals are harder for employees to challenge on legal grounds, such as for age, gender, or racial discrimination. We discussed an objective approach in Chapter 5 under management by objectives, which can encourage employees to feel empowered to adopt behavior that will produce specific results. MBO, you'll recall, is a four-step process in which (1) managers and employees jointly set objectives for the employee, (2) managers develop action plans, (3) managers and employees periodically review the employee's performance, and (4) the manager makes a performance appraisal and rewards the employee according to results. For example, an objective for a copier service technician might be to increase the number of service calls 15% during the next three months.

Few employees can be adequately measured just by objective appraisals—hence the need for subjective appraisals, which are based on a manager's perceptions of an employee's (1) traits or (2) behaviors. Trait appraisals. Trait appraisals are ratings of such subjective attributes as "attitude," "initiative," and "leadership." Trait evaluations may be easy to create and use, but their validity is questionable because the evaluator's personal bias can affect the ratings. Behavioral appraisals. Behavioral appraisals measure specific, observable aspects of performance—being on time for work, for instance—although making the evaluation is still somewhat subjective. An example is the behaviorally anchored rating scale (BARS), which rates employee gradations in performance according to scales of specific behaviors. For example, a five-point BARS rating scale about attendance might go from "Always early for work and has equipment ready to fully assume duties" to "Frequently late and often does not have equipment ready for going to work," with gradations in between.

If one of your employees was putting on a good show of solving problems that, it turned out, she had actually created herself so that she could be an "office hero" and look good, how would you know about it? (This phenomenon has been dubbed "Munchausen at work" because it resembles the rare psychological disorder in which sufferers seek attention by making up an illness.) Most performance appraisals are done by managers; however, to add different perspectives, sometimes appraisal information is provided by other people knowledgeable about particular employees.

Among additional sources of information are coworkers and subordinates, customers and clients, and the employees themselves. Peers and subordinates: Coworkers, colleagues, and subordinates may well see different aspects of your performance. Such information can be useful for development, although it probably shouldn't be used for evaluation. (Many managers will resist soliciting such information about themselves, of course, fearing negative appraisals.) Customers and clients: Some organizations, such as restaurants and hotels, ask customers and clients for their appraisals of employees. Publishers ask authors to judge how well they are doing in handling the editing, production, and marketing of their books. Automobile dealerships may send follow-up questionnaires to car buyers. Self-appraisals: How would you rate your own performance in a job, knowing that it would go into your personnel file? Probably the bias would be toward the favorable. Nevertheless, self-appraisals help employees become involved in the whole evaluation process and may make them more receptive to feedback about areas needing improvement.

We said that performance appraisals may be done by peers, subordinates, customers, and oneself. Sometimes all these may be used in a technique called 360-degree assessment. In a "theater in the round," the actors in a dramatic play are watched by an audience on all sides of them—360 degrees. Similarly, as a worker, you have many people watching you from all sides. Thus has arisen the idea of the 360-degree assessment, or 360-degree feedback appraisal, in which employees are appraised not only by their managerial superiors but also by peers, subordinates, and sometimes clients, thus providing several perspectives. Typically, an employee chooses between 6 and 12 other people to make evaluations, who then fill out anonymous forms, the results of which are tabulated by computer. Or, using a Facebook-style program such as Performance Multiplier or Twitter-like software called Rypple, employees can solicit evaluations through social networking-style systems. The employee then goes over the results with his or her manager and together they put into place a long-term plan for performance goals. Incorporating 360-degree feedback into the performance appraisal process has advantages and disadvantages. Recent research found that "improvement is most likely to occur when feedback indicates that change is necessary, recipients have a positive feedback orientation, perceive a need to change their behavior, react positively to feedback, believe change is feasible, set appropriate goals to regulate their behavior, and take actions that lead to skill and performance improvement." At the heart of the process is the matter of trust. "Trust determines how much an individual is willing to contribute for an employer," says one expert. "Using 360 confidentially, for developmental purposes, builds trust; using it to trigger pay and personnel decisions puts trust at risk."

To increase performance, an estimated 60% of Fortune 500 companies (such as General Electric, Ford, Cisco, and Intel) have some variant of performance review systems known as forced ranking (or "rank and yank") systems. In forced ranking performance review systems, all employees within a business unit are ranked against one another and grades are distributed along some sort of bell curve—just like students being graded in a college course. Top performers (such as the top 20%) are rewarded with bonuses and promotions, the worst performers (such as the bottom 20%) are rehabilitated or dismissed. For instance, every year 10% of GE's managers are assigned the bottom grade, and if they don't improve, they are asked to leave the company. Proponents of forced ranking say it encourages managers to identify and remove poor performers and also structures a predetermined compensation curve, which enables them to reward top performers. If, however, the system is imposed on an organization overnight without preparation, by pitting employees against one another, it can produce shocks to morale, productivity, and loyalty. There may also be legal ramifications, as when employees file class-action lawsuits alleging that the forced ranking methods had a disparate effect on particular groups of employees. One recent study found that 14% of all companies surveyed used a forced ranking system, down from 42% in 2009.

The whole point of performance appraisal, of course, is to stimulate better job performance. But, says Lawrence Bossidy, former CEO of AlliedSignal, the typical appraisal is often three pages long and filled with vague, uncommunicative language and is useless to ensure that improvement happens. Bossidy recommends an appraisal take up half a page and cover just three topics: what the boss likes about your performance, what you can improve, and how you and your boss are going to make sure that improvement happens. To help increase employee performance, a manager can use two kinds of appraisals—formal and informal.

Formal appraisals are conducted at specific times throughout the year and are based on performance measures that have been established in advance. An emergency medical technician might be evaluated twice a year by his or her manager, using objective performance measures such as work attendance time sheets and more subjective measures such as a behaviorally anchored rating scales (BARS) to indicate the employee's willingness to follow emergency procedures and doctors' and nurses' orders. As part of the appraisal, the manager should give the employee feedback, describing how he or she is performing well and not so well and giving examples. Managers are sometimes advised to keep diaries about specific incidents so they won't have to rely on their memories (and so that their evaluations will be more lawsuit-resistant). Facts should always be used rather than impressions.

Formal appraisals are the equivalent of a student receiving a grade on a midterm test and a grade on a final test—weeks may go by in which you are unaware of how well you're doing in the course. Informal appraisals are the equivalent of occasional unscheduled pop quizzes and short papers or drop-in visits to the professor's office to talk about your work—you have more frequent feedback about your performance. Informal appraisals are conducted on an unscheduled basis and consist of less rigorous indications of employee performance. You may not feel comfortable about critiquing your employees' performance, especially when you have to convey criticism rather than praise. Nevertheless, giving performance feedback is one of the most important parts of the manager's job. Some suggestions for improvement appear in the table at left.

•Take a problem-solving approach, avoid criticism, and treat employees with respect. Recall the worst boss you ever worked for. How did you react to his or her method of giving feedback? Avoid criticism that might be taken personally. Example: Don't say, "You're picking up that bag of cement wrong" (which criticizes by using the word wrong). Say, "Instead of bending at the waist, a good way to pick up something heavy is to bend your knees. That'll help save your back." •Be specific in describing the employee's present performance and in the improvement you desire. Describe your subordinate's current performance in specific terms and concentrate on outcomes that are within his or her ability to improve. Example: Don't say, "You're always late turning in your sales reports." Say, "Instead of making calls on Thursday afternoon, why don't you take some of the time to do your sales reports so they'll be ready on Friday along with those of the other sales reps." •Get the employee's input. In determining causes for a problem, listen to the employee and get his or her help in crafting a solution. Example: Don't say, "You've got to learn to get here by 9:00 a.m. every day." Say, "What changes do you think could be made so that your station is covered when people start calling at 9:00?"

Do we work only for a paycheck? Many people do, of course. But money is only one form of compensation. Compensation has three parts: (1) wages or salaries, (2) incentives, and (3) benefits. In different organizations one part may take on more importance than another. For instance, in some nonprofit organizations (education, government), salaries may not be large, but health and retirement benefits may outweigh that fact. In a high-technology startup, the salary and benefits may actually be somewhat humble, but the promise of a large payoff in incentives, such as stock options or bonuses, may be quite attractive.

Base pay consists of the basic wage or salary paid employees in exchange for doing their jobs. The basic compensation is determined by all kinds of economic factors: the prevailing pay levels in a particular industry and location, what competitors are paying, whether the jobs are unionized, if the jobs are hazardous, what the individual's level is in the organization, and how much experience he or she has.

To induce employees to be more productive or to attract and retain top performers, many organizations offer incentives, such as commissions, bonuses, profit-sharing plans, and stock options.

Benefits, or fringe benefits, are additional nonmonetary forms of compensation designed to enrich the lives of all employees in the organization, which are paid all or in part by the organization. Examples are many: health insurance, dental insurance, life insurance, disability protection, retirement plans, holidays off, accumulated sick days and vacation days, recreation options, country club or health club memberships, family leave, discounts on company merchandise, counseling, credit unions, legal advice, and education reimbursement. For top executives, there may be "golden parachutes," generous severance pay for those who might be let go in the event the company is taken over by another company. Benefits are no small part of an organization's costs. In December 2011, private industry spent an average of $28.57 per hour worked in employment compensation, of which wages and salaries accounted for 70.5% and benefits for the remaining 29.5%.

"The unemployment rate is an abstraction, an aggregation of bodiless data," writes journalist/novelist Walter Kirn, "but losing a job is a lived experience, written on the nerves.... Some blame themselves and some blame everybody. Still others, not knowing whom to blame, explode." Among the major—and most difficult—decisions you will make as a manager are those about employee movement within an organization: Whom should you let go (painful for all)? promote? transfer? discipline? All these matters go under the heading of employee replacement. And, incidentally, any time you need to deal with replacing an employee in a job, that's a time to reconsider the job description to see how it might be made more effective for the next person to occupy it. You'll have to deal with replacement whenever an employee quits, retires, becomes seriously ill, or dies. Or you may initiate the replacement action by promoting, transferring, demoting, laying off, or firing.

Promotion—moving an employee to a higher level position—is the most obvious way to recognize that person's superior performance (apart from giving raises and bonuses). Three concerns are these: Fairness, Nondiscrimination, Other's Resentments

It's important that promotion be fair. The step upward must be deserved. It shouldn't be for reasons of nepotism (favoritism shown to relatives), cronyism (favoritism shown to close friends), or other kind of favoritism.

The promotion cannot discriminate on the basis of race, ethnicity, gender, age, or physical ability.

If someone is promoted, someone else may be resentful about being passed over. As a manager, you may need to counsel the people left behind about their performance and their opportunities in the future. In fact, if you are passed over yourself, it is important not to let your anger build. Instead, you should gather your thoughts, then go in and talk to your boss and find out what qualities were lacking, suggests one report. You should also create a career action plan and look for ways to improve your knowledge, skills, and abilities.

Transfer is movement of an employee to a different job with similar responsibility. It may or may not mean a change in geographical location (which might be part of a promotion as well). Employees might be transferred for four principal reasons: (1) to solve organizational problems by using their skills at another location; (2) to broaden their experience in being assigned to a different position; (3) to retain their interest and motivation by being presented with a new challenge; or (4) to solve some employee problems, such as personal differences with their bosses.

Poorly performing employees may be given a warning or a reprimand and then disciplined. That is, they may be temporarily removed from their jobs, as when a police officer is placed on suspension or administrative leave—removed from his or her regular job in the field and perhaps given a paperwork job or told to stay away from work. Alternatively, an employee may be demoted—that is, have his or her current responsibilities, pay, and perquisites taken away, as when a middle manager is demoted to a first-line manager. (Sometimes this may occur when a company is downsized, resulting in fewer higher-level management positions.)

Dismissals are of three sorts: Layoffs: The phrase being laid off tends to suggest that a person has been dismissed temporarily—as when a carmaker doesn't have enough orders to justify keeping its production employees—and may be recalled later when economic conditions improve. Downsizings: A downsizing is a permanent dismissal; there is no rehiring later. An automaker discontinuing a line of cars or on the path to bankruptcy might permanently let go of its production employees. Firings: The phrase being fired, with all its euphemisms and synonyms—being "terminated," "separated," "let go," "canned"—tends to mean that a person was dismissed permanently "for cause": absenteeism, sloppy work habits, failure to perform satisfactorily, breaking the law, and the like. It used to be that managers could use their discretion about dismissals. Today, however, because of the changing legal climate, steps must be taken to avoid employees suing for "wrongful termination." That is, an employer has to carefully document the reasons for dismissals. You also need to take into account the fact that survivors in the company can suffer just as much as, if not more than, their colleagues who were let go. Incidentally, in terms of your own career, be aware that dismissals rarely come as a surprise. Most bosses are conflict-averse, and you may see the handwriting on the wall when your own manager begins to interact with you less. The Practical Action box on the next page offers some suggestions for handling dismissals.

Starting in 1943, James Smith worked his way up from washing dishes in the galley of a passenger train's dining car to waiter, earning tips on top of his wages of 36 cents an hour. The union job with the Brotherhood of Sleeping Car Porters, the first African American union, enabled him to go to college, and when he left the railroad he was hired as a civil engineer for the city of Los Angeles. "His story," says one report, "is emblematic of the role the railroads and a railroad union played in building a foundation for America's black middle class." Unions also helped to grow the American (and European) middle classes in general, bringing benefits to all, organized or not. Labor unions are organizations of employees formed to protect and advance their members' interests by bargaining with management over job-related issues. Although the union movement is less the powerhouse than it was in the 1950s, it is still a force in many sectors of the economy.

Who's in a union (2011)? •11.8% of full-time U.S. workers—down from 35.5% in 1945. •6.9% of private-sector workers (7.2 million). •37% of government workers (7.56 million). •51.4% of unionized workers are in government—they surpassed private-sector union membership in 2009. •Most members: National Education Association; Service Employees International; State, County, & Municipal Employees; American Federation of Teachers; Food & Commercial Workers; Teamsters; Electrical Workers; Machinists & Aerospace Workers.

When workers in a particular organization decide to form a union, they first must get each worker to sign an authorization card, which designates a certain union as the workers' bargaining agent. When at least 30% of workers have signed cards, the union may ask the employer for official recognition. Usually the employer refuses, at which point the union can petition the National Labor Relations Board (NLRB) to decide which union should become the bargaining unit that represents the workers, such as the Teamsters Union, United Auto Workers, the American Federation of Teachers, or the Service Employees International Union, as appropriate. (Some workers, however, are represented by unions you would never guess: Zookeepers, for instance, are represented by the Teamsters, which mainly organizes transportation workers. University of California, Berkeley, graduate student instructors are represented by the United Auto Workers.) An election is then held by the NLRB, and if 50% or more of the votes cast agree to unionization, the NLRB certifies the union as the workers' exclusive representative.

Once a union is recognized as an official bargaining unit, its representatives can then meet with management's representatives to do collective bargaining—to negotiate pay and benefits and other work terms. When agreement is reached with management, the union representatives take the collective bargaining results back to the members for ratification—they vote to accept or reject the contract negotiated by their leaders. If they vote yes, the union and management representatives sign a negotiated labor-management contract, which sets the general tone and terms under which labor and management agree to work together during the contract period.

The key issues that labor and management negotiate are compensation, employee benefits, job security, work rules, hours, and safety matters. However, the first issue is usually union security and management rights.

A key issue is: Who controls hiring policies and work assignments—labor or management? This involves the following matters: The union security clause: The basic underpinning of union security is the union security clause, the part of the labor-management agreement that states that employees who receive union benefits must join the union, or at least pay dues to it. In times past, a union would try to solidify the union security clause by getting management to agree to a closed shop agreement—which is illegal today—in which a company agreed it would hire only current union members for a given job. Types of unionized and nonunionized workplaces: The four basic kinds of workplaces are: closed shop, union shop, agency shop, and open shop, as shown below. Right-to-work laws: Individual states are allowed (under the 1947 Taft-Hartley Act) to pass legislation outlawing union and agency shops. As a result, 22 states have passed right-to-work laws, statutes that prohibit employees from being required to join a union as a condition of employment. Business interests supporting such laws argue that forcing workers to join a union violates their rights and makes a state less attractive to businesses considering moving there. Union supporters say that states with such laws have overall lower wages and that all workers benefit from union gains, so everyone should be compelled to join.

Closed shop - Employer may hire only workers for a job who are already in the union - Illegal Union shop - Workers aren't required to be union members when hired for a job but must join the union within a specified time - Not allowed in 22 states (right-to-work states) Agency shop - Workers must pay equivalent of union dues but aren't required to join the union - Applies to public-sector teachers in some states, prohibited in others Open shop - Workers may choose to join or not join a union - Applies in 22 states (right-to-work states)

What kind of state do you live in? (Alaska and Hawaii are non-right-to-work states.)

Unions strive to negotiate the highest wage rates possible, or to trade off higher wages for something else, such as better fringe benefits. Some issues involved with compensation are as follows: Wage rates—same pay or different rates? Wage rates subject to negotiation include overtime pay, different wages for different shifts, and bonuses. In the past, unions tried to negotiate similar wage rates for unionized employees working in similar jobs for similar companies or similar industries. However, the pressure of competition abroad and deregulation at home has forced many unions to negotiate two-tier wage contracts, in which new employees are paid less or receive lesser benefits than veteran employees have. Example: Recently, as automakers began to create new jobs, new union hires were offered about half the pay ($14 an hour) that autoworkers were getting before ($28).150 Such two-tier wage systems can be attractive to employers, who are able to hire new workers at reduced wages, but it also benefits veteran union members, who experience no wage reduction. However, some companies have been trying to make this wage concession permanent—a big setback for labor. Cost-of-living adjustment: Because the cost of living is always going up (at least so far), unions often try to negotiate a cost-of-living adjustment (COLA) clause, which during the period of the contract ties future wage increases to increases in the cost of living, as measured by the U.S. Bureau of Labor Statistics' consumer price index (CPI). (An alternative is the wage reopener clause, which allows wage rates to be renegotiated at certain stated times during the life of the contract. Thus, a 10-year contract might be subject to renegotiation every two years.) Givebacks: During tough economic times, when a company (or, in the case of public employee unions, a municipality) is fighting for its very survival, management and labor may negotiate givebacks, in which the union agrees to give up previous wage or benefit gains in return for something else. Usually the union seeks job security, as in a no-layoff policy.

New employees are paid less or receive lesser benefits than veteran employees have.

Because the cost of living is always going up (at least so far), unions often try to negotiate a cost-of-living adjustment (COLA) clause, which during the period of the contract ties future wage increases to increases in the cost of living.

The union agrees to give up previous wage or benefit gains in return for something else.

Even when a collective-bargaining agreement and contract has been accepted by both sides, there may likely be ongoing differences that must be resolved. Sometimes differences lead to walkouts and strikes, or management may lock out employees. However, conflicts can be resolved through grievance procedures and mediation or arbitration.

A grievance is a complaint by an employee that management has violated the terms of the labor-management agreement. Examples: An employee may feel he or she is being asked to work too much overtime, is not getting his or her fair share of overtime, or is being unfairly passed over for promotion. Grievance procedures are often handled initially by the union's shop steward, an official elected by the union membership who works at the company and represents the interests of unionized employees on a daily basis to the employees' immediate supervisors. If this process is not successful, the grievance may be carried to the union's chief shop steward and then to the union's grievance committee, which deals with its counterparts higher up in management. If the grievance procedure is not successful, the two sides may decide to try to resolve their differences through mediation or arbitration.

Mediation is the process in which a neutral third party, a mediator, listens to both sides in a dispute, makes suggestions, and encourages them to agree on a solution. Mediators may be lawyers or retired judges or specialists in various fields, such as conflict resolution or labor matters.

Arbitration is the process in which a neutral third party, an arbitrator, listens to both parties in a dispute and makes a decision that the parties have agreed will be binding on them. Arbitrators are often retired judges.