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Principles of Management Unit 7: Human Resource Management

An organization's people are often its most important competitive advantage. This unit follows the human resource management process from planning and hiring through training, appraisal, pay and labor relations, along with the laws that shape each step.

Covers: The HRM process and employment law, Human resource planning: job analysis, descriptions and specifications, Recruitment and decruitment, Selection: reliability, validity and realistic job previews, Orientation, training and development, Performance appraisal methods and rating errors, Compensation, benefits and labor relations

Study guide

Human resource management (HRM) is the set of activities that get the right people into the right jobs and keep them performing well. The HRM process has eight steps: human resource planning, recruitment or decruitment, selection, orientation, training, performance management, compensation and benefits, and career development. The process operates inside a legal environment. In the United States, Title VII of the Civil Rights Act of 1964 bans employment discrimination based on race, color, religion, sex or national origin; the Age Discrimination in Employment Act protects workers 40 and older; and the Americans with Disabilities Act requires reasonable accommodation for qualified people with disabilities. The Equal Employment Opportunity Commission (EEOC) enforces these laws.

Human resource planning makes sure the organization has the right number and kinds of people in the right places at the right times. It starts with a job analysis, which defines jobs and the behaviors needed to perform them. A job analysis produces two documents: a job description, which describes what the job holder does, how and why (tasks, duties, working conditions), and a job specification, which states the minimum qualifications a person needs (knowledge, skills, abilities, education). Comparing current workforce supply with future needs shows whether to recruit (attract applicants) or decruit (reduce the workforce through layoffs, attrition, transfers, reduced hours or early retirement).

Recruitment sources include internal searches, employee referrals, company websites, job boards, college recruiting and agencies. Internal recruiting is cheaper and boosts morale but limits new ideas; referrals tend to produce good, well-informed hires. Selection predicts which applicants will succeed. A good selection device must be reliable (it measures consistently) and valid (there is a proven link between the device and job performance). Common devices include applications, written tests, work sampling, assessment centers, interviews, background checks and physical exams. A realistic job preview shows both positive and negative information about the job and reduces early turnover. Under the four-fifths rule, adverse impact is suggested when one group's selection rate is less than 80% of the rate for the group with the highest rate.

New hires need orientation, which introduces them to the job (work unit orientation) and the organization (organization orientation). Training can be on-the-job (job rotation, mentoring, apprenticeships, understudy assignments) or off-the-job (classroom, online, simulations, vestibule training). Performance management sets standards and appraises performance using methods such as written essays, critical incidents, graphic rating scales, behaviorally anchored rating scales (BARS), multiperson comparisons, MBO and 360-degree feedback from supervisors, peers, employees and customers. Common rater errors include the halo effect (one trait colors the whole rating), leniency, central tendency (rating everyone average) and recency (focusing only on recent events).

Compensation includes base wages and salaries, incentives and benefits. Pay levels depend on factors such as job type, industry, company size, location and the firm's pay philosophy. Skill-based pay rewards employees for skills they can demonstrate, while variable pay (bonuses, profit sharing, commissions) ties pay to performance. The Fair Labor Standards Act sets the federal minimum wage and overtime rules. Benefits include legally required items (Social Security, unemployment insurance, workers' compensation) and voluntary ones (health insurance, retirement plans, paid time off). A labor union represents workers and bargains collectively with management; the National Labor Relations Act of 1935 (Wagner Act) protects workers' right to organize.

Key ideas

• HRM is a process: plan, recruit or decruit, select, orient, train, appraise, compensate and develop careers.
• Federal laws such as Title VII, the ADEA and the ADA limit discrimination in every HR decision.
• Job analysis produces a job description (the job) and a job specification (the person).
• Selection devices must be both reliable and valid; validity requires a proven link to job performance.
• Realistic job previews lower turnover by giving applicants an honest picture of the job.
• Appraisal methods range from essays and rating scales to BARS and 360-degree feedback, and raters must avoid halo, leniency, central tendency and recency errors.
• Compensation mixes base pay, incentives such as variable and skill-based pay, and benefits.

Formulas and rules

Common mistakes

• Confusing the job description (duties of the job) with the job specification (qualifications of the person).
• Thinking a reliable test must be valid; a test can measure consistently and still fail to predict job performance.
• Applying the four-fifths rule by subtracting selection rates instead of dividing them.
• Mixing up the halo effect (one trait drives the whole rating) with leniency (rating everyone too high).
• Thinking decruitment means only layoffs; it also includes attrition, transfers, reduced workweeks and early retirement.

Before the test, make sure you can

• List the steps of the HRM process in order.
• Identify the main U.S. employment laws and what each protects.
• Distinguish a job description from a job specification.
• Compare recruitment sources and decruitment options.
• Explain reliability and validity and why realistic job previews reduce turnover.
• Apply the four-fifths rule and calculate a turnover rate.
• Identify appraisal methods and common rater errors from examples.
• Explain base pay, variable pay, skill-based pay, benefits and the role of unions.

Words to know

Human resource management

The activities that attract, develop, motivate and keep a high-performing workforce.

Title VII of the Civil Rights Act of 1964

U.S. law banning employment discrimination based on race, color, religion, sex or national origin.

Americans with Disabilities Act

U.S. law that bans discrimination against qualified people with disabilities and requires reasonable accommodation.

Job analysis

An assessment that defines jobs and the behaviors needed to perform them.

Job description

A written statement of what a job holder does, how it is done and why it is done.

Job specification

A written statement of the minimum qualifications a person must possess to perform a job.

Recruitment

Locating, identifying and attracting capable applicants.

Decruitment

Reducing an organization's workforce through layoffs, attrition, transfers or other means.

Reliability

The degree to which a selection device measures the same thing consistently.

Validity

A proven relationship between a selection device and a relevant criterion such as job performance.

Realistic job preview

A preview of a job that includes both positive and negative information about it.

Four-fifths rule

A guideline that adverse impact may exist if a group's selection rate is below 80% of the highest group's rate.

Behaviorally anchored rating scale (BARS)

An appraisal method that rates employees on specific job behaviors along a scale.

360-degree appraisal

A performance appraisal that uses feedback from supervisors, peers, employees and others.

Halo effect

A rating error in which one positive or negative trait shapes the rater's judgment of all others.

Skill-based pay

A pay system that rewards employees for the job skills they can demonstrate.

Variable pay

A pay system in which compensation depends on performance, such as bonuses or profit sharing.

Labor union

An organization that represents workers and bargains collectively with management.

Sample practice questions

30 more questions like these, from level 1 to 5, are in the practice set.