Video Case 7.3: Dan Formosa: At the Forefront of Smart Design

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Learning Objectives

1 Explain the role of human resources: the people behind the people.

2 Describe recruitment and selection.



Chapter



8



3 Discuss orientation, training, and evaluation.

4 Describe compensation.

5 Discuss employee separation.

6 Explain the different methods for motivating employees.

7 Discuss labor–management relations.



Abel MitjaVarela/iStockphoto



Human Resource Management:

From Recruitment to Labor

Relations



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Hiring Heroes Is Good

Business



U



. S. military veterans returning from wars in Afghanistan

and Iraq have had a difficult time finding employment, making

the transition from military to civilian life even more challenging. A recent government study reports that the unemployment

rate among military vets is 4 percent above the national unemployment rate. And an estimated 30 percent of veterans under

the age of 25 are jobless. With help from several well-known

companies, veterans may see those unemployment numbers

change dramatically for the better.

The Walt Disney Company recently announced a new initiative to

hire 1,000 military veterans over the next several years. Dubbed

“Heroes Work Here,” the program will span across all segments

of the company and will be implemented through career fairs

designed to showcase opportunities for returning military personnel. In addition, the company will assist military families and veterans during their transition to civilian life and launch a national

public awareness campaign to encourage other employers across

the country to hire veterans. Announcing the new program,



Disney CEO Robert Iger said, “It’s a measure of our respect for

how much they have sacrificed on our behalf, and our sincere

gratitude for their extraordinary contributions to this country.”

Walmart has also made a commitment to hire military veterans

returning home. Recently the company launched a five-year,

$10 million program to promote job training among former

armed forces personnel. Walmart CEO Bill Simon says the company “loves to hire veterans.” Simon says military personnel

not only know how to perform under pressure but they also are

quick learners and team players. The company actively recruits

veterans, offering them programs to help transition into civilian jobs. Walmart recently started a career Web site for former

active-duty service members interested in building a career with

the company.

Over the years, returning military veterans have played an

important role in helping the U.S. economy get back on track

by bringing their talents to the civilian workforce. NBC’s Tom

Brokaw observes, “there is a tradition of American business

growing its leadership from military ranks.”1



Overview

The importance of employees to the

success of any organization is the very basis

of management. In this chapter, we explore

the important issues of human resource

management and motivation. We begin

with a discussion of the ways organizations

attract, develop, and retain employees. Then

we describe the concepts behind motivation

and the way human resource managers apply



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them to increase employee satisfaction and

organizational effectiveness.

We also discuss the reasons why labor

unions exist and focus on legislation

that affects labor–management relations.

The process of collective bargaining is

then discussed, along with tools used by

unions and management in seeking their

objectives.



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1



human resource

management function of

attracting, developing, and

retaining employees who

can perform the activities

necessary to accomplish

organizational objectives.



Human Resources: The People

Behind the People

A company is only as good as its workers. If people come to work each day eager to

see each other, to do their very best on the job, to serve their customers, and to help their

firm compete, then it’s very likely that company will be a success. The best companies value

their employees just as much as their customers—without workers, there would be no

goods or services to offer customers. The Walt Disney Company and Walmart understand

this. Management at these companies know that hiring good workers—including military

veterans—is vital to their overall success. Achieving the highest level of job satisfaction and

dedication among employees is the goal of human resource management, which attracts,

develops, and retains the employees who can perform the activities necessary to accomplish

organizational objectives.

Not every firm is large enough to have an entire human resources department. But whoever performs this function generally does the following: plan for staffing needs, recruit and

hire workers, provide for training and evaluate performance, determine compensation and

benefits, and oversee employee separation. In accomplishing these five tasks, shown in

Figure 8.1, human resource managers achieve their objectives of

1. providing qualified, well-trained employees for the organization;



1. What are the five

main tasks of a human

resource manager?

2. What are the three overall objectives of a human

resource manager?



3. satisfying individual employee needs through monetary compensation, benefits, opportunities to advance, and job satisfaction.



Anthony Behar/Sipa Press/AP/Wide World Photos



Assessment

Check



2. maximizing employee effectiveness in the organization; and



Human resource plans must be based on an organization’s overall competitive strategies. In conjunction with other managers, human resource managers predict how many

employees a firm or department will need and what

skills those workers should bring to the job—along

with what skills they might learn on the job. Human

resource managers are often consulted when a firm

is considering reducing costs by laying off workers or increasing costs by hiring new ones. They

may be involved in both long-term and short-term

planning.



2



Hiring good workers—including military veterans—is the key to a company’s overall

success. Job fairs are popping up across the country, such as the U.S. Chamber of

Commerce "Hire 500,000 Heroes" program, which aims to hire 500,000 military veterans

and their spouses as a way of helping these heroes transition back to civilian life.



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Recruitment and

Selection

Human resource managers recruit and help

select the right workers for a company. To ensure

that job candidates bring the necessary skills to the

job or have the desire and ability to learn them, most

firms implement the recruitment and selection

process shown in Figure 8.2.



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FIGURE



8.1



FIGURE



Human Resource Management Responsibilities



8.2



Steps in the Recruitment and

Selection Process

Identify Job Requirements



Employee Recruitment

and Selection



Planning for

Staffing Needs



Core

Responsibilities

of Human

Resource

Management



Employee

Separation



Employee

Training and

Performance

Evaluation



Choose Sources of

Candidates

• Internet

• Schools

• Employee Referrals

• Promotion from Within

• Colleges

• Want Ads



Employee

Compensation

and Benefits



Review Applications

and Résumés



Interview Candidates



Conduct Employment

Tests and Check References



Finding Qualified Candidates

When the economy dips and jobs are lost, many people compete for a limited number of positions. When a company develops a great reputation for benefits or working

conditions, it might be inundated with applications. But even with a large number of

job candidates competing for a small number of openings, companies sometimes have

trouble finding the right person for each position. According to a recent survey by the

National Association of Colleges and Employers, firms are currently looking for candidates with these strengths: verbal communication skills, strong work ethic, teamwork

skills, analytical skills, and initiative.2

In addition to traditional methods of recruiting, such as college job fairs, personal

referrals, and want ads, most companies now rely on their Web sites. A firm’s Web site

might contain a career section with general employment information and a listing of

open positions. Applicants are often able to submit a résumé and apply for an open

position online. When applying for jobs online, it’s helpful to use the key words in the

job description as part of the application. Also, if a current résumé is required as part of

the job application, tailor the wording of the résumé to reflect the key components of the

job you are seeking.



Conduct Follow-Up Interviews



Select a Candidate and

Negotiate an Offer

• Compensation and

Benefits

• Job Performance

Expectations

• Accommodations for

Disabilities



Internet recruiting is such a quick, efficient, and inexpensive way to reach a large pool

of job seekers that the vast majority of companies currently use the Internet, including social

networking sites, to fill job openings. This is also the best way for firms to reach new graduates and workers in their 20s and even 30s. Using a social media site such as LinkedIn or

Facebook allows firms to communicate directly with candidates and get feedback, as the “Hit

& Miss” feature explains.

Chapter 8 Human Resource Management: From Recruitment to Labor Relations



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Hit



& Miss

Using Social Media for Recruitment



Companies use social networking for many purposes, but finding

new employees has become the biggest and continues to grow. More

than 7 in 10 executives at large U.S. firms use social media to recruit

new talent, reveals one survey, and 89 percent of HR professionals in

another survey plan to do so, up from 83 percent last year. Two in

three firms using LinkedIn, Facebook, and Twitter report making successful hires through these sites. Job boards, in contrast, seem to be on

the decline.

LinkedIn and Facebook are the networks recruiters use most

heavily. Here employers maintain dedicated company pages, scour visitors for potential candidates, and join discussions and user groups to

encourage applicants. Through firms like Jobvite they even use social

networks to automate employee referrals.

A word of caution to potential job seekers: It is important to be

careful about posting information in public places—even online. Once

material is posted via social media, it is available for everyone to see.



Questions for Critical Thinking

1. One consultant says companies like social networking but

don’t know how to measure results. How should firms

judge recruitment results from social networking?

2. Some job seekers like separate social and professional networks and find Facebook messages about job openings

“invasive.” How can recruiters overcome this bias?

Sources: Jessica Miller-Merrell, “Corporate Social Media Risk and Employment Law

Concerns When Hiring,” http://www.blogging4jobs.com, March 5, 2012; “Recruiting

Tops List of Corporate Social Media Initiatives,” Business Wire, October 5, 2011, www

.businesswire.com; “$ Facebook Recruiting Tips Inspired by Sodexo,” TalentMinded.com,

September 15, 2011, http://talentminded.com; Christina DesMarais, “Facebook as a

Recruiting Tool,” Inc., August 9, 2011, http://technology.com.com; Joe Light, “Recruiters

Troll Facebook for Candidates They Like,” The Wall Street Journal, August 8, 2011, http://

online.wsj.com; Susan Adams, “More Employers Using Social Media to Hunt for Talent,”

Forbes, July 13, 2011, www.forbes.com.



It’s also important for job seekers to be as specific as possible when using the Internet to

look for a job. For example, if possible, they should apply through the firm’s Web site instead

of one of the large, third-party job sites. “Employers see that the vast majority of applicants

coming through these [third-party] sites have not done sufficient research, and often are

questionable fits for the advertised positions,” notes one human resource expert.3

Recruiting techniques continue to evolve as technology advances. JobsinPods.com is an

online library of podcast interviews with hiring managers and employees at a variety of U.S.

companies, including AT&T, Intel, and IBM. New podcasts, also called jobcasts, are posted

in a blog format and older podcasts are archived. Some describe employers’ hiring needs,

while others talk about what it’s like to work at a particular company. Job seekers can also

download the podcasts to an iPod and listen to them at their leisure.4



Selecting and Hiring Employees

It’s the human resource manager’s job to select and hire employees, often in conjunction with department managers or supervisors. Every firm must follow state and federal

employment laws. Title VII of the Civil Rights Act of 1964 prohibits employers from discriminating against applicants based on their race, religion, color, sex, or national origin.

The Americans with Disabilities Act of 1990 prohibits employers from discriminating

against disabled applicants. The Civil Rights Act created the Equal Employment Opportunity

Commission (EEOC) to investigate discrimination complaints. The Uniform Employee

Selection Guidelines were adopted by the EEOC in 1978 to further clarify ways in which

employers must ensure that their employees will be hired and managed without discrimination.5 The EEOC also helps employers set up affirmative action programs to increase job

opportunities for women, minorities, people with disabilities, and other protected groups.

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The Civil Rights Act of 1991 expanded the alternatives available to victims

of employment discrimination by including the right to a jury trial, punitive

damages, and damages for emotional distress. At the same time, opponents to

such laws have launched initiatives to restrict affirmative action standards and

protect employers against unnecessary litigation.



Because of the high cost of such lawsuits and settlements, human resource

managers must understand the laws in order to prevent unintended violations.

Even the process of interviewing a job candidate is covered by law. An interviewer may not ask any questions about marital status, children, race or nationality, religion, age, criminal records, mental illness, medical history, or alcohol

and substance abuse problems. For more information about employment law,

visit the Web sites of the Society for Human Resource Management (http://

www.shrm.org) and the EEOC (http://www.eeoc.gov).

Navigating the maze of hiring restrictions is a challenge. Some firms try

More and more companies are using the Internet

to screen out high-risk employees by requiring drug testing for job applicants,

to recruit potential employees. Posting job openings

particularly in industries that deal with public safety—such as air travel or truck

online (including social networking sites) is a quick,

driving. But drug testing is controversial because of privacy issues. Also, posiefficient, and inexpensive way for companies to reach

a large pool of job seekers.

tive test results may not be accurate. Another issue is whether employees can

be required to speak a particular language—usually English—in the workplace.

Although the EEOC views this as discrimination, one state recently legalized the practice.

And some employers in other states are seeking guidance on whether they can lawfully

require English to be spoken in the workplace.7 Employers may legally establish requirements for specific jobs—a bona fide occupational qualification (BFOQ)—that may cut across

EEOC protected classes. For example, a designer of women’s clothes by necessity is permitted to hire only female models to show off new designs.

Recruitment and selection are expensive. There are costs for advertising, interviewing,

administering employment tests and even medical exams. Once an applicant is hired, there

are costs for training and perhaps equipment such as a computer. But a bad hiring decision

is even more expensive, because the firm has to go through the whole process again to find

the right person. One estimate states that the cost of hiring the wrong top-level manager

amounts to 24 times the candidate’s annual pay. To avoid bad hiring decisions, some companies require job candidates to perform tasks related to the job they’re seeking as part of the

job application process. For example, a company might ask job candidates for a sales position

to work with a company salesperson in the local sales region before making a final decision

on which candidate to hire.

To avoid these mistakes—and to get the right person for the job—many employers require applicants to complete employment tests. These tests may verify certain

skills, including mechanical, technical, language, and computer skills. One example is the

Wonderlic Basic Skills Test, which is a cognitive ability test that measures a person’s abilities

in understanding words, numbers, and logic. Cognitive ability tests accurately predict job

performance on many types of jobs.

Chapter 8 Human Resource Management: From Recruitment to Labor Relations



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MBI_Images/iStockphoto



These laws have been the basis for thousands of legal cases over the

years. Recently, Best Buy agreed to pay a $290,000 settlement to nine former

employees who accused the retailer of discrimination against female, African

American, and Latino employees. The employees claimed Best Buy had

denied them promotions and more lucrative sales positions because of their

gender and race.6 Failure to comply with equal employment opportunity legislation can result in costly legal fees, expensive fines, bad publicity, and poor

employee morale.



Assessment

Check

1. Describe several recruiting techniques used

by human resource

managers.

2. What is the function of

the Equal Employment

Opportunity Commission

(EEOC)?



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3



Orientation, Training, and Evaluation

Once hired, employees need to know what is expected of them and how well they are

performing. Companies provide this information through orientation, training, and evaluation. A new hire may complete an orientation program administered jointly by the human

resource personnel and the department in which the employee will work. During orientation, employees learn about company policies regarding their rights and benefits. They

might receive an employee manual that includes the company’s code of ethics and code of

conduct. And they’ll usually receive some form of training.



Training Programs

Training is a good investment for both employers and employees. Training provides

workers with an opportunity to build their skills and knowledge, preparing them for new

job opportunities within the company. It also provides employers with a better chance at

retaining long-term, loyal, high-performing workers. Companies of all sizes take creative

approaches to training. Nugget Market, a nine-store California supermarket chain named as

one of Fortune’s “100 Best Companies to Work For,” rolls out continuous information about

products, the company, and updates from executives, on a large, flat screen monitor in each

store. Employees who watch—and absorb—the information are eligible for bonus rewards

that range from $20 to $1,000.8



On-the-Job Training One popular teaching method is on-the-job training, which

prepares employees for job duties by allowing them to perform tasks under the guidance

of experienced employees. A variation of on-the-job training is apprenticeship training, in

which an employee learns a job by serving for a time as an assistant to a trained worker.

While American apprenticeships usually focus on blue-collar trades—such as plumbing

and heating services—in Europe, many new entrants to white-collar professions complete

apprenticeships. McDonald’s sponsors apprenticeship-training programs in its U.K. restaurants as part of an economic stimulus plan launched by the British government. Offering

10,000 apprenticeships per year, the company says. “We’re as serious about education as we

are about burgers and fries.”9

Classroom and Computer-Based Training Many firms offer some form

of classroom instruction such as lectures, conferences, and workshops or seminars. Ernst

& Young, a large tax-service firm, offers a training program called Ernst & Young and You

(EYU), focusing on classroom learning, experiential learning, and coaching.10

Many firms are replacing classroom training with computer-based training programs,

which can significantly reduce the cost of training. Computer-based training offers consistent

presentations, along with videos that can simulate the work environment. Employees can

learn at their own pace without having to sign up for a class. Through online training programs, employees can engage in interactive learning—they might conference with a mentor

or instructor who is located elsewhere or they might participate in a simulation requiring

them to make decisions related to their work. An extension of computer-based training is

multimedia training, which may combine text with sound, 3-D animation, high-resolution

graphics, games, simulations, and the like.



Management Development A management development program provides

training designed to improve the skills and broaden the knowledge of current or future

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managers and executives. Training may be aimed at increasing specific technical knowledge

or more general knowledge in areas such as leadership and interpersonal skills. Glimmerglass

Consulting Group, based in New Hampshire, provides management training in leadership,

team development, and strategic implementation. After assessing a client’s work environment as well as the strengths and weaknesses of its management team, Glimmerglass coaches

design a program intended to strengthen management’s leadership and team skills. The

program may involve an outdoor learning experience such as rock climbing. Glimmerglass’s

client list includes such firms as American Express, Big Brothers/Big Sisters, Pfizer, and Shell

International.11

Despite the importance of training talented employees for managerial jobs, many companies are searching for new hires to fill gaps in their executive ranks because they failed to

develop future managers. In a move that surprised the international banking world, David de

Rothschild appointed a successor from outside his family—the first in 200 years—to become

CEO of the Rothschild banking empire. Nigel Higgins was no stranger to the firm; he had

worked there for 27 years. But Rothschild chose Higgins because there was no family member ready to handle the job.12



performance appraisal 

evaluation of and feedback on an employee’s job

performance.



Performance Appraisals



Tetra Images/Getty Images, Inc.



Feedback about performance is the best way

for a company—and its employees to improve.

Most firms use annual performance appraisals to evaluate an employee’s job performance

and provide feedback about it. A performance

appraisal can include assessments of everything

from attendance to goals met. Based on this

evaluation, a manager will make decisions about

compensation, promotion, additional training

needs, transfers, or even termination. While performance appraisals are common, not everyone

agrees about their usefulness. See the “Solving

an Ethical Controversy” feature for a discussion

of their pros and cons.

Some management experts argue that a

performance review is skewed in favor of a single manager’s subjective opinion—whether it’s

Employees value face-to-face feedback on their performance. Evaluations that are fair and

positive or negative—and that most employees

consistent can improve an organization’s productivity and profitability.

are afraid to speak honestly to their managers

during a performance review. If a performance

review is to be at all effective, it should meet the following criteria:

• be linked to organizational goals;

• be based on objective criteria;

• take place in the form of a two-way conversation.13

Some firms conduct peer reviews, in which employees assess the performance of their

co-workers, while other firms ask employees to review their supervisors and managers. One

such performance appraisal is the 360-degree performance review, a process that gathers feedback

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Solving an Ethical Controversy

Who Needs Performance Appraisals?

Debate continues about the value of formal performance appraisals. Employers claim scheduled check-ins keep employees on their toes

and aware of what they must achieve to win raises and promotions,

and some workers agree. There’s no question, however, that appraisals



can be stressful, time-consuming, and, when bungled, even counterproductive.



PRO



CON



1. Performance appraisals require managers and employees to



invest too much time and energy and often result only in reducing motivation and productivity.



2. Annual appraisals are the norm, but they are too infrequent to

offer useful feedback for improved performance.



Are performance appraisals a waste of time?



1. Appraisals offer managers a formal, planned opportunity to help

employees improve their performance through feedback and

goal setting.



2. Employees can use the opportunity to ask questions, participate

in goal setting, and promote recent accomplishments.



Summary



Some advocate shorter, quarterly appraisals to provide more frequent opportunities for feedback and

improvement. Others say employees should take ownership of appraisals and be free to ask anyone in the

company for feedback at any time. Meanwhile new software such as Rypple can create ongoing feedback

loops to gather praise, thanks, and coaching into a single, continuous feed. “We think that real-time, ongoing feedback helps us move fast and avoid too much bureaucracy,” says a Rypple executive.

Sources: Company Web site, Allonhill, www.allonhill.com, accessed January 31, 2012; John Reh, “Why Annual Performance

Reviews Are a Waste of Time,” About.com Management, accessed January 30, 2012, http://management.about.com; Thomas

Goetz, “How Facebook Uses Feedback Loops: Meet Rypple,” Wired.com, June 20, 2011, www.wired.com; “Should Performance

Reviews Be Fired?” Knowledge@Wharton, April 27, 2011, http://www.knowledge.wharton.upenn.edu.



from a review panel of 8 to 12 people, including co-workers, supervisors, team members, subordinates, and sometimes even customers. The idea is to get as much frank feedback from as

many perspectives as possible. By its very nature, this kind of review involves a lot of work, but

employees benefit from it because they are more involved with the process and ultimately better understand their own strengths, weaknesses, and roles in the company. Managers benefit

because they get much more in-depth feedback from all parts of the organization. Companies

such as Halogen Software offer computer programs to help firms gather and sift through this

type of data. Organizations as diverse as Dole, Jelly Belly, Princess Cruises, and the San Diego

Zoo use products from Canada-based Halogen. However, a potential weakness of this type of

review is its anonymous nature.14



Assessment

Check

1. What are the benefits of

computer-based training?

2. What is a management

development program?

3. What are the four criteria

of an effective performance appraisal?

compensation amount

employees are paid in

money and benefits.



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4



Compensation

Compensation—how much employees are paid in money and benefits—is one of the

most highly charged issues faced by human resource managers. The amount employees are

paid, along with whatever benefits they receive, has a tremendous influence on where they

live, what they eat, and how they spend their leisure time. It also has an effect on job satisfaction. Balancing compensation for employees at all job levels can be a challenge for human



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Hit



& Miss

Stop Demotivating Employees—And They’ll Be Motivated



What’s the secret to nurturing high-performing employees? Some

experts believe the answer lies not in motivating workers, but in stopping

their demotivation.

Most new employees are highly motivated, but their enthusiasm

drops off significantly after only six months and continues to decline,

sometimes for years. The challenge for managers: staunch the outflow

of the company’s lifeblood.

What keeps employees engaged? Research shows it’s rarely

the extra two weeks’ vacation or perks like an onsite gym. Actually,

employees care about things that don’t cost companies a dime: a sense

of pride in achievement, having managers’ respect, and building supportive relationships at work. Employees need to feel connected to

their company’s mission. It’s up to the manager to convey that purpose.

Managers must also acknowledge accomplishments. Sometimes a simple “thank you” or “good job” is enough. Managers also must communicate clearly and frequently, promoting teamwork whenever possible.



Savvy managers watch for sagging morale and move to repair it. They

make sure to listen to their employees, involve them in decisions about their

own jobs, and provide reinforcement and recognition for top performance.

Questions for Critical Thinking

1. How do employees lose their motivation to perform on

the job?

2. What is the cost to a business when it loses a valued

employee?

Sources: Gary M. Stern, “A Digital Pat on the Back from the Boss: What’s It Worth?”

http://management.fortune.cnn.com, January 26, 2012; Kishore Krishnan, “Stop

Demotivating Employees,” Ezine Articles, http://ezinearticles.com, accessed February 22,

2011; Dan Ariely, “(De)motivating Employees,” February 5, 2011, http://danariely.com;

David Sirota, Louis A. Mischkind, and Michael Irwin Seltzer, “Stop Demotivating Your

Employees!” Harvard Business Review, Summer 2010, pp. 14–15.



resource managers. And while compensation certainly is a factor in job satisfaction, it isn’t

the only one, as discussed in the “Hit & Miss” feature.

Everyone likes to read about the companies that pay their employees the most in cash

and benefits. Fortune magazine’s annual “100 Best Companies to Work For” list includes cash

and benefits information as well as other interesting facts. For example, even during a challenging economy, there are several companies on the list that have never laid off employees,

including the Container Store chain and QuikTrip convenience stores.15

The terms wages and salary are often used interchangeably, but actually are different.

Wages are based on an hourly pay rate or the amount of work accomplished. Typical wage

earners are factory workers, construction workers, auto mechanics, retail salespeople, and

restaurant wait staff. Salaries are calculated periodically, such as weekly or monthly. Salaried

employees receive a set amount of pay that does not fluctuate with the number of hours

worked. Whereas wage earners receive overtime pay, salaried workers do not. Office personnel, executives, and professional employees usually receive salaries.



wage pay based on an

hourly rate or the amount

of work accomplished.

salary pay calculated on

a periodic basis, such as

weekly or monthly.



An effective compensation system should attract well-qualified workers, keep them satisfied

in their jobs, and inspire them to succeed. It’s also important to note that certain laws, including minimum wage, must be taken into account. The Lilly Ledbetter Fair Pay Act of 2009 is

one such law, which gives workers more time to file a complaint for pay discrimination.16

Most firms base their compensation policies on the following factors: (1) what competing companies are paying, (2) government regulation, (3) cost of living, (4) company profits,

and (5) an employee’s productivity. Many firms try to balance rewarding workers with maintaining profits by linking more of their pay to superior performance. Firms try to motivate

employees to excel by offering some type of incentive compensation in addition to salaries or

wages. These programs include the following:

• profit sharing, which awards bonuses based on company profits;

• gain sharing, when companies share the financial value of productivity gains, cost savings, or quality improvements with their workers;

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• lump-sum bonuses and stock options, which reward one-time cash payments

and the right to purchase stock in the company based on performance;



FIGURE



8.3



Four Forms of Incentive Compensation

Profit

Sharing

Bonus based on

company profits



Lump-Sum Bonus

One-time cash payment

or option to buy shares of

company stock based

on performance



employee benefits 

additional compensation

such as vacation, retirement

plans, profit-sharing, health

insurance, gym memberships, child and elder care,

and tuition reimbursement,

paid entirely or in part by

the company.



• pay for knowledge, which distributes wage or salary increases as employees learn new job tasks.



Gain

Sharing

Bonus based on

productivity gains,

cost savings, or

quality improvements



Figure 8.3 summarizes the four types of incentive compensation programs.



Pay for

Knowledge

Salary increase

based on learning

new job tasks



Employee Benefits



In addition to wages and salaries, firms provide benefits to employees

and their families as part of their compensation. Employee benefits—

such as vacation, retirement plans, profit-sharing, health insurance, gym

memberships, child and elder care, and tuition reimbursement—are sometimes offered by the company. Benefits represent a large component of an

employee’s total compensation. Although wages and salaries account for around 70 percent

of the typical employee’s earnings, the other 30 percent takes the form of employee benefits.17 Table 8.1 shows the breakdown of an average worker’s benefits as compared to wages

or salary.

Some benefits are required by law. U.S. firms are required to make Social Security and

Medicare contributions, as well as payments to state unemployment insurance and workers’

compensation programs, which protect workers in case of job-related injuries or illnesses.

The Family and Medical Leave Act of 1993 requires covered employers to offer up to 12

weeks of unpaid, job-protected leave to eligible employees. Firms voluntarily provide other

employee benefits, such as child care and health insurance, to help them attract and retain

employees. Some states, such as California, New Jersey, and Washington, have laws mandating paid family leave.



TABLE



8.1



Average Costs for Employee Compensation



TYPE OF COMPENSATION



PERCENTAGE OF TOTAL COMPENSATION



Wages and salaries



68.3%



Benefits



31.6



Paid leave



7.0



Supplemental pay



2.0



Insurance



9.7



Health benefits



9.2



Retirement and savings



5.5



Legally required benefits



7.4



Source: Bureau of Labor Statistics, “Employer Costs for Employee Compensation,” press release, http://www.bls.gov, accessed

March 16, 2012.



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Part 3 Management: Empowering People to Achieve Business



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