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HUMAN RESOURCE MANAGEMENT

STUDY GUIDE

PROGRAMME : MBA Year 1

CREDIT POINTS : 20 points

NOTIONAL LEARNING : 200 hours over 1 semester

TUTOR SUPPORT : hrm@mancosa.co.za

Copyright © 2007
MANAGEMENT COLLEGE OF SOUTHERN AFRICA
All rights reserved; no part of this book may be reproduced in any form or by any means, including
photocopying machines, without the written permission of the publisher

REF: HRM 2008


Human Resource Management

TABLE OF CONTENTS
Section Title of Section Page

Introduction 3 - 10

1 Introduction to Human Resource Management 11 - 26

2 Human Resource Strategy and Business Strategy 27 - 46

3 Human Resource Planning 47 - 64

4 Recruitment, Selection and Induction 65 - 84

5 Employee Training and Development 85 - 106

6 Performance Management 107 - 126

7 Compensation 127 - 148

8 Employee Benefits and Services 149 - 162

9 Human Resource Strategy and Employee Relations 163 - 176

10 Career Planning 177 - 190

11 Bibliography 191 - 202

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SECTION
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INTRODUCTION
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AIMS OF THIS MODULE

The broad aims of this module are to:

• Introduce the student to the field of human resource management

• Develop the student’s understanding of the integration of human resource strategy and
business strategy.

• Develop the student’s understanding of human resource planning.

• Develop the student’s understanding of the HRM practices of recruitment and selection.

• Develop the student’s understanding of employee training and development.

• Develop the student’s understanding of performance management.

• Develop the student’s understanding of the HRM practices of compensation and the
provision of employee benefits and services.

• Develop the student’s understanding of employment relations within the Southern African
context.

• Develop the student’s understanding of career management.

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Introduction

This module, Human Resource Management, forms an integral part of the MANCOSA Master of
Business Administration (MBA) qualification and serves to introduce the student to the
fundamentals of the field of human resource management. In so doing, the module explores the
integration of human resource strategy and business strategy, as well as human resource
planning, recruitment and selection, employee training and development, performance
management, compensation, employee benefits and services, employment relations and career
management.

Contents and Structure

Section 1: Introduction to Human Resource Management

This first section introduces the student to the field of human resource management (HRM). In
this section a definition of HRM is formulated, the aims of HRM are explored and the place of
HRM within the enterprise is examined. HRM functions and the role of the HR manager are also
given attention. This section also explores the nature of strategic human resource management,
human resource career opportunities as well as current HRM issues and challenges.

Section 2: Human Resource Strategy and Business Strategy

Section 2 explores the integration of human resource strategy and business strategy. Here the
importance of the relationship between HR strategy and business strategy is examined. The
manner in which HR strategy may be integrated into the process of business strategy
formulation, implementation and evaluation is explored. This section also studies the
competencies required by the HR manager to successfully participate and contribute to the
strategic management process.

Section 3: Human Resource Planning

This third section examines human resource planning. In so doing, the nature of HR planning,
the process of HR planning and current issues impacting on HR planning are explored.

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Section 4: Recruitment, Selection and Induction

Section 4 explores the HR practices of recruitment, selection and induction. In this section the
nature of recruitment, recruitment policies, factors influencing recruitment and recruitment
sources are studied. The factors affecting selection decisions and the selection process are also
explored. The objectives and benefits of an induction programme are studied. The planning,
design, implementation and evaluation of an induction programme is also explored.

Section 5: Employee Training and Development

This section examines employee training and development. A distinction is made between the
concepts training and development. The training process is examined, and the impact of the
South African context on training within South African organisations is explored. The various
approaches to development are also examined.

Section 6: Performance Management

Section 6 focuses on performance management. In so doing performance management is


defined, the performance management process is explored and the various approaches to
performance management are investigated.

Section 7: Compensation

This section focuses on the HRM practice of compensation. The nature of compensation and
factors influencing the determination of compensation are investigated. This section also
explores compensation levels, the development of a compensation structure and challenges to
compensation systems. Incentive compensation systems are also investigated.

Section 8: Employee Benefits and Services

Section 8 focuses on employee benefits and services. In so doing, the nature of employee
benefits and services is explored and the reasons for growth in employee benefits and services
are investigated. This section also examines the different types of benefits and services. The
administration of benefits and services is also studied.

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Section 9: Human Resource Management and Employment Relations

Section 9 focuses on employment relations. In so doing, the nature of employment relations is


studied and it is established that it is a “living” field of study that evolves around and is played
out daily in workplaces around the world.

Section 10: Career Management

This section explores the area of career management. In so doing, the nature of the career in the
twenty-first century is explored and the importance of career management is established. The
various career stages, career planning and career development are also explored.

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How to Use This Module

This module should be studied using this unit and the recommended textbook(s). You should
read about the topic that you intend to study in the appropriate chapter before you start
reading in detail in the recommended textbook(s). Ensure that you make your own
notes/summaries as you work through both the textbook(s) and this module.

At the commencement of each chapter you will find a list of objectives. These objectives
outline the main points that you should understand when you have completed the chapter
with its accompanying section(s).

Avoid reading all the material at once. Each study session should be no longer than two hours
without a break.

In the course module chapter, you will find the following symbols and instructions. These are
designed to help you study.

 SELF CHECK QUESTION

You may come across self-assessment questions which will test your understanding of
what you have learnt so far. Answers to these questions are given at the end of each
chapter. You should refer to the textbook(s) when attempting to answer the question.

" ACTIVITY

You may come across activities which ask you to carry out specific tasks.
In most cases there are no right or wrong answers to these activities. The aim of
these activities is to give you an opportunity to apply what you have learnt.

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READING

At this point you should read the suggested reference.

? THINK POINT

A think point asks you to stop and think about an issue. Sometimes you are asked to
apply a concept to your own experience or to think of an example.

READING

The core texts for this module are:

• Noe, R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M. (2006) Human
Resource Management: Gaining a Competitive Advantage 5th Ed. Boston:
Irwin McGraw-Hill.

• Nel, P.S., Van Dyk, P.S., Haasbroek, G.D., Schultz, H.B, Sono, T. and Werner, A.
(2004) Human Resource Management 6th Ed. Cape Town: Oxford.

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Module Assessment

Assignment
You will be required to complete and submit an assignment. This assignment is assessed as
part of your coursework. Therefore, it is very important that you complete it.

Examination
An examination will be written at the end of the semester. The assessment strategy will focus
on application of theory to practice.

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SECTION 1

INTRODUCTION TO
HUMAN RESOURCE MANAGEMENT

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CONTENTS

Learning Outcomes

Reading

1.1 Introduction

1.2 Definition of Human Resource Management

1.3 Aims of Human Resource Management

1.4 The Place of Human Resource Management within an Enterprise

1.5 Human Resource Management Functions and The Role of the HR Manager

1.6 Strategic Human Resource Management

1.7 Human Resource Career Opportunities

1.8 Current Issues and Challenges

Summary

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LEARNING OUTCOMES

The overall outcome for this section is that, on its completion, the student should be able to
demonstrate a basic understanding of the field of human resource management (HRM). This
overall outcome will be achieved through the student’s mastery of the following specific
outcomes, in that the student will be able to:

1. Define human resource management.

2. Identify the aims of human resource management.

3. Identify and discuss the place of human resource management within the enterprise.

4. Identify and discuss human resource management functions.

5. Identify and critically discuss the role of the human resource manager.

6. Explain the nature of strategic human resource management.

7. Identify various human resource career opportunities.

8. Identify and critically discuss current issues and challenges in the field of human
resource management.

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READING

Prescribed Reading:

• Noe, R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M. (2006) Human
Resource Management: Gaining a Competitive Advantage 5th Ed. Boston:
Irwin McGraw-Hill. pp 2 -51

• Nel, P.S., Van Dyk, P.S., Haasbroek, G.D., Schultz, H.B, Sono, T. and
Werner, A. (2004) Human Resource Management 6th Ed. Cape Town:
Oxford. pp 3-31

Recommended Reading:

Books
• Brewster, C., Dowling, T., Grobler, P., Holland, P. & Warnich, S. (2000)
Contemporary Issues in Human Resource Management. Cape Town: Oxford
University Press Southern Africa.

• Carrell, M.R., Elbert, N.F., Hatfield, R.D., Grobler, P.A., Marx, M. & Van der
Schyf, S. (1997) Human Resource Management in South Africa. New Jersey:
Prentice-Hall Inc. pp 1 – 44.

• Ivancevich, J.M. (1998) Human Resource Management. 7th Ed. Boston: Irwin
McGraw-Hill. pp 2 – 35.

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Journals
• Delantey, J.T. & Huselid, M.A. (1996) ‘The Impact of Human Resource
Management Practices on Perceptions of Organizational Performance’.
Academy of Management Journal. August, 39(4), pp 949 – 970.

• Eisenstat, R.A. (1996) ‘What Corporate Human Resources Brings to the


Picnic: Four Models for Functional Management’. Organizational Dynamics.
Autumn, 25(2), pp 7 – 23.

• Huselid, M.A. (1995) ‘The Impact of Human Resource Management Practices


on Turnover, Productivity and Corporate Financial Performance’. Academy
of Management Journal. June, 38 (3), pp 635 – 673.

• Ulrich, D. (1998) ‘A New Mandate for Human Resources’. Harvard Business


Review. Jan – Feb, pp 124 – 134.

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1.1 Introduction

This section, the first section of the Human Resource Management module, serves to
introduce the student to the concept of human resource management (HRM). In so doing the
following issues are examined:

• Definition of human resource management


• Aims of human resource management
• Place of human resource management in the enterprise
• Human resource management functions and the role of the human resource manager
• Strategic human resource management
• Human resource career opportunities
• Current HRM issues and challenges

1.2 Definition of Human Resource Management

" ACTIVITY

From your experience as an employee and/or manager within an organisation,


develop a definition of human resource management

Comment on Activity
Various definitions of human resource management exist. Noe, Hollenbeck, Gerhart &
Wright (2006:5) assert that:
“Human resource management (HRM) refers to the policies, practices and systems
that influence employees’ behaviour, attitudes and performance. Many companies
refer to HRM as involving ‘people practices’”.

In Ivancevich’s (1998:5) definition emphasis is placed on the ‘people’ aspect of HRM:


“Human resource management (HRM) is used to describe the function that is
concerned with people – the employees. Human resource management is the function
performed in organizations that facilitates the most effective use of people
(employees) to achieve organizational and individual goals” .

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Nel & Van Dyk (2004) distinguish between personnel management and human resource
management, and argue that the latter is more appropriate for today’s organisation in that it
provides for a holistic and strategic approach to the management of people. Nel et al
(2004:6) identify the following definition of HRM as being most appropriate:

“Human resources management…[refers to]...the process through which an optimal


fit is achieved among the employee, job, organisation and environment so that
employees reach their desired level of satisfaction and performance and the
organisation meets its goals” (Hall & Goodale cited in Nel et al, 2004:6).

This definition is more holistic than that provided by Noe et al (2006:5) and Ivancevich
(1998:5) in that it addresses the inter-relation of four dynamic components. These
components, and their inter-relation, are diagrammatically represented in Figure 1.1.

ENVIRONMENT
ƒ Economic
ƒ Social
ƒ Political
ƒ Technological

THE
ORGANISATION
ƒ Size
ƒ Culture
ƒ Structure
ƒ Human Resources
INDIVIDUAL Policy
ƒ Technology THE JOB
ƒ Abilities
ƒ Knowledge ƒ Challenge
ƒ Personality ƒ Variety
ƒ Values ƒ Autonomy

FIT

Figure 1.1: Human Resources Management: The Inter-Relation of Four


Dynamic Components (adapted from Nel et al, 2004: 17)

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1.3 Objectives of Human Resources Management

Nel et al (2004) identifies three generally accepted aims of human resource management.
These are:
• To establish a culture within an organisation that recognizes the uniqueness of the
individuals who make a meaningful contribution to the organisation’s success;
• To establish how employees and the organisation can inter-relate to the advantage of both
parties;
• To support managers in the execution of their tasks related to the management of people.

1.4 The Place of Human Resources Management within an Enterprise

" ACTIVITY

Based on your experience of the human resource management function within the
organisation, provide a diagrammatic representation of the place of HRM within
the enterprise.

Comment on Activity

Human resource management may be depicted to occupy a place functionally within the
organisation’s structure, as depicted in Figure 1.2. This diagram depicts the line authority
vested in the HR Manager, where he/she holds a position of authority which provides for the
issuing of instructions to his/her subordinates.

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GENERAL
MANAGER

HR MARKETING PRODUCTION FINANCIAL


MANAGER MANAGER MANAGER MANAGER

Manager:
Compensation Benefits

Manager:
Training &
Development

Manager:
Recruitment &
Selection Placement

Manager:
Labour Relations

Figure 1.2: The Place of the Human Resource Management Function in an organisation
(adapted from Nel et al, 2004:11).

Human resource management may also be depicted as occupying the heart of the organisation
(see Figure 1.3), where functional authority and staff authority are exercised. Functional
authority gives the HR manager the right to issue enforceable HRM-related instructions to
individuals and departments throughout the organisation. On the other hand, staff authority
enables the HR manager to issue advice (which is not enforceable) to various entities within
the organisation.

THE ORGANISATION

TOP R&D LOWER


MANAGEMENT DEPARTMENT MANAGEMENT

MARKETING TASK TEAMS


DEPARTMENT HUMAN
FUNCTIONAL STAFF
RESOURCE
AUTHORITY AUTHORITY
MANAGEMENT

OPERATIONS MIDDLE FINANCE


DEPARTMENT MANAGEMENT DEPARTMENT
EMPLOYEES

Figure 1.3: Human Resource Management – Functional and Staff Authority


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1.4 Human Resource Management Functions and The Role of the HR Manager

Noe et al (2006:6) identify the functions of human resource management to include:

Employment and recruiting Interviewing, recruiting, testing, temporary labour


co-ordination.
Training and development Orientation, performance management skills training,
productivity enhancement.
Compensation Wage and salary administration, job descriptions,
executive compensation, incentive pay and job evaluation
Benefits Insurance, vacation leave administration, retirement plans,
profit sharing, stock plans.
Employee services Employee assistance programmes, relocation services,
outplacement services
Employee and community relations Attitude surveys, labour relations, publications, labour law,
compliance, discipline
Personnel records Information systems, records
Health and safety Safety inspection, drug testing, health, wellness
Strategic planning International human resources, forecasting, planning,
mergers and acquisitions

Source: Noe et al (2006:6)

Responsibilities of HR Departments
In order to effectively carry out these functions within the organisation, the HR Manager and
his/her department need to fulfil the following roles:

• A Service Role which incorporates the everyday functions of the HR department, which
includes activities relating to recruitment, selection, training and compensation;
• A Control Role which is more strategic in nature and could involve, for example, an
analysis of key HRM outputs such as labour turnover;
• An Advisory Role which involves the provision of expert HRM related advice to various
parties within the organisation (Nel et al, 2004:10).

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READING

Read the following journal article and then answer the questions which follow:
• Eisenstat, R.A. (1996) ‘What Corporate Human Resources Brings to the
Picnic: Four Models for Functional Management’. Organizational Dynamics.
Autumn, 25(2), pp 7 – 23.

1. What is Eisenstat’s (1996) approach to the role of the HRM function?


2. Is Eisenstat’s (1996) approach appropriate to today’s organisation?
Why / Why not?

Comment on Reading Activity

Eisenstat (1996:7-23) identifies four roles which the HRM department within an organisation
may adopt to fulfil its function. These roles emerge from four models:

• The Hierarchical Model:


If an organisation adopts the hierarchical model, the HRM function adopts the role of agent
for, as well as an advisor and support to, top management. In so doing, the HRM function
takes on responsibility for:
o The provision of high-level advice to assist top management with HR issues; and
o The administration of HR related activities (Eisenstat, 1996:7-23).

• The Professional Model:


If an organisation follows the professional model, the HRM function adopts a representative
role in that the focus of HRM activities is on the management of relations between the
organisation and external officials such as union representatives and government agencies.

• The Service Business Model:


The service business model places emphasis on the importance of the HRM function
improving the quality and effectiveness of the services which it provides to the various
divisions within the organisation. The HRM function takes on the role of an external
service provider (consulting firm) and much attention is given to the level of satisfaction
which its customers acquire from the delivery of services (Eisenstat, 1996:7-23).

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Eisenstat (1996:7-23) points out that the various models addressed above adopt particular
roles which serve to address the demands of a particular constituency:
• The hierarchical model places the HRM function in the role of agent/advisor where the
needs of top management are addressed;
• The professional model places the HRM function in the role of representative which
provides for consultation and communication with external parties; and
• The service business model places the HRM function in the role of service provider to
individual operating divisions.

Eisenstat (1996:7-23) emphasises the need for organisations of today to follow a fourth
model, the partnership model, which serves to integrate and supplement the roles particular
to the hierarchical, professional and service business models. The partnership model involves
the HRM function in a strategic role where creation of value for the corporation as a whole
provides the focus, and higher levels of teamwork between the HRM function, top
management, individual operating divisions and external groups (e.g. unions) are achieved.
In such a model therefore, the HRM function not only adopts the roles of agent/advisor,
representative and service provider, but of strategic catalyst as well.

1.6 Strategic Human Resource Management

The journal article by Eisenstat (1996:7-23) discussed in section 1.5 above emphasised the
importance of the HRM function assuming an active role in the strategic management of the
company. Indeed, Noe et al (2003:6) points out that the “HR function is in transition from an
administrative function to a strategic business partnership”. This is evident in Table 1.1
below which shows how the percentage of time the HR department devotes to administrative
duties (such as maintaining records, auditing and controlling, and providing services) has
decreased over the last couple of years.

Current 5 – 7 yrs ago


Administrative Tasks Maintaining Records 15% 22%
Auditing & Controlling 12% 19%
HR Service Provider 31% 35%
Strategic Tasks Product Development 19% 14%
Strategic Business Partner 22% 11%
Table 1.1: The Percentage of Time Spent on Administrative Tasks and Strategic Tasks by
the HRM Function (adapted from Noe et al, 2000: 6)

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Strategic HRM will be addressed in greater depth in Section 2 of this module guide.

1.7 Human Resource Career Opportunities

? THINK POINT

What types of human resource career opportunities exist within your organisation?

A HR professional may enter into the HRM field through various types of positions. Various
generalist and specialist HR positions exist throughout all levels of the organisation.

These include positions in:


ƒ Labour relations
ƒ Employee relations
ƒ Recruitment and selection
ƒ Organisational development
ƒ Training
ƒ Compensation and benefits

1.8 Current Issues and Challenges

Given the dynamic and competitive nature of the current business environment, HRM is
currently faced with a number of challenges.

Noe et al (2006:13) identify three categories of competitive challenges for human resource
management. These are:
• Competing through Globalisation which involves the expansion of organisations into
global markets and the challenge of preparing employees for work in foreign countries;
• Competing through Sustainability which involves providing a return to shareholders, the
development of employees and the creation of a positive work environment; and
• Competing through Technology which requires changes in employee and manager work
roles, and the integration of technology and organisational social systems.

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READING

Read the following journal article and answer the questions which follow.
• Ulrich, D. (1998) ‘A New Mandate for Human Resources’. Harvard Business
Review. Jan – Feb, pp 124 – 134.

1. What challenges does Ulrich identify for the HRM function?

2. How does Ulrich recommend that HRM deal with these challenges?

Comment on Reading Activity

Ulrich (1998:124-134) identifies five challenges which are to impact on HRM within
companies. These challenges are:
ƒ Globalisation which requires that “organizations increase their ability to learn and
collaborate and to manage diversity, complexity and ambiguity” (Ulrich, 1998: 126).

ƒ Profitability Through Growth where organisations will need to grow revenue through
becoming more market focused, acquiring new customers and developing new,
innovative products.

ƒ Technology where managers will need to figure out how to make good use of
technology and effectively integrate it into the work setting and work processes.

ƒ Intellectual Capital provides direct and indirect competitive advantage and the
challenge for organisations in “making sure they have the capability to find,
assimilate, develop and compensate, and retain such talented individuals” (Ulrich,
1998: 127).

ƒ Change, Change and More Change presents the greatest competitive challenge in
that it requires that organisations learn rapidly and continuously, constantly innovate,
and readily adapt and change strategy.
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Ulrich (1998:124-134) argues that HRM will be critical in addressing the challenges
identified above, in that these challenges require that organisations build new capabilities
(such as speed, learning capacity, agility, responsiveness). HRM will need to play a
leadership role in developing these new capabilities and therefore HRM’s ‘new’ mandate
would be:

• To become a partner in strategy execution which would involve the HRM function in:

o Defining an organisational structure;


o Conducting an organisational audit;
o Identifying methods for renovating parts of the organisational architecture;
o Taking stock of its own (HR) work and set clear priorities.

• Becoming an Administrative Expert by improving and automating administrative


systems.

• Becoming an Employee Champion which would involve being an advocate for


employees

ƒ Becoming a Change Agent which would involve building the organisation’s capacity to
adapt to, cope with and embrace change.

HRM professionals will need to focus on the creation of value for the enterprise, and create
mechanisms which provide for rapid business results (Ulrich, 1998:124-134).

Summary

This section served to provide the student with an introduction to the study of Human
Resource Management (HRM). In so doing, a definition of human resource management was
investigated and the aims of HRM were established. The place of HRM, the functions of the
HR department, the role of the HR manager, and HR career opportunities were also
investigated. In closing, current issues and challenges for the function of HRM were studied.

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NOTES :

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SECTION 2

HUMAN RESOURCE STRATEGY


AND
BUSINESS STRATEGY

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CONTENTS

Learning Outcomes

Reading

2.1 Introduction

2.2 The Importance of the Relationship Between HR and Business Strategy

2.3 Linking HR Strategy with Business Strategy


2.3.1 Strategy Formulation
2.3.2 Strategy Implementation
2.3.3 Strategy Evaluation and Control
2.3.4 Consolidation

2.4 Strategic Human Resource Management Competencies

2.5 Summary

Answers to Self-Check Questions

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LEARNING OUTCOMES

The overall outcome for this section is that, on its completion, the student should be able to
demonstrate a holistic understanding of the integration of human resource strategy and
business strategy. This overall outcome will be achieved through the student’s mastery of the
following specific outcomes:

1. Explain the importance of integrating a company’s human resource strategy with


overall business strategy.

2. Explain the strategic management process.

3. Discuss the strategic management phases of strategy formulation, strategy


implementation and strategy evaluation and control.

4. Critically discuss the function and role of human resource management within the
strategic management process.

5. Discuss the various human resource practices associated with the various generic and
directional strategies.

6. Identify and discuss the competencies which an HR professional requires to effectively


participate in the strategic management process.

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READING

Prescribed Reading:

• Noe, R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M. (2006) Human
Resource Management: Gaining a Competitive Advantage 5th Ed. Boston:
Irwin McGraw-Hill. pp 664-703

• Nel, P.S., Van Dyk, P.S., Haasbroek, G.D., Schultz, H.B, Sono, T. and
Werner, A. (2004) Human Resource Management 6th Ed. Cape Town:
Oxford. Pp 519-535

Recommended Reading:

Books
• Brewster, C., Dowling, P., Grobler, P., Holland, P. & Warnich, S. (2000)
Contemporary Issues in Human Resource Management. Cape Town: Oxford
University Press Southern Africa.

• Ivancevich, J.M. (1998) Human Resource Management 7th Ed. Boston: Irwin
McGraw-Hill. pp 36 – 69.

• Porter, M.E. (1980) Competitive Strategy: Techniques for Analyzing


Industries & Competitors. New York: Free Press.

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Journals

• Christensen, C.M. (1997) ‘Making Strategy: Learning By Doing’. Harvard


Business Review. Nov-Dec, pp 141 – 156.
• Hamel, G. (1996) ‘Strategy as Revolution’. Harvard Business Review. July-
August, pp 69 – 82.
• Hodgetts, R.M., Luthans, F. & Slocum, J.W. (1999) ‘Strategy and HRM
Initiatives for the ‘00s: Environment Redefining Roles and Boundaries,
Linking Competencies & Resources’. Organizational Dynamics. Autumn, pp 7
– 18.
• Nadler, D.A. & Tushman, M. (1999) ‘The Organization of the Future:
Strategic Imperatives and Core Competencies for the 21st Century’.
Organizational Dynamics. July, 27 (1), pp 45 – 58.
• Nellis, S. & Schuler, R.S. (1994) ‘AT & T Global Business Communication
Systems: Linking HR with Business Strategy’. Organizational Dynamics.
Winter, 22 (3), pp 59 – 73.
• Porter, M.E. (1979) ‘How Competitive Forces Shape Strategy’. Harvard
Business Review. March-April, pp 137 – 145.
• Porter, M.E. (1996) ‘What is Strategy?’. Harvard Business Review. Nov-Dec,
pp 61 – 78.

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2.1 Introduction

While section 1 introduced the student to the field of Human Resource Management (HRM),
this section examines the relation between Human Resource Strategy and Business Strategy.
In so doing the following will be studied:
• The importance of the relationship between HR and business strategy
• Linking HR strategy and business strategy
o Strategy formulation
o Strategy implementation
o Strategy evaluation and control
• Strategic human resource management competencies

" ACTIVITY

Read the short case entitled ‘Strategy and HR at Delta Airlines’


Noe et al (2003:85-86), and then answer the following questions.

1. Comment on Allen’s approach to integrating HR and overall business


strategy during the strategy planning / formulation phase.

2. Comment on Allen’s approach to integrating HR and overall business


strategy during the strategy implementation phase.

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Comment on Activity

Question 1

There is no evidence in the case to suggest that Allen considered the input of the HR
department when formulating the company’s strategy. However, there is evidence in the case
that Delta’s human resources were a highly committed, customer-focused and competent
workforce. Thus, the workforce could be regarded as the resource which could have
provided for Delta’s competitive advantage. It is probable that this would have been brought
to Allen’s attention if the company’s HR department had been involved in the formulation of
strategy. Indeed, the HR department could have pointed out to Allen that:

• Delta’s existing highly committed workforce is a source of the company’s competitive


advantage. Delta could have used this as the basis for a strategy which differentiated
itself from its competitors.

• Alternatively, a strategy which reduced costs without sacrificing the workforce could
have been considered. The workforce could have been drawn into the process and asked
to come up with ways to perform certain tasks more efficiently.

Question 2

While there is no evidence to suggest that Allen consulted with the HRM function in
formulating Delta’s strategy, the HRM function would have been involved in the
implementation of Allen’s downsizing strategy. From the evidence provided in the case it is
suggested that the HR department would have primarily been involved in administering
workforce reduction programmes such as early retirements and retrenchments.

However, no evidence is provided in the case of the HR Department adopting a more holistic
role in implementing the strategy, such as the provision of outplacement services,
interventions to boost the morale of survivor employees, effective communication with the
employees regarding the downsizing initiative, etc.

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It may be concluded that had Allen actively integrated HRM into Delta’s business strategy,
the decisions emerging from the strategy formulation and strategy implementation processes
would have been more holistic, and probably more effective.

2.2 The Importance of the Relationship Between HR and Business Strategy

Strategic management may be defined as managing the “pattern or plan that integrates an
organization’s major goals, policies, and action sequences into a cohesive whole” (Quinn
cited in Noe et al, 2006:58). On the other hand, strategic human resource management
(SHRM) may be defined as “the pattern of planned human resource deployments and
activities intended to enable an organization to achieve its goals” (Friedman & Strickler
cited in Noe et al, 2006:59). Thus HRM is critical in supporting the formulation and
implementation of strategy.

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Golden and Ramanujam (1985:429-451) identify four levels of integration between the HRM
function and the strategic management function which may emerge within organisations.

These are:

• Administrative Linkage which is the lowest level of integration and the HR function is
primarily focused on day-to-day activities. The HR function is divorced from the strategic
management process.
• One-Way Linkage which involves the strategic management function in simply
informing the HR function of the strategic plan. (This does not constitute strategic HRM).
• Two-Way Linkage which allows for sequential consideration of HR issues during the
strategy formulation process in that the HR function is informed of the various strategies
which are being considered and the HR executive provides input as to the HR
implications. Once the strategic plan has been determined, the HR function prepares
various programmes to support the implementation of the strategy.
• Integrative Linkage is dynamic and is based on continuing interaction between the
strategic management and HRM function. The HR function forms part of the strategic
management team, and actively participates in the formulation and implementation of
strategy.

2.3 Linking HR Strategy with Business Strategy

Strategic management involves three phases:


• Strategy formulation
• Strategy implementation
• Strategy evaluation and control

HR strategy issues need to be considered during each of these strategic phases.

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2.3.1 Strategy Formulation

The formulation of strategy involves the consideration and establishment of five major
components, which are depicted in Figure 2.1. These components include the:
ƒ Organisation’s Mission which specifies the organisation’s reason for existence.
ƒ Organisation’s Strategic Goals which specify what the organisation aims to achieve in
the medium and long term.
ƒ External Analysis which provides information as to the threats and opportunities which
exist for the company within the external environment.
ƒ Internal Analysis which provides information as to the strengths and weaknesses of the
company’s resources.
ƒ Strategic Choice which is the organisation’s chosen strategy and specifies the way in
which the mission and strategic goals are to be achieved.

EXTERNAL
ANALYSIS
Oppurtunities
Threats

VISION AND STRATEGIC STRATEGIC


MISSION GOALS CHOICE

INTERNAL
ANALYSIS
Strengths
Weaknesses

HR INPUT

Figure 2.1: Strategy Formulation (adapted from Noe et al, 2006:64).


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It is important to note that in the consideration of the five components discussed above, it is
critical that input from the HRM function is considered and that people-related issues are
contemplated (Noe et al, 2006:60-61). For example, if an IT organisation were to conduct an
external analysis at this point in time, a major external threat would be the considerable lack
of skilled IT professionals within the labour market.

1.3.2 Strategy Implementation

Once an organisation has completed the strategy formulation phase, the implementation of
strategy needs to take place. Noe et al (2006:68) argue that five variables influence the
success of strategy implementation:
ƒ Organisational structure
ƒ Types of information and information systems
ƒ Task design
ƒ Selection, training and development of people
ƒ Reward systems

The importance of HRM in strategy implementation is highlighted if it is considered that


HRM is directly responsible for the latter three variables and is in a position to influence the
former two variables.

The involvement of the HRM function in strategy implementation is depicted in the Figure
2.2 on the following page.

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HUMAN RESOURCE PRACTICES


Recruitment Job Analysis
Training Job Design
HUMAN Performance Management Selection
RESOURCE Labour Relations Development
NEEDS Employee Relations Pay Structure
STRATEGIC Incentives Benefits
CHOICE Skills FIRM’S
Behaviour PERFORMANCE
Culture
Productivity
Quality
Profitability
HUMAN HUMAN
RESOURCE RESOURCE
CAPABILITY ACTIONS
Behaviours
Skills Results
Abilities (Productivity,
Knowledge Absenteeism,
Turnover)

Figure 2.2: Strategy Implementation (from Noe et al , 2006:69)

As shown in Figure 2.2 the choice of strategies (made during the strategy implementation
phase) determine the organisation’s HR needs. These HR needs give rise to specific HR
practices (such as job analysis and design, recruitment and selection, etc.) which in turn
provide the organisation with HR capability and behaviours. This HR capability and
behaviours enable the organisation to perform in accordance with the organisation’s chosen
strategies.

1.3.2.1 Types of Strategies and HR Practice

The type(s) of strategies employed will impact on the nature of the HR practices
implemented by the HRM function within an organisation.

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 SELF CHECK QUESTION 1

Identify the impact which each of the following strategies will have on the
organisation’s HR Practices.

1. Generic Strategies:
* Overall Cost Leadership

* Differentiation

2. Directional Strategies
* Concentration

* Internal Growth

* Mergers and Acquisitions

* Downsizing

The answer to this Self-Check Question may be found at the end of this section

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2.3.3 Strategy Evaluation and Control

Strategy evaluation and control is the final phase in the strategic management process and
requires both the strategic management function as well as the HRM function in constantly
monitoring the effectiveness of the strategy and implementation process (Noe et al, 2003).

2.3.4 Consolidation

The following reading activity serves to consolidate the student’s understanding of the
integration of HR strategy and the strategic management process.

READING ACTIVITY

Read the following article and then answer the question that follows:

• Nellis, S. & Schuler, R.S. (1994) ‘AT & T Global Business Communication
Systems: Linking HR with Business Strategy. Organizational Dynamics.
Winter, 22 (3), pp 59 – 73.

Discuss AT&T’s approach to integrating HRM into business strategy.


In particular focus on GBCS’s approach to strategy formulation and strategy
implementation.

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Comment on Reading Activity

Nellis & Schuler (1994:59-73) outline how AT&T managed to effectively integrate its HRM
function into its business strategy.

During 1992, in order to save AT&T from further decline, AT&T Business Communications
Systems (BCS) merged with AT&T General Business Units to form GBCS. GBCS then
embarked on a strategic management process which focused strongly on integrating GBCS’s
HRM function into its business strategy.

Strategy Formulation
Six strategic principles were identified to guide the formulation of strategy. These principles
were:
• Make people a key priority
• Life-long customer relationships
• Total quality management
• Technology applications leadership
• Globalisation
• Being the best value supplier

GBCS’s vision, mission and values were then reconstructed, based on the six principles
identified above (Nellis & Schuler, 1994:59-73). The integration of HR into GBCS’s
strategy formulation process is made evident in the first of the six principles: “Make people
a key priority”.

HRM was further integrated with the overall business strategy, in that the CEO tasked the
HR executive and his team to develop an HR strategic plan and management system which
would provide for the linking of the GBCS’s employees to the overall company business
strategy. The HR strategic plan which was prepared was linked to the six strategic principles
on which the overall business strategy was based. The application of these principles
enabled the HR team to identify three HR areas which would be critical in linking the GBCS
employees to the overall business strategy.

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These critical areas were:


• Culture change
• Rewards and recognition
• Ownership

Strategy Implementation
The HR initiatives which were implemented served to link the GBCS employees to the
overall business strategy. These initiatives included:
• A redesign of the performance management process;
• A redesign of the compensation system to reinforce the link between employees’
achievements and business success;
• The implementation of a recognition platform to motivate, build self-esteem and
commend role-model behaviour;
• Various communication programmes to provide support to the compensation,
recognition and performance practices.

In implementing these initiatives, it came to the attention of management that the HRM
function would need to be repositioned and reorganized. This included:

• HR becoming a key member of the senior management team with responsibility to


provide leadership on key HR issues; and
• The re-organisation of the HRM function into various teams to maximize its ability to
focus on people-related strategic imperatives.

Nellis & Schuler (1994:59-73) report that GBCS’s initiative to integrate HRM into overall
business strategy has proved to be successful and that business results have significantly
improved.

2.4 Strategic Human Resource Management Competencies

? THINK POINT

Within your organisation, what competencies would an HR professional require in


order to make a valuable contribution to the strategic management process?
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Comment on Think Point

Noe et al (2006) identifies four basic competences which the HR professional requires in
order to participate in an organisation’s strategic management process. These competences
are highlighted in Figure 2.3 below.

THE HUMAN RESOURCE PROFESSIONAL

BUSINESS PROFESSIONAL ABILITY INTEGRATION


COMPETENCE & TO COMPETENCE
TECHNICAL MANAGE CHANGE
Knowing the organisation’s Ability to increase
business
KNOWLEDGE organisation’s value through
Diagnosing problems
Understanding the Implementing changes the integration of the
organisation’s economic State-of-the-art previous 3 competencies
Evaluating results
capabilities HR Practices

Figure 2.3: Strategic Human Resource Competencies (adapted from Noe et al, 2006:82).

1.4 Summary

This section has served to provide an overview of HR Strategy and Business Strategy. In so
doing the importance of integrating a company’s HRM into its business strategy was
established. The strategic management process was examined and the implications for HRM
at each stage in this process were explored. In closing, the competencies required by the HR
professional to successfully participate in an organisation’s strategic management process,
were examined.

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1.5 Answers to Self-Check Questions

Self-Check Question 1
The impact which the various strategies will have on the organisation’s HR practices are
summarised in the tables below:

1. Generic Strategies
Generic Impact on HR Practices
Strategies
Overall Cost • Focus on efficiency requires specific definition of skills
Leadership requirements and investment in training in these areas.
• Behavioural performance management with large
performance-based compensation component.
• Promote internally.
• Develop internally consistent pay systems with high
differential between subordinates and superiors
• Seek efficiency through worker participation
Differentiation • Broad job descriptions to allow for creativity.
• May recruit from outside and provide for limited
socialization of new recruits.
• Provide broad career paths.
• Cooperation is the focus on training and development
activities.
• Compensation influenced by external equity and
recruiting needs.
• Results-based performance management systems.

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3. Directional Strategies

Directional Impact on HR Practices


Strategy
Concentration • Maintenance of current skills.
Strategies • Training focused on maintaining current skills.
• Compensation focused on retaining employees who have
the required existing skills.
• Behaviour-based performance appraisals (due to stable
environment).
Internal • Company must constantly hire, transfer and promote
Growth individuals.
Strategies • Expansion into new markets requires changes in skills or
prospective employees.
• Combination of behaviour-based and results-based
appraisals.
• Compensation structured as an incentive for achieving
growth goals.
• Training needs dependent on how the company decides to
grow internally (e.g. growth through innovation and product
development – training technical in nature).
Mergers & • Training in conflict resolution.
Acquisitions • HR programmes to integrate and standardize culture and
practices across the company’s business.
Downsizing • Surgical reduction of the workforce through the offering of
early retirement programmes, retrenchment packages, etc.
• Boost morale of ‘survivor’ employees.
• Compensation programmes linked to the company’s success
(e.g. gainsharing plans).

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NOTES :

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SECTION 3

HUMAN RESOURCE PLANNING

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CONTENTS

Learning Outcomes

Readings

3.1 Introduction

3.2 The Nature of Human Resource Planning

3.3 The Process of Human Resource Planning


3.3.1 Forecasting
3.3.2 Goal Setting and Strategic Planning
3.3.3 Programme Implementation and Evaluation

3.4 Current Issues Impacting on Human Resource Planning


3.4.1 Employment Equity and Skills Development
3.4.2 Strategic Management and HR Planning

3.5 Summary

Answer to Self-Check Question

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LEARNING OUTCOMES

The overall outcome for this section is that, on its completion, the student should be able to
demonstrate a holistic understanding of the Human Resource Planning and its application.
This overall outcome will be achieved through the student’s mastery of the following specific
outcomes:

1. Explain the concept of human resource planning.

2. Critically discuss the importance of human resource planning for organisations.

3. Identify, critically discuss and apply the process of human resource planning.

4. Integrate employment equity and skills development issues with human resource
planning.

5. Integrate human resource planning into the organisation’s strategic management


process.

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READING

Prescribed Reading:

• Noe, R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M. (2006) Human
Resource Management: Gaining a Competitive Advantage 5th Ed. Boston:
Irwin McGraw-Hill. pp 174-213

• Nel, P.S., Van Dyk, P.S., Haasbroek, G.D., Schultz, H.B, Sono, T. and
Werner, A. (2004) Human Resource Management 6th Ed. Cape Town:
Oxford. pp 212-227

Recommended Reading:

Books
• Carrell, M.R., Elbert, N.F., Hatfield, R.D., Grobler, P.A., Marx, M. & Van der
Schyf, S. (1997) Human Resource Management. New Jersey: Prentice Hall
Inc. pp 137 – 148.

• Ivancevich, J.M. (1998) Human Resource Management 7th Ed. Boston: Irwin
McGraw-Hill. pp 145 – 163.

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Journals & Legislation

• Burack, E.H. (1986) ‘Corporate Business and Human Resources Planning


Practices: Strategic Issues and Concerns’. Organizational Dynamics.
Summer, 15 (1), pp 73 – 88.
• Caudron, S. (1994) ‘Contingent Work Force Spurs HR Planning’. Personnel
Journal. July, pp 52 – 60.
• Department of Labour (1999) Preparing an Employment Equity Plan. Pretoria:
Government Printers.
• Huselid, M.A. (1993) ‘The Impact of Environmental Volatility on Human
Resource Planning & Strategic Human Resource Management’. Human
Resource Planning. 16 (3), pp 35 – 51.
• RSA (1998a) ‘Employment Equity Act, No. 55 of 1998’. Government Gazette
No. 19370. Pretoria: Government Printer.
• RSA (1998b) ‘Skills Development Act, No. 97 of 1998’. Government Gazette
No. 19420. Pretoria: Government Printer.
• Schuler, R.S. & Walker, J.W. (1990) ‘Human Resources Strategy: Focusing
on Issues and Actions’. Organizational Dynamics. Summer, 19 (1), pp 4 – 20.
• Ulrich, D. (1992) ‘Strategic and Human Resource Planning: Linking
Customers & Employees’. Organizational Dynamics. 15 (2), pp 47 – 63.

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3.1 Introduction

This section investigates the concept of Human Resource (HR) Planning and in so doing will
examine:
• The nature of HR planning
• The process of HR planning
o Forecasting
o Goal setting and strategic planning
o Programme implementation and evaluation
• Current issues impacting on HR planning
o Employment equity and skills development
o Strategic management and HR planning

3.2 The Nature of HR Planning

Organisations engage in the process of human resource planning to determine the future
supply of, and demand for, human resources so as to gain or maintain competitive advantage.
A definition provided by Huselid (1993:36) asserts that “[Human resource planning] is…the
process of matching a firm’s long-term demand for labour with its supply”, while Ivancevich
(1998:145) maintains that “HR planning determines the numbers and types of employees to
be recruited into the organization or phased out of it”.

Human resource planning is an important activity in that in provides for:


• More effective and efficient use of people at work;
• Greater employee satisfaction;
• Better developed employees; and
• More effective employment equity planning (Ivancevich, 1998).

? THINK POINT

Does your organisation conduct human resource planning? Why / Why not?

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Comment on Think Point

Both Huselid (1993:36) and Grobler (1993:16) assert that a substantial number of
organisations do not engage in human resource planning.

During 1990 a study of the HR practices of 400 manufacturing companies was conducted.
The study found that “….the implementation of …[human resource planning] in companies
in the manufacturing industry in the PWV area has only been adopted to a limited extent.”
(Grobler, 1993:16). The reasons which Grobler (1993:16) provides for the limited HR
planning include:
• The assumption amongst companies that an adequate supply of labour will be available
when needed;
• The assumption that human resources (employees) are a highly flexible resource that can
be laid off, trained and recruited at short notice;
• The responsibility for company planning typically resting with financial and marketing
executives (Grobler, 1993:16).

In a study conducted by Huselid (1993) the impact of workforce volatility (which refers to
the instability in the firm’s level of employment from year to year) on HR planning (HRP)
was investigated. It was found that “…firms exhibiting moderate levels of workforce
volatility were much more likely to adopt HRP….than were firms in highly stable and
dynamic environments. Thus it is likely that high levels of workforce volatility render HRP
ineffective, while low levels of workforce volatility make it unnecessary” (Huselid, 1993: 47).

Thus, it can be seen from the above discussion that companies refrain from conducting HR
Planning due to both external and internal environmental factors.

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3.3 The Process of HR Planning

Human resource planning generally follows the process depicted in Figure 3.l:

FORECASTS OF FORECASTS OF
LABOUR LABOUR
DEMAND SUPPLY

FORECASTS OF LABOUR
SURPLUS OR SHORTAGE

GOAL SETTING & STRATEGIC


PLANNING

PROGRAMME
IMPLEMENTATION &
EVALUATION

Figure 3.1: The Human Resources Planning Process (from Noe et al, 2006: 178)

3.3.1 Phase 1: Forecasting


The first phase of the HR planning process involves forecasting so as to determine labour
demand and labour supply. The forecasting techniques which may be used range from
sophisticated statistical models (involving, for example, regression analysis) to relatively
unrefined expert estimates (Ivancevich, 1998).

The figures established from the labour demand and labour supply forecasts will be used to
determine potential labour shortages or labour surpluses for particular job categories (Noe et
al, 2006:179).

3.3.2 Phase 2: Goal Setting and Strategic Planning


The forecasted labour surplus and labour shortages will be used to determine measurable
goals for each particular skill area or job category (Noe et al, 2006:181). The organisation
will then need to choose a strategy which will provide for the achievement of the set goals.

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These strategies may include:

1. Options for reducing expected labour surplus

OPTION SPEED HUMAN SUFFERING


1. Downsizing Fast High
2. Pay reductions Fast High
3. Demotions Fast High
4. Transfers Fast Moderate
5. Work sharing Fast Moderate
6. Hiring freeze Slow Low
7. Natural attrition Slow Low
8. Early retirement Slow Low
9. Retraining Slow Low

Source: Noe et al (2006:182)

2. Options for avoiding an expected labour shortage

OPTION SPEED REVOCABILITY


1. Overtime Fast High
2. Temporary employees Fast High
3. Outsourcing Fast High
4. Retained transfers Slow High
5. Turnover reductions Slow Moderate
6. New external hires Slow Low
7. Technological innovation Slow Low

Source: Noe et al (2006:183)

3.

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3.3.3 Phase 3: Programme Implementation and Evaluation


This phase involves the implementation of strategy so as to achieve the goals set in phase 2
of the HR planning process.

3.4 Current Issues Impacting on HR Planning

Issues currently impacting on HR planning are that of Employment Equity and Skills
Development within the South African context, as well as the integration of HR planning
with strategic management.

3.4.1 Employment Equity and Skills Development


The Employment Equity Act of 1998 and Skills Development Act of 1998 impact on the
practice of human resource planning within South African organisations.

" ACTIVITY

Consider the implementation of the Employment Equity Act and Skills


Development Act within your organisation. How have the activities associated
with the implementation of these two pieces of legislation affected your
organisation’s approach to HR Planning?

Comment on Activity

The Employment Equity Act requires South African organisations to develop Employment
Equity Plans, ranging between one and five years. The Employment Equity Plans serve to
provide a mechanism to introduce individuals from previously disadvantaged groups into
organisations (Department of Labour, 2000), and in so doing impact on the HR planning of
the company.

The Skills Development Act of 1998 also impacts on the HR planning of the South African
organisation in that it provides incentives for organisations to develop Workplace Skills
Plans to address both skills shortages particular to the workplace as well as to the sector in
which the organisation operates (RSA, 1998b).

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3.4.2 Strategic Management and HR Planning


The recognition of the importance of integrating HRM into an organisation’s strategic
management process, has resulted in the concept of HR planning being expanded.

READING ACTIVITY

Read the following two articles:


• Schuler, R.S. & Walker, J.W. (1990) ‘Human Resources Strategy: Focusing
on Issues and Actions. Organizational Dynamics. Summer, 19 (1), pp 4 – 20.
• Ulrich, D. (1992) ‘Strategic and Human Resource Planning: Linking
Customers & Employees’. Organizational Dynamics. 15 (2), pp 47 – 63.

1. Comment on how Schuler & Walker’s (1990) approach has brought about
an adjusted / expanded understanding of the concept of HR planning.

2. Comment on how Ulrich’s approach has brought about an adjusted /


expanded understanding of the concept of HR planning.

Comment on Reading Activity

Schuler & Walker (1994:4-20)


Schuler & Walker (1990) focus on how the dynamic nature of today’s business environment
has required that HR planning focus on short-term and immediate issues. This new focus
contrasts considerably with the traditional notion of HR planning which is argued to be
characterized as “…the process by which management determine[d] how the organization
should move from its current to its desired human resources position” (Schuler & Walker,
1990: 4). It is argued that as strategic business planning is becoming more tentative in the
constantly changing business environment of today, HR planning is considered “…useful
more as a tool for provoking thought and discussion” (Schuler & Walker: 1990:4).

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Ulrich (1992:47-63)
While Schuler & Walker (1990) focus on HR planning’s focus on issues of a short term and
immediate nature, Ulrich (1992) emphasises the expansion of the traditional HR planning
function. Indeed, as a result of its integration with business strategy, HR planning expands to
include a customer-employee linkage where “…customers and employees come to agreement
about organizational ends {strategies, goals, missions and visions}and the means to be used
to reach the ends {structure, staffing, rewards, etc}….a unity exists when customers and
employees are jointly aware of , accept, and act on a shared mindset about the firm” (Ulrich,
1992: 49).

3.5 Summary

This section has served to investigate the concept of Human Resource Planning. In so doing
the nature and importance of HR planning was examined and the HR planning process was
studied. Current issues impacting on HR planning, such as Employment Equity and Skills
Development (within the South African context) and the integration of HR Planning into
business strategy, were also addressed.

 SELF CHECK QUESTION 1

Read the case study entitled ‘Forget the Huddled Masses: Send the Nerds’ below
and then answer the following questions:

1. What characteristics of the product demand market have led to the


explosion in demand for programmers?

2. What characteristics of the programming job have limited the number of


people willing to develop the skills necessary to meet this demand?

3. What options do employers in this market have to address the labour


shortage? Which option would be most successful?

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FORGET THE HUDDLED MASSES: SEND NERDS

A critical shortage of programmers has prompted a worldwide labor hunt


As a headhunter, George Van Derven has an unlikely connection: Russia's former state airline,
Aeroflot. Not that Van Derven trades in pilots, flight mechanics, or surly Russian flight attendants.
But in a former career, he sold a computerized reservation system to Aeroflot and came to know the
talented programmers stashed in the back offices. When Aeroflot broke up into regional carriers in
1992, Van Derven promptly tapped its brain pool. Now, as president of Alternative Technology
Resources Inc. in Sacramento, Van Derven is mining a rich lode of programming talent and busily
dispatching it to understaffed computer departments throughout the Western world.

Other recruiters should be so lucky. High-tech headhunters for Andersen Consulting tramp through
technical schools in Budapest and job fairs in Manila. At a recent training session for programmers in
Holland, Microsoft Corp. hired bouncers to keep headhunters at bay. And a recruiter for IBM's Global
Services Div., who is trying to hire 15,000 software hands this year alone, introduces himself as
James R. Bunch, ''as in bunch of jobs.''

The Information Revolution is racing ahead of its vital raw material: brainpower. As demand explodes
for computerized applications for everything from electronic commerce on the Internet to sorting out
the Year 2000 glitch, companies are finding themselves strapped for programmers. In the U.S., alone,
which accounts for two-thirds of the world's $300 billion market in software products and services,
some 190,000 high-tech jobs stand open, most of them for programmers, according to the Information
Technology Assn.

SOARING SALARIES. That's sending companies scouring the globe for talent--and lifting salaries
skyward. A typical programmer's wages, now some $70,000, is jumping 13% a year, and far higher in
the hottest niches, such as Java Internet software and SAP business applications. These days, $20,000
signing bonuses are commonplace and stock options are being handed out with as little fanfare as
office supplies. If the pace keeps up, experts say, ballooning salaries could wind up damaging the
global tech machine as margins are squeezed and investments postponed.

And relief is nowhere in sight. Experts predict the gap between computer-science students and
expected demand won't ease for a decade, if then. Too many bright young people, especially in
Europe and the U.S., consider programming geek work and choose other careers. In the U.S., the
number of computer-science graduates has plummeted in the past decade or so, from 48,000 graduates
in 1984 to an estimated 26,000 this year. ''This is a real limiting factor to growth,'' says Avron Barr, a
researcher at Stanford Computer Industry Project who is investigating the shortage.

Indeed, for high-tech companies, the dearth of programmers is the greatest threat to expansion in the
coming year--far more menacing, they say, than an economic slump or competition in the
marketplace. And it's not just a problem for tech companies. Plenty of others are desperate for the
same talent. Auto makers from Tokyo to Detroit are packing more computing power into their cars
and plants. Banks, brokerages, and phone companies are rushing to outdo each other with the zippiest
online services, all requiring herds of nerds. Those that choose not to install the newest technology,
says Owens Corning CIO Michael Radcliff, are ''creating a competitive liability.''

Of course, if you're willing to pay--or have the stock options to entice--you could be up to your
propeller hats in programmers. In Silicon Valley, star programmers are swimming in stock options,
driving Porsches, and buying homes in the pricey Los Altos hills. At Netscape Communications
Corp., which plans to hire more than 1,000 programmers this year, employees receive up to $5,000
just for a successful referral and the pampered programmers are treated to onsite massages, teeth-
cleanings, and laundry service. The company lines up their 49ers tickets and books their white-water
rafting vacations. All this to keep them from succumbing to a stream of calls from headhunters.

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''Everybody's going crazy now trying to find these folks,'' says Margie Mader, Netscape's human-
resources director.

How did the shortage get so bad? For years, tech companies had little reason to fret. In the early '90s,
the industry snapped up hundreds of thousands of workers who were dropped into the job market
when large corporations downsized--a source now running dry.

TEDIOUS WORK. At the same time, the very act of writing software has not speeded up despite the
computer revolution and the terabytes of information hurtling around the globe. Today, even the best
of programmers painstakingly turns out some 10 lines of code a day. To whip up today's software
programs--even a cellular telephone requires some 300,000 lines of code--takes armies of
programmers laboriously writing away. Consider this: There are six million software programmers
and counting in the world today, two million of them in the U.S. and one million in Japan. As an
industrial model, it's akin to pre-Gutenberg monasteries with their legions of scribbling monks.

For years, global savants pooh-poohed the pending programmer crunch by pointing to India, which
boasted a seemingly bottomless reserve of techies. India, they said, would be to software what Saudi
Arabia was to oil. And true, with 50,000 programmers pouring out of schools every year--twice the
American total--India is a valuable labor pool.

But with global technology bursting to $3 trillion this decade--four times higher than in the '80s--
India's supply simply isn't enough. And no other plentiful source of software skills appears to be on
the horizon. Russia has promise, but it's limited: Few of its programmers speak English or understand
business applications. China is a possibility, but it's likely to employ most of its programmers over the
next decade for its own massive development projects. ''I had this one programmer from China,''
laments one official at Electronic Data Systems Corp. ''I took him through the whole immigration
process, got his papers. Then he got a better offer.''

RAID BAIT. Naturally, in this world of predators, there's a pecking order. Sitting on top are the fast-
growth companies with hot Internet technologies. They're magnets for talented programmers, and they
can pad their offers with rich stock options. Service companies such as Andersen Consulting, IBM
Global Services, and Ernst & Young, which are helping companies install systems worldwide, are
forced to routinely dole out six-figure salaries to programmers with experience in business
applications. They compete with countless body shops--outsourcing companies that pay as much as
$300,000 for skilled programmers willing to live on the road.

At the bottom of the pile are the corporate tech departments throughout the world. Many are short on
money and stock options. And if they install a popular system, bringing their staff up to date on
something new from, say, Oracle Corp. or the German software giant SAP, their departments get
raided in no time. Don Yates became familiar with SAP's leading software package for business while
helping install the system in the early '90s at Royal LePage Ltd., a real estate company in Toronto.
Within a year, the 18-person department was picked clean. ''I was the last one to go,'' says Yates, who
now makes three times as much money, some $150,000, as an itinerant programmer for EMI, a
Pittsburgh-based company that rents out software talent.

No surprise, then, that companies are trying any tactic, including turning to the World Wide Web.
Since the Net is where most programmers spend idle hours, growing numbers of recruiters are using it
to chase them down. That's where Michael L. McNeal casts his global net. McNeal, human-resources
chief at Cisco Systems Inc., needs to hire 1,000 people each quarter, many of them programmers. Like
other recruiters, he buys ads on popular Web sites like the Dilbert page, which funnels traffic to
Cisco's Web site. There, the company lists some 500 current job openings. Applicants in foreign
countries can hit hot buttons to translate the page into Cantonese, Mandarin, Russian. And, by filling
out a short questionnaire, they can create a resume and zap it to Cisco.

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Cisco's Web page draws 500,000 job searches per month. This gives Cisco gobs of data about the job
market, including which companies have interested employees. Armed with the best prospects,
McNeal then turns to Cisco employees for help, asking them to call recruits, who speak the same
language.

Like the others, Microsoft recruits on the Web and snaps up startups for talent--some 20 companies in
1996, alone. But to get its software up and running throughout the world, Microsoft relies on service
companies, which are grossly understaffed. Microsoft calculates that its service partners are short
41,000 professionals trained to install Microsoft products. This is forcing the company to educate new
recruits. With an effort known as Skills 2000, Microsoft is pushing into 350 schools and colleges
around the world. It hammers out curricula that will produce more programmers, such as adding
computer training in business schools.

A big part of the effort is in Europe, a major market that has 18 million unemployed workers.
Microsoft's solution is to invite jobless Europeans in 11 countries into free training programs. In the
past year, 3,000 Europeans have gone through the program, with 98% of them landing jobs.

It's in this $170 billion market for global software services, including the Big Six consulting firms,
IBM Global Servics, Manpower, and many others, that demand for programmers is especially hot.
This is because corporations need loads of help to link far-flung operations with the latest in E-mail
networks, inventory control, and finance packages. ''The productive sector of the economy is
becoming absolutely dependent on software systems,'' says reengineering author Michael Hammer. ''If
SAP vanished, you couldn't buy a can of Coke.''

SPECIALTIES. In the finance capitals of London, Tokyo and Hong Kong, banks are installing vast
new systems to adapt to Europe's single currency and Japan's financial deregulation. Meanwhile,
they're working overtime to sort out the Year 2000 glitch, the dating problem companies face when
the year of double zeroes rolls around. Mastech Corp., a Pittsburgh-based outsourcer, sent a handful
of programmers a year ago to follow a Citibank contract from Singapore to London (page 116). Once
in London, they found a wealth of other business and started importing more programmers from
South Africa, Sri Lanka, India, and Australia. ''We have 50 people now, and we'd hire another 50
today if we could find them,'' says country manager Guil Hastings.

As recruiters travel, they focus on regional specialties. The Russians are whizzes at math. India's
university at Puna has a strong Japanese language program, which positions it well for Japan's Year
2000 work-load. South African programmers learned to cope during the years of the anti-apartheid
boycott with a motley collection of jerry-rigged mainframes. This makes them especially adept at
Year 2000 work, which is targeted toward aging mainframe software.

As for programmers, the world is their oyster. In a computer lab in Austin, Tex., Natalia Bogataya and
her husband, Konstantin Bobovich, both Belorussians and products of Van Derven's so-called Russian
connection, labor away on a mainframe program. They've left their college-age children with relatives
in Minsk and are debugging insurance software for Computer Sciences Corp. ''We can't use our
experience in our country,'' Bobovich explains, ''and my wife said, 'Let's see America.'''

Why not? In today's fervid market, programmers can write their own
tickets.

By Stephen Baker, with Gary McWilliams in Austin, Tex., and Manjeet Kripalani in
Bombay

Source: http://www.businessweek.com/1997/29/b3536106.htm

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3.6 Answer to Self Check Questions

Self Check Question 1


Case Study: ‘Forget the Huddled Masses: Send the Nerds’ (Noe et al, 2003: 210 – 213)

1. What characteristics of the product demand market have led to the explosion in demand
for programmers.
The explosion in the demand for programmers has resulted from the information
revolution where computer applications are not just used by technology companies, but
also by companies which operate within other industries such as banks, brokerages,
phone companies, automobile manufacturers.

The explosion in the demand for programmers has also been exacerbated by the fact that
“the very act of writing software has not speeded up despite the computer revolution”
(Noe et al, 2003: 211). Thus the nature of programming work is tedious and takes up a
significant amount of time.

2. What characteristics of the programming job have limited the number of people willing
to develop the skills necessary to meet this demand?
The characteristics of the job of programming which have limited the number of people
wanting to develop the skills necessary to meet this demand include:
• Programming is considered to be ‘geek’ or ‘nerd’ work and therefore a significant
number of bright young students choose to follow other careers;
• The work of programming tends to be laborious: the case states that “even the best of
programmers painstakingly turn out some 10 lines of code a day”
(Noe et al, 2003: 211).

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3. What options do employers in this market have to address the labour shortage?
Which option would be most successful?
Noe et al (2003) identifies seven options which could be used by employers in the
technology market to address the labour shortage. These include:
• Overtime
• Temporary employees
• Outsourcing
• Retrained transfers
• Turnover reductions
• New external hires
• Technological innovation

It may be argued that the option that would be most successful in the medium term is that
of technological innovation. Indeed, an innovation which would provide for the
acceleration of the programming process would provide significant relief to the demand
for programmers. A further medium term to long term option that would be most
successful in the absence of technological innovation would be new external hires, where
the organisations are involved in the programmers’ pre-employment education by
providing bursaries to school leavers. Such an approach would also provide the
organisation with temporary workers during university vacations.

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SECTION 4

RECRUITMENT, SELECTION AND INDUCTION

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CONTENTS

Learning Outcomes

Reading

4.1 Introduction

4.2 Recruitment
4.2.1 The Nature of Recruitment
4.2.2 Recruitment Policy
4.2.3 Factors Influencing Recruitment
4.2.4 Recruitment Sources
4.2.5 Advantages and Disadvantages of Internal and External Recruitment

4.3 Selection
4.3.1 Factors Influencing Selection Decisions
4.3.2 Selection Process

4.4 Induction
4.4.1 Introduction
4.4.2 The objectives and benefits of induction
4.4.3 Planning, designing and implementing the induction programe
4.4.3.1 Planning the induction programme
4.4.3.2 Designing the induction programme
4.4.3.3 Implementing the induction programme
4.4.4 Follow-up and evaluation of the induction programme

4.5 Summary

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LEARNING OUTCOMES

The overall outcome for this section is that, on its completion, the student should be able to
demonstrate an holistic understanding of the HRM practices of Recruitment and Selection.
This overall outcome will be achieved through the student’s mastery of the following specific
outcomes:

1. Demonstrate an understanding of the nature of recruitment and its application.

2. Identify and apply the various recruitment policies organisations may adopt.

3. Identify and critically discuss the factors influencing recruitment within an organisation.

4. Critically discuss the various sources from which an organisation may draw job
applicants.

5. Demonstrate an understanding of the nature of selection and its application.

6. Identify and critically discuss the factors influencing selection within an organisation.

7. Critically discuss and effectively apply the selection process within an organisation.

8. Distinguish between the concepts of induction, orientation and socialisation.

9. Explain the objectives and benefits of an induction programme.

10. Plan, design, implement and evaluate and induction programme.

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READING

Prescribed Reading:

• Noe, R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M. (2006) Human
Resource Management: Gaining a Competitive Advantage 5th Ed. Boston:
Irwin McGraw-Hill. pp 216-247

• Nel, P.S., Van Dyk, P.S., Haasbroek, G.D., Schultz, H.B, Sono, T. and
Werner, A. (2004) Human Resource Management 6th Ed. Cape Town:
Oxford. pp 231-244

Recommended Reading:

Books

• Carrell, M.R., Elbert, N.F., Hatfield, R.D., Grobler, P.A., Marx, M. & Van der
Schyf, S. (1997) Human Resource Management in South Africa. New Jersey:
Prentice Hall Inc. pp 137 – 202.

• Ivancevich, J.M. (1998) Human Resource Management. 7th Ed. Boston: Irwin
McGraw-Hill. pp 199 – 257.

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Journals

• Behling, O. (1998) ‘Employee Selection: Will Intelligence and


Conscientiousness Do the Job?’. Academy of Management Executive.
February, 12 (1), pp 77 – 87.
• Cook, J. (1996) ‘From Assessment to Learning? The Widening Scope of
Assessment Centres’. People Dynamics. November – December, 14 (11), pp
66 – 72.
• Erasmus, P. & Arumugam, S. (1998) ‘Psychometric Testing is Dead’. People
Dynamics. September, pp 38 – 41.
• Personnel Journal (1996) ‘Building a Global Workforce Starts with
Recruitment’. Personnel Journal: Supplement. March, pp 9 – 11.
• Powell, G.N. (1998) ‘Reinforcing and Extending Today’s Organization: The
Simultaneous Pursuit of Person-Organization Fit & Diversity’. Organizational
Dynamics. Winter, 26 (3), pp 50 – 62.
• Roodt, P.F. (1998) ‘Challenges in Psychological Assessment’. People
Dynamics. November-December, 16 (11), pp 30 – 34.
• Ward, J. (1998) ‘Recruitment: The Bottom Line’. People Dynamics.
September, 16 (9), pp 16 – 23.
• Williams, C. (1996) ‘Some Suggestions for Staff Selection’. Human Resource
Management. July, pp 27 – 30.

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4.1 Introduction

Section 3 of this module guide focused on the activity of Human Resource Planning.
Following on the activity of Human Resource Planning are the activities of Recruitment and
Selection, which are to be the focus of this section of the module guide.

The following recruitment and selection related issues will be examined in this section:
• Recruitment
o The nature of recruitment
o Recruitment policies
o Factors influencing recruitment
o Recruitment sources
• Selection
o Factors affecting selection decisions
o The selection process

4.2 Recruitment

This section examines the nature of recruitment, recruitment policies, factors influencing
recruitment as well as recruitment sources.

4.2.1 The Nature of Recruitment


Noe et al (2006:194) define recruitment as “…the practice or activity carried on by the
organization with the primary purpose of identifying and attracting potential employees”
On the other hand, Cherrington (cited in Nel et al, 2004:219) defines recruitment where
“…Every organisation must be able to attract a sufficient number of job candidate who have
the capabilities and aptitudes that will help the organisation achieve its objectives”. It also
needs to be noted that recruitment is an activity that is related to, and influenced by, the
human resource planning activity, discussed in section 3, in that if an organisation identifies a
labour surplus through HR planning, management would want to reduce the supply of labour
and therefore recruitment would not be appropriate for the organisation at that stage.

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? THINK POINT

Why does your organisation recruit?

Comment on Think Point

Ward (1998:16-23) identifies that most employers respond to the question ‘Why recruit?’
with the following answers:
• To get work done;
• To sell products and/or services;
• To reduce work-loads;
• To create new products;
• To manage staff;
• To train and develop staff.

Ward (1998:16-23) emphasises that such responses are inadequate and identifies the actual
reasons for the recruitment of people to be:

• “….to directly or indirectly add to the company’s revenue;


• to directly or indirectly add to the company’s expenditure;
• through accommodation of the two preceding criteria, enhance the company’s
profitability” (Ward, 1998: 18).

4.2.2 Recruitment Policy


An organisation’s recruitment policy outlines the objectives of the recruitment process and
provides guidelines as to how the recruitment process should be carried out (Nel et al,
2004:219).

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" ACTIVITY

Contact your organisation’s HR Manager and request a copy of your


organisation’s recruitment policy. Read through and analyse the recruitment
policy.

1. Identify the characteristics of your organisation’s approach to recruitment.

2. In your opinion is your organisation’s recruitment policy appropriate? In


other words is there ‘fit’ or ‘congruence’ between the recruitment policy and
the organisation’s activities and environment?

Comment on Activity

Organisational recruitment policies can be characterized by a number of factors including:

• Internal vs External Recruiting


Organisations differ in the extent to which they ‘promote from within’. A policy of
internal recruiting provides greater opportunities for the advancement of the
organisation’s existing employees (Noe et al, 2006:195).
• Lead-the-Market Pay Strategies
A ‘lead-the-market’ approach to pay involves the organisation in providing remuneration
which is higher than the market average. Those organisation’s who adopt this approach
have a significant advantage in the market (Noe et al, 2006:196).
• Image Advertising
Organisations may have a policy of advertising to promote themselves as a good place to
work (Noe et al, 2006:196). Such advertising is important for organisations that operate
within highly competitive labour markets.
• Employment Equity & Affirmative Action
While an Affirmative Action policy serves to address past discriminatory recruitment
practices, an employment equity policy serves to prevent future discrimination in
recruitment practices (Nel et al, 2004:161). In South Africa, the legislation requires
organisations who employ in excess of 50 employees to exercise an employment equity
policy.

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• Person-Organisation Fit vs Diversity


Certain organisations may choose to follow a recruitment policy which provides for
optimum fit between the organisation’s culture and the recruit (Powell, 1998). On the
other hand, organisations may follow a recruitment policy which promotes the
employment of diverse individuals so as to enrich the composition and the creativity of
its workforce.
• Employment – at - will Policies
Policies which state that either an employer or an employee can terminate the
employment relationship at any time, regardless of cause (Noe et al, 2006:196).

4.2.3 Factors Influencing Recruitment


Both external and internal factors influence an organisation’s recruitment practices.

4.2.3.1 External Factors


External factors influencing recruitment include: (Nel et al, 2004:220).
• Government and Trade Union Limitations
Countries, such as South Africa, have put in place equal rights legislation to address
unfair recruitment practices. Trade Unions often participate in the recruitment process so
as to ensure that the process is fair.
• Labour Market Conditions
Labour market conditions significantly impact an organisation’s choice of recruitment
programme (Nel et al, 2004:220). For example, if there is an undersupply of skills within
the labour market, an intensive and multi-pronged recruitment programme would need to
be implemented.

4.2.3.2 Internal Factors


Internal factors which influence recruitment include:
• Organisational Policy
Organisational recruitment policies with regards to internal vs external recruitment,
employment equity, diversity vs person-organisation fit, etc. (see section 4.2.2) will
influence the nature of the organisation’s recruitment.

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• The Image of the Organisation


The public image of the organisation, as well as the image which the prospective
employee has of the organisation, will impact on the organisation’s recruitment
programme (Nel, et al, 2004:220).
• Recruitment Requirements
It is important that the organisation, through effective job analysis, job descriptions and
job specifications, sets out realistic requirements for the potential job incumbent. Should
unrealistic requirements be set, the success of the recruitment programme will be
impeded.

4.2.4 Recruitment Sources


Due to the expansive nature of the labour market, the sources from which an organisation
recruits potential employees is a critical aspect of its overall recruitment strategy.

? THINK POINT

Consider the organisations for which you have worked. What source mechanisms
were used in your recruitment? (i.e. did you submit your CV electronically in
response to an internet advertisement, or did you register with a private
employment agency?) In your opinion, how effective were these recruitment
sources?

Comment on Think Point

There are a number of sources from which an organisation can draw recruits. It is important,
however, that organisations select their recruitment sources carefully as different sources
present the organisation with different types of recruits. For example, if one considers the
case study entitled ‘Forget the Huddled Masses: Send the Nerds’ (Noe et al, 2003: 210-213)
which was studied in section 3 of this module guide, using the internet as a recruitment
source for programmers would be more effective than advertising in a local newspaper as
programmers spend most of their ‘idle hours’ browsing the World Wide Web (as indicated in
the case).

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4.2.4.1 Internal Recruitment Sources


Using internal recruitment sources presents the organisation with a number of advantages,
which include:
• The organisation is familiar with the performance of the applicants;
• The applicants have a better understanding of the organisation and the vacant position if
compared to outside applicants; and
• The filling of vacancies proves to be cheaper and faster (Noe et al, 2006:197).

Internal recruitment sources include:


• Promotion and transfer of present employees;
• Job advertisements circulated to present employees;
• Personal records to identify present employees with potential;
• Skills inventories which provide information on the qualification, skills, performance and
experience of present employees (Nel et al, 2004:221).

4.2.4.2 External Sources


External recruitment sources present the organisation with the following advantages:
• Entry-level and specialized upper-level positions often require that the organisation look
externally, as the skills required of these positions may not exist within the organisation;
• Introducing outsiders into the organisation will provide for new ideas (Noe et al, 2003).

External recruitment sources include:


• Employment agencies
• Head hunting
• Walk-ins
• Referrals
• Professional associations
• Advertisments (placed in newspapers, trade magazines, the internet, etc)
• College, Technikon and University campus recruitment (Nel et al, 2004:221-222).

In summary, section 4.2 has focused on the HRM activity of recruitment. In so doing, the
nature of recruitment, recruitment policies, factors influencing recruitment and recruitment
sources have been examined. Section 4.3 will focus on the related activity of selection.

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4.2.5 The Advantages and Disadvantages of Internal and External Recruitment

This can be summarised in the table below:

Internal Recruitment
Advantages Disadvantages
• Provides greater motivation for good • Creates “inbreeding” and stale ideas
performance • Creates political infighting and pressures to
• Provides greater promotion opportunities compete
for present employees • Requires a strong management development
• Provides better opportunity to assess programme
abilities • Creates a homogenous workforce
• Improves morale and organisational loyalty
• Enables the employee to perform the new
job with little lost time
External Recruitment
Advantages Disadvantages
• Provides new ideas and insights • Loss of time due to adjustment
• The existing organisational hierarchy • Present employees cease to strive for
remains relatively unchanged promotions
• Provides greater diversity • Individual may not be able to fit with the rest
of the organisation

Source: Nel et al, (2004:221)

4.3 Selection

This section will focus on the HR activity of selection. In so doing, the factors influencing
selection decisions and the selection process will be examined.

Selection may be defined as “…the process by which an organization chooses from a list of
applicants the person or persons who best meet the selection criteria for the position
available, considering current environmental conditions” (Ivancevich, 1998: 227).

" ACTIVITY

1. Read the short case entitled ‘Never having to say you never know’
Source: Noe et al (2006:247-248).
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4.3.1 Factors Influencing Selection Decisions


Nel (et al 2004:232-234) identify both internal and external environmental factors which
influence selection decisions.

? THINK POINT

In your experience, what are the internal and external factors which influence
selection programmes and decisions within your organisation?

Comment on Think Point


The various internal and external environmental factors impacting on selection programmes
and decisions are discussed below in section 4.3.1.1 and section 4.3.1.2.

4.3.1.1 Internal Environmental Factors


Internal environmental factors which influence selection decisions include:
• The size of the organisation where the smaller the organisation, the more informal the
selection decision;
• The type of the organisation where greater complexity requires more sophisticated
selection techniques;
• The nature of social pressure emerging from, for example, legislation and trade unions;
• Applicant pool for a certain job, where larger numbers would require the selection
programme to be relatively sophisticated
• Speed of decision making
• Selection methods (Nel et al, 2004:234).

4.3.1.2 External Environmental Factors


External environmental factors which impact on selection decisions include:
• The nature of the labour market where, for example, in the instance that there are few
individuals with the skills required, the selection process would be unsophisticated and short.
• Trade unions where employees who belong to a trade union, can make certain demands
in accordance with the trade union contract (Nel et al, 2004: 232).
• Government regulations where, for example, legislation may affect the manner in which
the selection process is executed (Nel et al, 2004:232).
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Williams (1996:27-30) shows that the Labour Relations Act has a significant impact on the
manner in which organisations within South Africa conduct selection activities. Indeed, the
Act stipulates that an organisation that either directly or indirectly discriminates against a job
applicant will be regarded to have committed an unfair labour practice.

Therefore South African organisations need to ensure that their selection practices are
consistent and equitable and do not discriminate against applicants. Williams (1996:27-30)
points out that this would, for example, require organisations:

• To conduct effective job analyses in order to develop solid and realistic job requirements
and selection criteria;
• To give attention to the manner in which job advertisements are formulated;
• To handle applicants in a consistent manner;
• In interviewing applicants to:
o Carefully phrase questions;
o Avoid potentially risky questions (e.g. questions which enquire about age, sexual
preference, disability, etc.);
o Structure the interview around job dimensions;
• To only administer tests which are valid and job related.

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4.3.2 Selection Process


The HR activity of selection may be understood as a process.

" ACTIVITY

Provide a diagrammatic representation of the process which the practice of


selection follows within your particular organisation.

Comment on Activity

A diagrammatic representation of the selection process is provided in Figure 4.1 below:

PRELIMINARY
SCREENING
Provisional Selection Interview
Application Form

SELECTION METHODS
Testing
Interview
Reference Checking
Medical Examination

APPOINTMENT

Figure 4.1: The Selection Process (Adapted from Nel et al, 2004:235)

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As indicated in Figure 4.1, the selection process consists of three main steps. The following
provides a brief description of each of the steps:

• Phase 1: Initial Screening


This represents the first phase in the selection process and involves the provisional selection
interview and the completion of a company application form.

The provisional selection interview usually lasts in the region of 10 minutes and is used to
determine whether the applicant meets the minimum requirements (Nel et al, 2004:234).

The application form is designed to meet the needs and requirements of the organisation, and
provides information as to the applicant’s qualifications, experience, interests, etc. (Nel et al,
2004:235).
Applicants who are judged to have the minimum requirements, based on the provisional
selection interview and completed application form, will proceed to the next phase of the
selection process.

• Phase 2: Selection Methods


During this phase of the selection process various selection methods are applied including
testing, interviews, reference checking and the medical examination.

Tests which could assist the organisation with selection include assessments to measure
cognitive aptitude, psychomotor, job knowledge, work sample, vocational interest and
personality (Nel et al, 2004:239-240). Assessments centres are useful in gathering
information as to the performance of potential managers and supervisors.

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Clause 8 of the Employment Equity Act of 1998 states “Psychological testing and other
similar assessments of an employee are prohibited unless the test or assessment being used
has been scientifically shown to be valid and reliable, can be applied fairly to all employees
and is not biased against any employee or group” (cited in Roodt, 1998: 33).

Roodt (1998) points out that this particular clause of the Employment Equity Act has
received much negative publicity, to the extent that it is has been misinterpreted and that
there have been suggestions of abandoning psychological assessment in its entirety.
However, Roodt (1998) asserts the value of psychological testing for organisations and
emphasises that psychological assessments should continue to be administered, provided that
this is done in a sound and ethical manner, and in accordance with the relevant labour
legislation.

• Phase 2: Selection Methods (continued)


One of the most widely used selection tools is the interview (Ivancevich, 1998). The
interview provides for face-to-face communication, and allows the interviewer to gain
considerable information about the applicant’s background, experience, attitude, value and
interests. It also provides the applicant with an opportunity to find out more about the job
and the organisation (Nel et al, 2004:237-239). Interviews may be structured, semi-structured
or unstructured.
Personal references is a further selection method, where the organisation seeks information
about the performance of an applicant in previous positions.
The medical examination is usually the last selection method which is administered in the
selection process. The medical examination serves to determine the general state of the
applicant’s health, but also tests for specific illnesses such as cardiovascular problems (Nel et
al, 2004:241).

• Phase 3: Appointment
The final phase in the selection process involves making a choice between the applicants.
Various selection strategies can be utilized to assist the organisation in making this decision
(Nel et al, 2004:242). These strategies include the multiple predictor approach, the
placement approach and cost benefit analysis (Nel et al, 2004:235).
In summary, section 4.3 has focused on the HRM activity of Selection. In so doing factors
influencing selection as well as the selection process were examined.

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4.4 Induction

4.4.1 Introduction
Starting a new job is considered to be one of the most stressful life experiences and a proper
induction process that is sensitive to the anxieties, uncertainties and needs of a new employee
is of the utmost importance.

Although induction means to introduce, or to initiate it is only part of the process that
endeavours to acclimatize the employee into the organisation and turn them into a productive
worker. Orientation means to become familiar with or adjusted to facts or circumstances. It is
the process of informing new employees about what is expected of them in the job and
helping them cope with the stresses of transition. Socialization means to adapt to life in
society. In the organisation, socialization is the process of instilling in all employees the
prevailing attitudes, standards, values and patterns of behaviour expected by the organisation
and its departments.

4.4.2 The objectives and benefits of induction


Werther and Davis (1993:281) state that the induction programme helps the new employee to
understand the social, technical and cultural aspects of the workplace and speeds up the
socialisation process.

The goals of the induction programme should be to:


• Help the employee understand the “big picture”
• Make the new employee part of the team
• Develop plans and goals for the new employee
• Gather information from the new hire
• Anticipate and answer their questions
• Celebrate the new employee’s arrival.

According to Nel et al, (2004:252) the main benefits of a successful induction process are:
• A reduction in reality shock and cognitive dissonance
• An alleviation of employee anxieties
• A creation of positive work values and a reduction in start up costs
• An improvement in relationships between managers and subordinates

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4.4.3 Planning, designing and implementing the induction programme

4.4.3.1 Planning the induction programme


Research has shown that in many organisations 50% of voluntary resignations occur within
the first six months after organisational entry, often because employee expectations are not
met. Most companies base their induction programmes on what they think the employee
should know, however the most common questions that new employees have should form the
basis of the induction. According to Casio (1995:240) these question are usually:
• What are the expectations of this company regarding the services I can offer?
• Who is my boss and what is s/he like?
• What kind of social behaviour is regarded as a norm in this company?
• Will I be able to carry out the technical aspects of my job?
• What is my future with this company?

4.4.3.2. Designing the induction programme


Byars and Rue (1997:207) believe that the induction programme must be based on a good
balance between the company’s and the employee’s needs. A concise yet comprehensive
programme can be achieved by reviewing the following items:
• The target audience
• Essential and desirable information
• The literacy level of the employees

4.4.3.3. Implementing the induction programme


Byars and Rue (1997:207) state that it is desirable for each new employee to receive an
induction kit, or a packet of information to supplement the verbal and visual induction
programme. Material that could be included:
• Company organisation chart
• Map of company facilities
• Copy of policy and procedures handbook
• List of holidays and fringe benefits
• Copies of performance appraisal forms, dates and procedures
• Emergency and accident prevention procedures
• Sample copy of company newsletter or magazine
• Telephone numbers and locations of key company personnel

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4.4.4 Follow-up and evaluation of the induction programme

Many companies make the mistake of believing that once a new employee has attended the
induction programme, nothing more is needed from the supervisor or manager. Instead,
regular checks should be initiated and conducted by the line manager after the employee has
been on the job one day and again after one week and by the HR representative after one
month (Casio, 1995:242).

4.5 Summary

Section 4 has focused on the HRM activities of Recruitment and Selection. In investigating
Recruitment, the nature of recruitment, recruitment policies, factors influencing recruitment
and recruitment sources were been examined. In the sub-section on Selection, the factors
influencing selection, as well as the selection process were examined. In the sub-section on
Induction, the objectives and benefits of the induction programme are discussed. The
planning and benefits of an induction programme is also examined.

Section 5 of this module guide will focus on Employee Training & Development.

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SECTION 5

EMPLOYEE TRAINING AND DEVELOPMENT

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CONTENTS

Learning Outcomes

Reading

5.1 Introduction

5.2 The Concepts: Training and Development

5.3 Training
5.3.1 The Training Process
5.3.2 Training Within the South African Context

5.4 Development
5.4.1 Formal Education Programmes
5.4.2 Assessment
5.4.3 Job Experiences
5.4.4 Interpersonal Relationships

5.5 Summary

5.6 Answer to Self Check Question

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LEARNING OUTCOMES

The overall outcome for this section is that, on its completion, the student should be able to
demonstrate a holistic and practical understanding of employee training and development
within organisations. This overall outcome will be achieved through the student’s mastery of
the following specific outcomes:

1. Distinguish between the concepts of training and development.

2. Identify, critically discuss and apply the training process.

3. Discuss and conduct a training needs analysis.

4. Discuss and manage the design, development and delivery of training.

5. Critically discuss and manage the evaluation of training.

6. Critically discuss the impact of the South African context on training.

7. Identify, critically discuss and effectively utilise the development approaches of formal
education, assessment, job experiences and interpersonal relationships.

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READING

Prescribed Reading:

• Noe, R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M. (2006) Human
Resource Management: Gaining a Competitive Advantage 5th Ed. Boston:
Irwin McGraw-Hill. pp 254-318 and pp 380-419

• Nel, P.S., Van Dyk, P.S., Haasbroek, G.D., Schultz, H.B, Sono, T. and
Werner, A. (2004) Human Resource Management 6th Ed. Cape Town:
Oxford. pp 424-467

Recommended Reading:

Books

• Bellis, I. (2000) Skills Development: A Practitioner’s Guide to SAQA, the


NQF and the Skills Development Acts. Randburg: Knowledge Resources.
• Carrell, M.R., Elbert, N.F., Hatfield, R.D., Grobler, P.A., Marx, M. and Van
der Schyf, S. (1997) Human Resource Management in South Africa. New
Jersey: Prentice Hall Inc. pp 307 – 368.
• Erasmus, B.J. and Van Dyk, P.S. (1999) Training Management in South
Africa 2nd Ed. Johannesburg: International Thomson Publishing.
• Ivancevich, J.M. (1998) Human Resource Management 7th Ed. Boston: Irwin
McGraw-Hill. pp 408 – 443 and pp 444 - 482.

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Journals

• ASTD (2000) ‘The E List’. Training and Development. November, 54 (11), p


21.
• Cline, E.B. and Seibert, P.S. (1993) ‘Help for First Time Assessors’. Training
and Development. May, 47 (5), pp 99 – 101.
• Cohen, S.L. (1993) ‘The Art, Science, and Business of Programme
Development’. Training and Development. May, pp 49 – 56.
• Deller, K. (2001) ‘The Human Element is Critical to E-Learning Success’.
People Dynamics. January, 19 (1), pp 24 – 25.
• Du Plessis, H., Fourie, S. and Hamburg, S. (1996) ‘Foundational Learning
Skills’. People Dynamics. November – December14 (11), pp 74 – 88.
• Filipczak, B. (1996) ‘To ISD or not to ISD’. Training. March, 33 (3), pp 73 –
75.
• Gordon, J. and Zemke, R. (2000) ‘The Attack on ISD’. Training. April, 37
(4), pp 42 – 57.
• Kirkpatrick, D.L. (1983) ‘Four Steps to Measuring Training Effectiveness’.
Personnel Administrator. November, pp 19 – 25.
• Kimmerling, G. (1993) ‘Gathering Best Practices’. Training and
Development. September, 47 (9), pp 28 – 36.
• Khoza, K. (1999) ‘Barriers to Transfer of Training’. People Dynamics.
November – December, 17 (110, pp 26 – 33.
• Khoza, K. (2000) ‘Training Needs Analysis Under the Microscope’. People
Dynamics. September, 18 (9), pp 40 – 43.
• Meyer, T. (1998) ‘Corporate Training Centres’. People Dynamics. June, 17
(6), pp 40 – 45.
• Thach, L. and Heinselman, T. (1999) ‘Executive Coaching Defined’. Training
and Development. 53 (3), pp 34 – 40.
• Tyers, J. (1995) ‘National Qualifications Framework: Who are the
Beneficiaries?’. Human Resource Management. October, pp 28 – 31.

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5.1 Introduction

This section will explore the HR practices of Employee Training and Development. In so
doing, the following will be examined:
• The concepts: training and development
• Training
o The training process
ƒ Training needs analysis
ƒ Design and development of training
ƒ Delivery of training
ƒ Evaluation of training
o Training in the South African context
• Development
o Approaches to development
ƒ Formal education
ƒ Assessment
ƒ Job experiences
ƒ Interpersonal relationships

5.2 The Concepts: Training and Development

A distinction can be made between the related concepts, Training and Development.

? THINK POINT

Consider the Training and Development initiatives within your organisation.


What activities are labeled as ‘training’ and which initiatives generally receive the
‘development’ label?

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Comment on Think Point

Van Dyk and Erasmus (1999) identify training as being task oriented and focused on
improving the learner’s job performance. Development, on the other hand, is argued to be
directed towards “creating learning opportunities and making learning possible within an
enterprise” (Van Dyk and Erasmus, 1999: 3).

Noe et al’s (2006) distinction between the concepts of training and development focuses on
the orientation of the learning intervention. It is argued that training “is focused on helping
employees’ performance in their current jobs” (Noe et al, 2003: 376) while development is
future-oriented in that it helps employees prepare “for other positions in the company and
increases their ability to move into jobs that may not yet exist” (Noe et al, 2003: 376).

Further distinctions between the concepts of training and development are highlighted in
Table 5.1 below.

TRAINING DEVELOPMENT
Focus Current Future
Use of Work Experiences Low High
Goal: Preparation for… Existing Job Changes
Participation Required Voluntary

Table 5.1: The Differences Between Training and Development


(adapted from Noe et al, 2006: 383).

5.3 Training

Training may be defined as the “planned effort by a company to facilitate employees’


learning of job-related competencies. These competencies include knowledge, skills or
behaviour that are critical for successful job performance” (Noe et al, 2006:257). As has
been indicated throughout this module guide, in the dynamic business environment of today,
a company’s human resources provide the intellectual capital necessary to enable the firm to
successfully compete within its industry. In order to ensure that the organisation’s
intellectual capital is maintained, training is necessary.

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5.3.1 The Training Design Process

The training design process refers to a systematic approach for developing training
programmes designed to contribute to competitiveness. Figure 5.1 below represents the six
steps of this process, which emphasizes effective training practices (Noe at al, 2006:260)

1. Needs Assessment
• Organisational Analysis
• Person Analysis
• Task Analysis
2. Ensuring Employees’ readiness for training
• Attitudes and motivation
• Basic skills
3. Creating a learning environment
• Identification of learning objectives and training outcomes
• Meaningful material
• Practice
• Feedback
• Observation of others
• Administering and co-ordinating program
4. Ensuring transfer of training
• Self-management strategies
• Peer and manager support
5. Selecting training methods
• Presentational methods
• Hands-on method
• Group methods
6. Evaluating training methods
• Identification of training outcomes and evaluation design
• Cost-benefit analysis

Figure 5.1: The Training Design Process

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5.3.1.1 Training Needs Analysis


Training needs analysis is the first stage in the training process and involves a procedure to
determine whether training will indeed address the problem which has been identified. The
process involved in conducting a training needs analysis is summarised in Figure 5.2.

REASONS ORGANIZATION OUTCOMES


TO CONDUCT ANALYSIS
• What trainees need to
(What is the context?)
NEEDS ANALYSIS learn

• Legislation • Who receives training


PERSON
• Lack of basic • Type of training
skills ANALYSIS
(Who needs training?) • Frequency of training
• Poor performance
• Buy-versus-build
• New technology
• Customer TASK decision
requests • Training vs other HR
ANALYSIS
• Higher (In what do they need options such as
performance training?)
standards selection or job
• New jobs redesign

Figure 5.2: The Training Needs Analysis Process (adapated from Noe et al, 2006:261)

As can be seen from Figure 5.2, the needs analysis process starts with the identification of a
‘pressure point’ such as poor performance, new technology or job redesign. This pressure
point prompts the conducting of a needs analysis, which involves the following:
• Organisational analysis where aspects of the organisational context (such as the firm’s
strategic impact, the training resources available and the support of managers and peers)
are considered (Noe et al, 2006:262).
• Person analysis where the employees who require training are identified (Noe et al,
2006:262).
• Task analysis which involves identifying the tasks, knowledge, behaviour and skills
which need to be emphasised in conducting the training.

The organisational, task and person analysis will produce certain outcomes which will direct
the organisations approach to training (Noe et al, 2006:262). The outcomes may indeed
show that the problem initially identified cannot be solved by training, but rather by another
HR intervention, such as job redesign.

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5.3.1.2 Design and Development of Training


The second and third phase in the training process involves the design and development of
training. The activities of design and development use the information from the training
needs analysis to:
• Formulate learning outcomes (or objectives);
• Prepare lesson plans (Erasmus and Van Dyk, 1999); and
• Develop training materials.
During this phase it is also important to consider the readiness of the employees who will be
attending the training (Noe et al, 2003).

5.3.1.3 Delivery of Training


The fourth phase of the training process involves the actual presentation of the training. The
trainer must pay attention to the factors affecting the transfer of training, such as technology
support, peer support and management support (Noe et al, 2003). The trainer also makes use
of various training methods to facilitate the transfer of training.

" ACTIVITY

Consider the training which you have received within the organisations for which
you have worked. Identify the various training methods which were used, and
comment on the effectiveness of each.

Comment on Activity

Training methodologies may be divided into three groups:


• Presentation Methods where learners are passive recipients of information;
• Hands-on-Methods where the learner is actively involved in the learning; and
• Group Building Methods where learners work together to build a team identity
(Noe et al, 2006:281-297)

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Examples of the methods used in each of these categories are provided below:
• Presentation Methods (Noe et al, 2006:281-283)
Method Description Advantages
Classroom • Trainer lectures the group • Least expensive
Instruction • May include question and answer sessions, • Least time-consuming
discussion and case studies to provide for • Large number of learners
participation
Distance • Used by geographically dispersed companies • Company saves on travel costs
Learning • Two-way communication between learners • Employees at remote locations
and trainer have the opportunity to receive
• Includes audioconferencing, training
videoconferencing and docuconferencing
Audiovisual • Includes overheads, slides, video • Video provides trainer with
Techniques • Rarely used alone flexibility
• Video exposes trainees to actual
problems

• Hands-On-Methods (Noe et al, 2006:283-284)


Method Description Advantages
On-the-Job • Philosophy: employees learn by observing • Advantages of self-directed
Training peers or supervisors and imitate their learning include the learner
behaviour learns at own pace and receives
• Used to train new recruits, and to upgrade feedback on learning
skills of experienced employees performance
• Forms include apprenticeships (or • Advantages of apprenticeships
learnerships) and self-directed learning include the learner being able to
earn pay while he/she learns
Simulations • Method that represents real life situation and • Learners need not be afraid of
learners observe the impact of their decisions the impact of wrong decisions
• Used to develop technical and management • Errors are not as costly
skills
Business • Used for management skills development • Stimulate learning as learners
Games and • Case studies present business scenarios for are actively involved
Case analysis • Games mimic competitive
Studies • Games require learners to gather nature of business
information, analyse it and make decisions • Cases assist in developing
higher order intellectual skills
Web-Based • Refers to training that is delivered over the • Ability to deliver training to
Training internet and intranet learners anywhere in the world
• Supports virtual reality, interactions & • Ease of updating training
animation programmes

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• Group-Building Methods (Noe et al, 2006:294-297)


Method Description Advantages
Adventure • Development of teamwork and leadership • Participants report that they
Learning skills using structured outdoor activities gain an improved
• May involve challenging physical activities understanding of themselves
and their interactions with co-
workers
Team • Promotes the ability of team members to • Provides for the development
Training work together effectively of procedures to address team
• Usually uses multiple methods issues, coordinate information
gathering, and support
individual team members.
Action • Provides groups with a problem which they • Appears to maximise learning
Learning are required to solve and for which they are as it involves real-time
required to produce an action plan problems
• Useful for identifying
dysfunctional team dynamics

5.3.1.4 Evaluation of Training


The final phase in the training process involves the evaluation of training. Given that
training is conducted to assist firms in gaining competitive advantage, it is important that the
effectiveness of training interventions are evaluated.

READING

Read the following journal article and then answer the questions which follow.
• Kirkpatrick, D.L. (1983) ‘Four Steps to Measuring Training Effectiveness’.
Personnel Administrator. November, pp 19 – 25.

1. What reasons does Kirkpatrick (1983) identify for the evaluation of training?

2. Discuss the four stage evaluation model presented by Kirkpatrick (1983).

3. Use Kirkpatrick’s (1983) model to critique your organisation’s approach to the


evaluation of training.

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Comment on Reading Activity


Reasons for the Evaluation of Training
Kirkpatrick (1983:19-25) identifies the following reasons for conducting training
evaluations:
• To justify the trainer’s and trainer department’s existence;
• To decide whether the particular training programme should be continued; and
• To provide guidance as to the development of future training programmes.

Four Stage Evaluation Model


Kirkpatrick (1983:19-25) divides the evaluation of training into four stages:
• Stage 1: Reaction
This stage is the simplest stage and measures the learner’s opinions about the training
programme.
• Stage 2: Learning
This involves measuring the change in knowledge, skills and attitudes as a result of the
learner attending the training programme (Kirkpatrick, 1983:19-25). The trainer may
consider using a pre-test/post-test with control group assessment design to ensure that
changes in knowledge, skills and attitudes did indeed result from the training programme.
• Stage 3: Behaviour
This stage measures the actual on-the-job changes in behaviour which result from
attending the training programme (Kirkpatrick, 1983:19-25). It is recommended that this
appraisal of behaviour should be made by a couple of individuals including the learner,
his superior, his subordinates and his peers. Such an appraisal should only be conducted
three months after the training was presented.
• Stage 4: Results
This stage focuses on how the training intervention has impacted on the organisation.
The questions which are investigated include “Was productivity increased? Quality
improved? Costs reduced? Morale improved? Turnover reduced? Accidents
prevented?…” (Kirkpatrick, 1983: 24).

Thus, Kirkpatrick’s (1993) four stage model of evaluation provides for the assessment of
training effectiveness not only at the level of the individual, but at the level of the
organisation as well. In so doing, Kirkpatrick acknowledges the role which training has to
play in contributing to the competitive advantage of the firm.

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5.3.2 Training Within the South African Context


Training and development within South Africa is currently in a state of flux. Legislation,
such as the SAQA Act of 1995, the Skills Development Act of 1998 and the Skills
Development Levies Act of 1999 have been promulgated to bring about improvements to the
effectiveness of learning initiatives within enterprises. The focus of this legislation is to
address the weaknesses of South Africa’s past training and development system, so as to
build a “…work force equipped with the right skills to make the country competitive
internationally and a system of developing, recognising and rewarding these skills which are
coherent and understandable”(Tyers, 1995:28).

? THINK POINT

Consider the education, training and development system which you have
experienced within South Africa or the country of your choice over the past 15 to
20 years. What characteristics of this system did you find to be limiting?

Comment on Think Point


The ‘new’ education, training and development system which is currently being built in
South Africa strives to address the weaknesses of the past system. The following table
provides an indication as to how the ‘new’ system will improve on the weaknesses of the
‘old’ system.
PAST SYSTEM FUTURE SYSTEM
Varying quality between training A national quality management system is to be put in place to
providers and training programmes ensure consistent quality across all training providers and
training programmes
Focus on inputs and content Focus is to shift to outputs or outcomes
Learners rated against each other Learners assessed against national standard
(norm based assessment)
Teacher/trainer-centred Learner centred
No recognition of prior learning Recognition of prior learning (RPL) – learners will be able to
gain credit for knowledge and skills they acquire informally
Ad hoc reporting of learning A national record of learning database will be established to
achievements ensure centralised and consistent reporting of learning
achievements
Table 5.2:The differences between the ‘past’ and ‘future’ training and development system
within South Africa (adapted from Phillips, cited in Erasmus & Van Dyk, 1999: 13).

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5.3.2.1 The National Qualifications Framework (NQF)


The mechanism which is central to the changes within the South African training and
development system is the National Qualifications Framework or NQF. The NQF is a
structure which provides an integrated framework of learning achievements. It consists of
eight levels and three bands: the higher education and training band, the further education
and training band and the general education and training band. Figure 5.3 provides a
diagrammatic representation of the NQF.

NQF LEVEL HIGHER EDUCATION and TRAINING BAND

8 Doctorates and Further Research Degrees

7 Higher Degrees and Professional Qualifications

6 First Degrees and Higher Diplomas

5 Diplomas and Occupational Certificates

NQF LEVEL FURTHER EDUCATION and TRANING BAND

4 Further Education and Training Certificates

NQF LEVEL GENERAL EDUCATION and TRAINING BAND

1 General Education and Training Certificate

Grades 1 – 9 ABET Level 1 – 4


Pre-School

Figure 5.3:The National Qualifications Framework (NQF)(adapted from Bellis, 2000: 16).

The legislation which provides for the implementation of the NQF within South African
organisations will be discussed in section 9 of this module guide.

In summary, sub-section 5.3 focused on the HRM activity of training. In so doing the
training process was investigated and issues impacting on training within the South African
context were examined.

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5.4 Development

As identified in sub-section 5.2, development interventions are future oriented and serve to
develop skills within employees which will enable them to move into jobs that possibly do
not yet exist (Noe et al, 2006:383)

" ACTIVITY

Read the short case study on page 375 of Noe et al (2003) entitled ‘Developing
employees reduces risk for First USA Bank’. What characteristics of development
can you deduce from your reading of this case study?

Comment on Activity

This activity serves to provide the student with a sense of what development entails. The
following characteristics of development interventions may be deduced from the case study:
• Development initiatives focus on producing high-quality managers;
• Development approaches include:
o Recruiting college graduates and placing them on an accelerated development
programme which would prepare them for a management position within 3 to 5
years;
o Providing recruits with supervision from senior managers who oversee their training
and development and ensure that they receive the necessary experience;
o Identifying current employees who have potential to take on managerial
responsibilities. These employees receive financial support to get a management-
related education; and
o All of the above three programmes include individual coaching with a psychologist,
who works with the employees and their managers to improve on-the-job training
and development.

It is important to note that the First USA Bank case focuses on management development.
Indeed, traditionally development initiatives have focused on management level employees.

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However, given the competitive demands of today’s business environment, organisation’s


have recognised the benefits of offering development interventions to all types and levels of
employees (Noe et al, 2006:386).

The First USA Bank case directly and indirectly points to the development approaches of
formal education, assessment, job experiences and interpersonal relationships (coaching).
These approaches will be discussed below.

5.4.1 Formal Education Programmes


Formal education programmes include:
• Off-site and in-house programmes customised for the organisation’s employees;
• Short courses presented by universities and/or consultants;
• Executive MBA programmes; and
• General public university programmes (Noe et al, 2006:389).

Smith (1999) emphasises the need for formal education programmes, such as those identified
above, in equipping employees with the competencies necessary to cope with current
business trends such as globalisation and competitiveness, the knowledge economy and
knowledge management and the re-engineering of organisations.

5.4.2 Assessment
According to Noe et al (2003) assessment involves “collecting information and providing
feedback to employees about their behaviour, communication style, or skills” (p 383).
Assessment is frequently used to identify employees with managerial potential.

Organisations vary in their use of assessment methods. Popular methods, however, include:
• The Myers-Briggs Type Indicator
• The Assessment Centre
• Benchmarks
• Performance Appraisals and 360 Degree Feedback Systems

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 SELF CHECK QUESTION

Read the following scenario taken from Noe et al (2003), page 409.

“Your boss is interested in hiring a consultant to help identify potential managers


among current employees of a fast food restaurant. The manager’s job is to help
wait on customers and prepare food during busy times, oversee all aspects of
restaurant operations (including scheduling, maintenance, on-the-job training,
and food purchase), and help motivate employees to provide high-quality service.
The manager is also responsible for resolving disputes that might occur between
employees. The position involves working under stress and coordinating several
activities at a time. She asks you to outline the type of job assessment program you
believe would do the best job of identifying employees who will be successful
managers”(Noe et al, 2003: 409).

Use your knowledge of assessment to formulate an answer to your boss’s


question.

The answer to this Self-Check Question may be found at the end of this section.

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5.4.3 Job Experiences

Job experiences refer to “relationships, problems, demands, tasks, or other features that
employees face in their jobs” (Noe et al, 2006:396). Job experiences may be used for
employee development in various ways including:

• Job enlargement where the employee’s existing job is expanded horizontally so as to


include a greater variety of activities;

• Job enrichment where the employee’s existing job is expanded vertically so as to


provide the employee with greater challenge and responsibility;

• Job rotation where the employee moves among jobs within a particular department (Noe
et al, 2006:398);
• Transfers, Promotions and Downward Moves; and
• Temporary Assignments with Other Organisations (Noe et al, 2006:399-400).

5.4.4 Interpersonal Relationships


Development can also occur through the establishment of interpersonal relationships through
mentoring and coaching programmes.

A mentor is “an experienced, productive senior employee who helps develop a less
experienced employee” (Noe et al, 2006:402). On the other hand, a coach may be defined as
“a peer or a manager who works with an employee to motivate him, help him develop skills
and provide reinforcement and feedback” (Noe et al, 2006: 404).

ASTD (1997) outlines guidelines for successful coaching and mentoring.


These include:
• Establish a performance-contract approach to coaching where the employee’s
development benefits are outlined, the outcome of the initiative is specified, and the
manner in which the initiative will benefit the organization and the employee is
highlighted.
• Emphasise to employees that they are primarily responsible for their own professional
development, but that the organisation will strive to provide to contribute to their
development through, for example, providing them with challenging projects.

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• Assist employees in compiling and reviewing their development plans. Ensure these
development plans provide a balance between training initiatives to address skills
deficiencies, as well as development initiatives which address their marketability and
employability.
• Be prepared to be an effective coach even if time is limited (ASTD, 1997).

In summary, this sub-section examined the practice of development. In so doing, the


development approaches of formal education, assessment, job experiences and interpersonal
relationships were studied.

5.5 Summary

This section has focused on Employee Training and Development. In so doing, the concepts
of training and development were examined. In investigating the activity of Training, the
training process as well as South Africa’s approach to training were studied. In investigating
the activity of Development the various development activities of assessment, job experience,
formal education and interpersonal relations were examined.

The following section, Section 6, will focus on the HRM issue of Performance Management.

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5.6 Answers to Self Check Questions

Self Check Question 1


Model Answer
The assessment approach which would best suit this scenario is the Myers-Briggs Type
Indicator (MBTI). The MBTI would provide the consultant with an indicator of the
employee’s personality (Noe et al, 2003) and this would provide valuable information as to
whether or not the particular employee would be able to operate effectively within the high-
pressured and stressful job of a fast-food restaurant manager.

The consultant may also consider the assessment approach of the assessment centre, where
multiple assessors would evaluate the employee’s performance on a number of exercises
(Noe et al, 2006:391). The exercises would provide the consultant with information as to the
employee’s administrative and interpersonal skills.

A further assessment approach which the consultant may consider is benchmarks. This is
“an instrument designed to measure the factors that are important to being a successful
manager”(Noe et al, 2006:393). The items measured by this instrument include the
employee’s competence in dealing with subordinates, creating a productive work
environment and utilising resources.

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NOTES :

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SECTION 6

PERFORMANCE MANAGEMENT

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CONTENTS

Learning Outcomes

Reading

6.1 Introduction

6.2 Performance Management Defined

6.3 The Performance Management Process

6.4 Purposes of Performance Management

6.5 Approaches to Performance Management


6.5.1 Comparative Approach
6.5.2 Attribute Approach
6.5.3 Behavioural Approach
6.5.4 Results Approach
6.5.5 Quality Approach

6.6 Summary

Answers to Self-Check Questions

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LEARNING OUTCOMES

The overall outcome for this section is that, on its completion, the student should be able to
demonstrate a comprehensive understanding of performance management and its application
within organisations. This overall outcome will be achieved through the student’s mastery of
the following specific outcomes:

1. Define performance management.

2. Distinguish between performance management and performance appraisal.

3. Identify and discuss the three purposes of performance management within


organisations.

4. Critically discuss the performance management process and its integration with the
organisation’s strategy.

5. Discuss, evaluate and implement the comparative, attribute, behavioural, results and
quality approaches to performance management.

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READING

Prescribed Reading:

• Noe, R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M. (2006) Human
Resource Management: Gaining a Competitive Advantage 5th Ed. Boston:
Irwin McGraw-Hill. pp 326-375

• Nel, P.S., Van Dyk, P.S., Haasbroek, G.D., Schultz, H.B, Sono, T. and
Werner, A. (2004) Human Resource Management 6th Ed. Cape Town:
Oxford. pp 473-487

Recommended Reading:

Books
• Carrell, M.R., Elbert, N.F., Hatfield, R.D., Grobler, P.A., Marx, M. & Van der
Schyf, S. (1997) Human Resource Management in South Africa. pp 257 – 306.
• Ivancevich, J.M. (1998) Human Resource Management 7th Ed. Boston: Irwin
McGraw-Hill. pp 261 – 305.

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Journals

• Antonioni, D. (1996) ‘Designing an Effective 360-Degree Appraisal Feedback


Process’. Organizational Dynamics. Autumn, 25 (2), pp 24 – 39.
• Conger, J., Finegold, D. & Lawler, E.E. (1998) ‘CEO Appraisals: Holding
Corporate Leadership Accountable’. Organizational Dynamics. Summer, 27 (1),
pp 7 – 21.
• Gioia, D.A. & Longenecker, C.O. (1994) ‘Delving into the Dark Side: the
Politics of Executive Appraisal’. Organizational Dynamics. Winter, 22 (3), pp 47
– 59.
• Grensing-Pophal, L. (2001) ‘Motivate Managers to Review Performance’. HR
Magazine. March, 46 (3), pp 45 – 49.
• Grote, D. & Wimberley, J. (1993) ‘Peer Review’. Training. March, 30, pp 51 –
52.
• Joinson, C. (2001) ‘Making Sure Employees Measure Up’. HR Magazine. March,
46 (3), pp 36 – 50.
• Kaplan, R.E. (1993) ‘360 Degree Feedback Plus: Boosting the Power of Co-
Worker Rating for Executives’. Human Resource Management. Fall, pp299 –315.
• Kaplan, R.S. & Norton, D.P. (1996) ‘Using the Balanced Scorecard as a Strategic
Management System’. Harvard Business Review. January – February, pp 76 – 85.
• Koziel, M.J. (2000) ‘Giving and Receiving Performance Evaluations’. The CPA
Journal. December, 70 (12), pp 22 – 27.
• Milliman, J.F., Zawacki, R.A., Norman, C., Powell, L. & Kirksey, J. (1994)
‘Companies Evaluate Employees From All Perspectives’. Personnel Journal.
November, 73 (11), pp 99 – 104.
• Murphy, K.J. (1993) ‘Performance Measurement & Appraisal: Merck Tries to
Motivate Managers to do it Right’. Employment Relations Today. Spring, 20, pp
47.
• Taylor, R.L. & Zawacki, R.A. (1984) ‘Trends in Performance Appraisal:
Guidelines for Managers’. Personnel Administrator. March, 29 (3), pp 71 -80.
• Viedge, C. & Conidaris, C. (2000) ‘The Magic of the Balanced Scorecard’.
People Dynamics. July 18 (7), pp 38 – 43.
• Winstanley, D. & Stuart-Smith, K. (1996) ‘Policing Performance: The Ethics of
Performance Management’. Personnel Review. November, 25 (6), pp 66 – 82.

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6.1 Introduction

This section focuses on Performance Management. In so doing, the following will be


examined:
• Performance management defined
• The performance management process
• Purposes of performance management
• Performance management approaches

6.2 Performance Management Defined

Noe et al (2006:330) define performance management as “the process through which


managers ensure that employees’ activities and outputs are congruent with the
organisation’s goals”. This definition emphasises the need for performance management to
be aligned to the strategy of the organisation.

? THINK POINT

What, in your opinion, is the difference between Performance Management and


Performance Appraisal?

Comment on Think Point

Noe et al (2006:330) emphasises that performance appraisal is only a component of


performance management as it involves the administrative and relatively isolated duty of
measuring aspects of an employee’s performance. As indicated in Figure 6.1 on the
following page, performance management is a broader concept than performance appraisal in
that it provides not only for the measurement of performance (performance appraisal), but the
defining of performance according to organisational goals as well as the provision of
performance feedback.

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SPECIFICATION PERFORMANCE
OF APPRAISAL PERFORMANCE
PERFORMANCE (Performance FEEDBACK
CRITERIA Measurement)

Figure 6.1: Performance Management (adapted from Noe et al, 2006:330)

6.3 The Performance Management Process


As indicated in section 6.2 above, it is important for an organisation to align its performance
management system to the overall strategy of the enterprise.

" ACTIVITY

Consider performance management within your organisation.

1. Describe your organisation’s performance management system.

2. Does the design of your organisation’s performance management system


support the overall strategy of the organisation? Give reasons for your
answer.

Comment on Activity

Noe et al (2003:330) assert that “performance management is central to gaining competitive


advantage” and therefore it is important that the organisation’s performance management
system is aligned to the overall organisational strategy and goals. Figure 6.2
diagrammatically depicts how the organisation’s performance management process may be
aligned to the enterprise’s organisational strategy.

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MISSION

STRATEGIES

OBJECTIVES VALUES

CRITICAL PERFORMANCE
SUCCESS INDICATORS &
FACTORS STANDARDS

IDENTIFICATION PERFORMANCE SUCCESSION


OF POTENTIAL REVIEW PLANNING

TOTAL PERFORMANCE
REWARD IMPROVEMENT
SYSTEM PROGRAMMES

BETTER
PERFORMANCE

Figure 6.2: The Performance Management Process


(from Philpott & Sheppard cited in Carrell et al, 1997: 259).

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Figure 6.2 clearly demonstrates how the performance management process is integrated
with, and supports, the overall organisational strategy. The diagram shows that the
performance management process is essentially initiated with the formulation of the
organisation’s mission and strategy. While the mission provides the organisation with future
direction, the strategies specify the manner in which the organisation is to behave in order to
achieve the mission. From the strategies, objectives are formed, which precisely specify the
performance goals of the organisation, and organisational values are also determined
(Philpott & Sheppard cited in Carrell, 1997:259). The critical success factors identify the
key issues which contribute to successful performance. The performance indicators and
standards are determined in conjunction with the critical success factors and serve to identify
the standards required for effective performance (Philpott & Sheppard cited in Carrell,
1997:259). The performance review provides for the evaluation of individual performance
against the relevant objectives, values, critical success factors and performance indicators
and standards. The performance review will also serve to identify potential and will
contribute to succession planning. The results of the performance review will influence the
reward system which is implemented as well as the kinds of performance improvement
programmes (e.g. counseling, training, etc.) which will be initiated so as to bring about better
performance (Philpott & Sheppard cited in Carrell, 1997:259).

6.4 Purposes of Performance Management

Performance management essentially has three purposes:


• Strategic purpose
• Administrative purpose
• Developmental purpose

 SELF CHECK QUESTION

After having studied Noe et al (2006) pp 332 – 336, discuss the three purposes of
performance management.

The answer to this self-check question may be found at the end of this section

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6.5 Approaches to Performance Management

A number of performance management approaches exist (Noe et al, 2006:340-359).


• The comparative approach
• The attribute approach
• The behavioural approach
• The results approach
• The quality approach

" ACTIVITY

Consider the performance management system which your organisation utilises


(which you described in section 6.3).

1. What in your opinion are the strengths of your organisation’s performance


management system?

2. What in your opinion are the weaknesses of your organisation’s


performance management system?

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Comment on Activity

The various approaches to performance management each have their own respective
strengths and weaknesses. These will be identified in the discussion of the various
performance management systems below.

6.5.1 Comparative Approach


The comparative approach measures an individual’s performance by comparing his/her
performance to the performance of others. Three techniques adopt the comparative
approach:
• Ranking where the supervisor ranks his subordinates from best performer to worst
performer;
• Forced Distribution where employees are ranked in groups;
• Paired Comparison where the supervisor compares ‘every employee with every other
employee in the work group, giving an employee a score of 1 every time she is considered
to be the higher performer’ (Noe et al, 2006: 343).

? THINK POINT

What in your opinion are the strengths and weaknesses of the comparative
approach to performance management?

Comment on Think Point

The main strength of the comparative approach is that it is useful when employee
performance needs to be differentiated. This approach also eliminates the problems of
leniency, strictness and central tendency, which is valuable in making administrative
decisions (Noe et al, 2006:343).

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However, the weaknesses of the comparative approach include:


• The techniques are not linked to the overall strategy of the organisation;
• The ratings are subjective and therefore the validity and reliability of the assessment is
dependent on the rater himself;
• The techniques do not provide the specific information necessary for feedback purposes.
• The techniques do not measure performance against absolute standards of performance
(Noe et al, 2006:343).

6.5.2 The Attribute Approach


The attribute approach focuses on the identification of employee attributes necessary for the
organisation’s success. The employee is measured against these attributes (Noe et al, 2006:344).

This approach includes techniques such as:


• Graphic Rating Scales where the supervisor rates the subordinate on particular traits and
characteristics; and
• Mixed Standard Scales where the supervisor rates the subordinate against relevant
performance dimensions (Noe et al, 2006:344).

? THINK POINT

In your opinion, what are the strengths and weaknesses of the attribute approach?

Comment on Think Point

The strengths of the attribute-based techniques include:


• They are commonly used by organisations as they are easy to develop and can be
generalized across a range of jobs; and
• If designed properly, they can be reliable and valid (Noe et al, 2006:344).

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The weaknesses of the attribute approach to performance management include:


• The techniques provide for little strategic congruence;
• Performance standards are usually vague and may be interpreted differently by different
raters (providing for low validity and reliability);
• The techniques do not provide specific and relevant performance feedback information;
and
• The techniques may bring about defensiveness in employees (Noe et al, 2006:346).

6.5.3 The Behavioural Approach


The behavioural approach defines behaviours necessary for effective performance in a
particular job. In assessing performance, managers identify the extent to which a subordinate
has exhibited the required behaviours (Noe et al, 2003). Behavioural-based techniques
include:
• Critical Incidents
• Behaviourally Anchored Rating Scales
• Behavioural Observation Scales
• Organisational Behaviour Modification
• Assessment Centres (Noe et al, 2006:346-351).

? THINK POINT

What strengths and weaknesses of the behavioural approach can you identify?

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Comment on Think Point

The strengths of behavioural approach include:

• It provides for the linking of the organisational strategy and goals to the behaviour
required of the employee necessary for strategy implementation;
• It provides employees with specific feedback about their performance;
• The techniques used rely on thorough job analysis which in turn ensures reliability and
validity; and
• Acceptability of this approach by employees and managers is usually high
(Noe et al, 2006:351).

The weaknesses of the behavioural approach include:

• Behaviours and behaviour measured need to be monitored and revised to ensure that they
are linked to the organisational strategy (which regularly changes);
• It assumes that there is ‘one best way’ to do the job; and
• It is least suited to complex jobs (Noe et al, 2006:351).

6.5.4 The Results Approach

This approach is based on the premise that results are the one best indicator of how a
subordinate’s performance has contributed to organisational success (Noe et al, 2003).
Results-based techniques include:
• Management By Objectives (MBO) where goal setting is cascaded down throughout the
organisation and the goals become the standard against which an employee’s
performance is measured; and
• Productivity Measurement and Evaluation Systems (PROMES) which involves a
process of motivating employees to higher productivity (Noe et al, 2006:353).

? THINK POINT

In your opinion, what are the strengths and weaknesses of the results approach?

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Comment on Think Point

The strengths of the results approach include:


• Subjectivity is minimised as objective and quantifiable indicators of performance are
used;
• Usually highly acceptable to both supervisors and subordinates; and
• An employee’s results (performance) are linked to organisational strategy
(Noe et al, 2006:354).

The weaknesses of result-based techniques include:


• Objective measurements may be deficient in that they may be influenced by factors
beyond the employee’s control (such as an economic recession); and
• Employees may only focus on the performance criteria against which they are to be
measured (Noe et al, 2006:354).

6.5.5 The Quality Approach


The focus of the quality approach is on improving customer satisfaction through a customer
orientation and the prevention of errors (Noe et al, 2006:355). The design of a quality-based
performance management system should focus on:
• The assessment of employee and system factors;
• The relationship between managers and employees in solving performance problems;
• Internal and external customers in setting standards and measuring performance; and
• Using a number of sources to evaluate employee and system factors (Noe et al, 2006:355).

The strengths of the quality approach include:

• It incorporates and capitalises on the strengths of both the attribute and results approach
to performance measurement; and
• It adopts a systems approach to performance measurement (Noe et al, 2006:358).

However, a possible weakness of the quality approach would be that organisations may be
hesitant to adopt it as a result of their long established use of more traditional approaches.

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READING ACTIVITY

Read the following journal articles and then answer the questions which follow:
• Kaplan, R.S. & Norton, D.P. (1996) ‘Using the Balanced Scorecard as a
Strategic Management System’. Harvard Business Review.
January – February , 74(1), pp 76 – 85.
• Milliman, J.F.; Zawacki, R.A., Norman, C., Powell, L. & Kirksey, J. (1994)
‘Companies Evaluate Employees From All Perspectives’. Personnel Journal.
November, 73 (11) pp 99 – 104.

1. How do Milliman et al (1994) approach performance management?

2. How do Kaplan & Norton (1996) approach performance management?

3. Are the approaches of Milliman et al (1994) and Kaplan & Norton (1996)
practical? Would your organisation benefit from the implementation of either
of these approaches?

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Comment on Reading Activity

Kaplan & Norton (1996:76-85) and Milliman et al (1994:99-104) present approaches to


performance management which differ from the traditional approaches.

Milliman et al (1994:99-104) describe a 360-degree feedback approach to performance


measurement where information on an employee’s performance is not only provided by the
employee’s immediate supervisor, but by those people whom he/she deals with on a day to
day basis (e.g. customers, subordinates, coworkers, suppliers, consultants). This approach
overcomes what Milliman et al (1994:99-104) describe as the “subjective, simplistic and
political” nature of traditional approaches. The 360-degree feedback approach not only
provides a broader view of an employee’s performance, but increases the credibility of the
performance appraisal, facilitates greater employee self development and increases the
employee’s accountability towards his/her internal and external customers (Milliman et al,
1994:99-104).

While Milliman et al (1994:99-104) focus on including both internal and external customers
in the appraisal of an employee’s performance, (Kaplan & Norton, 1996:76-85). Balanced
Scorecard approach provides for considerable integration of the employee’s performance
with organisational strategy. The balanced scorecard is a strategic management system
which channels the abilities of employees towards achieving organisational goals (Kaplan &
Norton, 1996:76-85). In devising the organisation’s strategy, objectives and measures are set
which relate to four areas: finance, customer, internal business processes and learning and
growth. Individual employees are required to draw up their own Personal Scorecards which
serve to set their own performance objectives and measures in line with those identified by
the organisation (Kaplan & Norton, 1996:76-85). In identifying objectives and measures for
these four areas, the balanced scorecard not only facilitates a customer orientation but also
addresses system factors of assessment.

In summary, this section has focused on the five approaches towards performance
measurement: the comparative approach, the attribute approach, the behavioural approach,
the results approach and the quality approach.

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 SELF CHECK QUESTION 2

Read the case study entitled “Focusing on the Softer Side of Managing” - Noe et
al (2006:375-376) and answer the questions which follow:

1. What performance management approach would you recommend Granite


use in order to improve productivity?

2. The quality approach argues that systems factors need to be taken into
account in performance management systems.
How would you control for systems factors in the performance
management approach which you recommended in your answer
to question 1?

.
Questions have been adapted from Noe et al, (2006: 376).
The answer to this Self-Check Question may be found at the end of this section

6.6 Summary

This section investigated Performance Management. In so doing, the concept was defined
and the process of performance management was examined. The purposes of performance
management were also given attention, as were the various approaches to performance
management.

Section 7 will investigate the HRM function of Compensation.

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6.7 Answers to Self-Check Questions

Self-Check Question 1

Model Answer
The purposes of performance management are strategic, administrative and developmental.

Strategic Purpose
A performance management system serves to link employee performance to the overall
organisational strategy and organisational objectives (Noe et al, 2003). However, research
has shown that very few organisations utilise performance management in a manner which
supports the strategy of the organisation.

This strategic purpose may be achieved through designing evaluation mechanisms which
define employee performance in terms of the organisation’s strategy and goals. It is
important, however, that the performance management system is sufficiently flexible so as to
adapt to changes in the organisational strategies and goals (Noe et al, 2003).

Administrative Purpose
Performance management systems provide information which assist organisations with
administrative decisions relating to issues such as to salary administration (pay raises),
layoffs and promotions (Noe et al, 2003).

Developmental Purpose
Performance management systems provide information about employee strengths and
weaknesses and in so doing identify employee developmental needs (Noe et al, 2003).

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Self-Check Question 2

Model Answer
1. What performance management approach would you recommend Granite use in order to
improve productivity?

The comparative approach, which involves a comparison of an individual’s / group’s


performance to that of others (Noe et al, 2003) would be effective in that the performance of
Granite Construction could be compared to that of other airlines.

A results-based technique, such as Management By Objectives, could also be used. This


would ensure that employee and group performance are measured against pre-formulated and
strategically aligned individual and group objectives (Noe et al, 2003). This approach would
also be highly acceptable to the employees.

The quality approach may also be used. As this approach focuses on the customer, as well as
the elimination of errors (Noe et al, 2003) it would therefore be effective in targeting the
improvement of Granite on-time flight performance. A specific quality-based technique
which it is recommended that Granite use is 360-degree feedback (Milliman et al, 1994)
which provides for feedback on employees’ performance from both internal and external
customers.

2. The quality approach argues that systems factors need to be taken into account in
performance management systems.
How would you control for systems factors in the performance management approach
which you recommended in your answer to question 1?

If the comparative approach to performance measurement is adopted, systems factors could


be controlled by making comparisons with airlines which experience the same system
factors, such as weather conditions, as Granite.

If a Management By Objectives approach is utilised, it is recommended that the effect of


systems factors be considered when assessing the extent to which Granite’s employees have
met their performance objectives.
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SECTION 7

COMPENSATION

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CONTENTS

Learning Outcomes

Reading

7.1 Introduction

7.2 The Nature of Compensation

7.3 Factors Influencing the Determination of Compensation

7.4 Compensation Structures and Levels


7.4.1 Job Structure Development
7.4.2 Pay Structure Development

7.5 Challenges to Compensation Systems


7.5.1 Job-Based Compensation
7.5.2 Executive Pay

7.6 Incentive Compensation Systems


7.6.1 Types of Incentive Compensation Systems
7.6.2 Ensuring the Effectiveness of Incentive Compensation Systems

7.7 Summary

7.8 Answers to Self-Check Questions

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LEARNING OUTCOMES

The overall outcome for this section is that, on its completion, the student should be able to
demonstrate a comprehensive understanding of the HR practice of compensation This overall
outcome will be achieved through the student’s mastery of the following specific outcomes:

Define the HR practice of compensation.


1. Identify and critically discuss and address the factors influencing the determination of
compensation.

2. Identify, discuss and apply compensation structures and levels.

3. Identify and critically discuss current challenges to compensation systems.

4. Discuss, evaluate and effectively apply the various incentive-based compensation


systems.

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READING

Prescribed Reading:

• Noe, R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M. (2006) Human
Resource Management: Gaining a Competitive Advantage 5th Ed. Boston:
Irwin McGraw-Hill. pp 460-493 and pp 498-527

• Nel, P.S., Van Dyk, P.S., Haasbroek, G.D., Schultz, H.B, Sono, T. and
Werner, A. (2004) Human Resource Management 6th Ed. Cape Town:
Oxford. pp 267-283

Recommended Reading:

Books

• Carrell, M.R., Elbert, N.F., Hatfield, R.D., Grobler, P.A., Marx, M. & Van der
Schyf, S. (1997) Human Resource Management in South Africa. New Jersey:
Prentice Hall Inc. pp 369 – 390.
• Ivancevich, J.M. (1998) Human Resource Management 7th Ed. Boston: Irwin
McGraw-Hill. pp 306 – 341 & pp 345 – 374.

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Journals

• Bergesen, M. (1996) ‘Total Compensation Strategy Should Look After


Performance’. Human Resource Management. June, pp 31 – 32.
• Christopher, D. & Bussin, M. (2000) ‘What are Remuneration Committees All
About?’. People Dynamics. July, 18 (7), pp 28 – 31.
• Du Toit, A. (2000) ‘Restructuring of Employees’ Packages’. People
Dynamics. November – December, 18 (11), pp 46 – 47.
• Elliott, M.A. (1993) ‘Redesigning Management Incentives’. Human Resource
Management. May, pp 11 – 16.
• Giblin, E.J., Wiegman, G.A. & Sanfilippo, F. (1990) ‘Bringing Pay Up To
Date’. Personnel. November, 67 (11), pp 17 – 19.
• Kaplan, R.S. & Norton, D.P. (1996) ‘Using the Balanced Scorecard as a
Strategic Management System’. Harvard Business Review. 1996, pp 75 – 85.
• Olivier, M. (1995) ‘Directors’ Remuneration: Executive Compensation in a
Changing South Africa’. Accountancy SA. August, pp 5 – 9.
• Pokroy, S. (2000) ‘Driving Empowerment Through Ownership’. People
Dynamics. April, 18 (4), pp 28 – 32.
• Sunoo, B.P. (1996) ‘Tie Merit Increases to Goal-Setting and Employer
Objectives’. Personnel Journal. November, 75 (11), pp 109 – 111.
• Thomson, D (1996) ‘Sharing Corporate Wealth – Have We Forgotten How To
Share?’. Human Resource Management. October, pp 10 – 12.
• Thomson, D (1997) ‘Institutional Barriers to Profit Sharing’. Management
Today. February, pp 34 – 37.
• Walter, I.S. (1993) ‘Incentive Compensation Must Create Shareholder Value’.
Human Resource Management. April, pp 12 – 15.

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7.1 Introduction

In this section the HR practice of Compensation is investigated. In so doing the following


issues are examined:

• The nature of compensation


• Factors influencing the determination of compensation
• Compensation structures and levels
• Developing a compensation structure
• Challenges to compensation systems
• Incentive compensation systems
o Types of incentive compensation systems
o Advantages of incentive compensation systems
o Factors causing failure in incentive compensation systems

The Nature of Compensation


Compensation may be defined as “…the human resource management function that deals
with every type of reward individuals receive in exchange for performing organizational
tasks” (Ivancevich, 1998: 307).

" ACTIVITY

As an introduction to Compensation, read the short case study in Noe et al


(2006:494) entitled “Changing Compensation to Support Changes in Corporate
Strategy”.

What particular issue regarding Compensation does this case emphasise?

Comment on Activity

The case entitled “Changing Compensation to Support Changes in Corporate Strategy”


highlights how Corning Inc’s approach to compensation was changed so as to support the
company’s turnaround strategy. Aligning the compensation strategy to the overall company
strategy was effective, in that the new compensation system served to promote the altered
culture and employee behaviours necessary for the achievement of Corning’s strategic goals.

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7.3 Factors Influencing the Determination of Compensation

Compensation has a considerable impact on employee attitudes and behaviour and is critical
to assisting the organisation in attaining its strategic goals (Noe et al, 2006:462).

? THINK POINT

Within your organisation, what factors in your view influence the approach
adopted towards compensation?

Comment on Think Point

Noe et al (2006:463) emphasise how Equity Theory influences compensation. Equity theory
argues that “a person compares her own ratio of perceived outcomes (e.g. pay, benefits,
working conditions) to perceived inputs (e.g. effort, ability, experience) to the ratio of a
comparison other” (Noe et al, 2006:463). If equity is perceived, no change will occur in the
employee’s behaviour or attitudes. However, if inequity is perceived, the employee will take
steps to restore equity through, for example, reducing the amount of effort he/she exerts.

The implication which Equity Theory has for compensation is that employees’ behaviour and
attitudes will be affected if inequity with other employees is perceived. The types of
comparisons which are possible include:
• External equity: where comparisons are made with employees holding similar positions
within other organisations;
• Internal equity: where comparisons are not only made with employees performing the
same job, but with employees in different jobs and at different levels within the same
organisation.

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Ivancevich (1998) identifies external and internal factors which influence the organisation’s
choice of compensation system.

COMPENSATION SYSTEM
Influenced by

EXTERNAL INTERNAL
ENVIRONMENTAL ENVIRONMENTAL
FACTORS FACTORS

• Labour Market • Organisational strategy &


• Economic Conditions goals
• Government Influences • Labour Budget
• Union Influences • Compensation Decision
Makers

Figure 7.1: Internal and External Factors Influencing Compensation

As identified in Figure 7.1 above, the External Environmental Factors which influence the
organisation’s choice of compensation system include:
• The Labour Market where supply and demand may impact on levels of pay, e.g. higher
levels of pay may apply if few skilled employees are available within the job market.
• Economic Conditions where high degrees of competitiveness within industries
negatively affect the ability of the organisation to pay high wages (Ivancevich, 1998);
• Government Influences where legislation, such as the Basic Conditions of Employment
Act in South Africa, controls and guides issues such as minimum wage and overtime
pay.
• Union Influences where unions affect compensation levels through entering into
negotiations with management.

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Internal Environmental Factors which influence an organisation’s approach to


compensation include:

• Organisational Strategy and Goals where the compensation approach adopted by the
organisation should support the effective implementation of the company’s strategy;
• Labour Budget where the amount of money available within the organisation for
employee compensation during a given year is specified (Ivancevich, 1998);
• Compensation Decision Makers which includes top management and possibly the
organisation’s employees.

7.4 Compensation Structures and Levels

When developing compensation structures and levels it is important that the organisation
considers:
• Current market pressures;
• Whether the organisation views the employee as a resource (rather than just a cost);
• Whether the organisation wishes to pay at, below or above the market; and
• Whether the organisation wishes to conduct a pay survey so as to benchmark its practices
against those of the competition (Noe et al, 2006:466)

The development of compensation structures and levels requires the development of job
structures on which the development of pay structures is based.

7.4.1 Job Structure Development


A job structure is based on internal comparisons between jobs and serves to delineate the
relative worth of various jobs in the organisation (Noe et al, 2006:468). Job structure
development is dependent on a process of job evaluation.

" ACTIVITY

Consider your organisation. Identify the system of job evaluation used by your
organisation (consider Peromnes, Paterson, Hay, the ‘Q’ method). What does this
job evaluation system mean to you?

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Comment on Activity

Job evaluation is an administrative procedure which is used to measure job worth (Noe et al,
2006:468). A job evaluation system identifies compensable factors which are the
“characteristics of jobs that an organization values and chooses to pay for” (Noe et al, 2006:
468). These compensable factors are weighted during job evaluation so as to indicate their
value to the organisation. Compensable factors include:

• Job complexity
• Required experience
• Required education
• Working conditions
• Responsibility (Noe et al, 2006:468).

Job evaluation usually involves committees in rating particular jobs on the compensable
factors.

Various job evaluation systems are in operation. These include the Peromnes system which
was developed by SA Breweries, the Paterson decision making band model, the Hay method
which was developed in the 1950s in the USA and the Q-method developed by the National
Institute for Personnel Research (Nel et al, 2004:272).

7.4.2 Pay Structure Development


Noe et al (2000) assert that different organisations differ in respect to the emphasis which is
placed on internal and external factors when developing pay structures. Three pay structure
approaches may be identified. These are based on:
• Market Survey Data where compensation is structured according to what similar
organisations are paying similar positions (Noe et al, 2006:470).
• Pay Policy Line where compensation structuring is based on a combination of internal
and external compensation related information.
• Pay Grades where jobs are classified into a number of pay grades. The pay grades
specify the pay range for particular categories of jobs (Noe et al, 2006:472).

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 SELF CHECK QUESTION

After having read Noe et al (2000:460-496) and having worked through section
7.1 – 7.4.2 above, consider the following scenario and answer the following
questions.

You are the HR Manager for a medium sized organisation. The Managing
Director has asked you to evaluate whether your organisation’s current pay
structure is market related.

1. How would you go about doing this?

2. If you were to find that your organisation’s compensation structure differed


from competing organisations, what might the reasons for this be?

3. What could the consequences be for your organisation for having a


compensation system which is not in line with your competitors?

The answer to this self-check question may be found at the end of this section

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7.5 Challenges to Compensation Systems

This section examines the compensation challenges of job-based compensation structures as


well as those associated with executive pay.

7.5.1 Job-Based Compensation

Thus far, this section of the module guide has focused on compensation systems which are
job-based.

? THINK POINT

Think about a job-based compensation system which you have experienced.

What were the disadvantages of this approach?

Comment on Think Point

There are a number of disadvantages associated with a job-based compensation approach.

These include:
• Job-based compensation systems promote bureaucracy.
• The system’s hierarchical nature promotes top-down decision making and emphasis of
status at various levels of the organisation.
• The revision of job descriptions and conducting of job evaluations is costly and time
consuming.
• Job-based compensation systems may fail to reward the required performance.
• Job-based compensation systems place emphasis on status differentials and in so doing
promotes promotion-seeking and discourages lateral employee movement (Noe et al,
2006:477).

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In order to address the limitations of job-based compensation systems, Noe et al (2000)


recommend:
• Delayering and Banding where job levels are reduced and grouped into broad bands.
• Skills Based / Competency Based Pay where “employees are paid for the skills they are
capable of using, not for the job they are performing at a particular point in time”
(Ledford, cited in Noe et al, 2006: 479-482).

7.5.2 Executive Pay


Noe et al (2006:487) assert that executives tend to be paid very highly, and that a trust gap is
often created between the employees and the executive, where employees resent the
executive’s high pay.

Oliver (1995:5) in addressing the issue of executive compensation within the South African
context asserts that “historically, companies have developed each component of executive
compensation discreetly ….[and]….the relationship between performance and reward has
seldom been articulated in clear and unambiguous terms”. He emphasises that executive
compensation within South Africa needs to involve a performance contract which serves to
align pay with performance.

7.6 Incentive Compensation Systems

In section 7.5 the challenges of job-based compensation systems were discussed. This
section serves to examine compensation systems which are structured to reward employees
for contributions to the organisation’s success.

7.6.1 Types of Incentive Compensation Systems


Noe et al (2006) identify a number of incentive-based compensation systems. These include
merit pay programmes, individual incentives, profit sharing and ownership, gainsharing and
the balanced scorecard.

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INCENTIVE
COMPENSATION SYSTEMS

MERIT INDIVIDUAL PROFIT OWNERSHIP GAIN GROUP


PAY INCENTIVES SHARING SHARING INCENTIVES

BALANCED SCORECARD

Figure 6.2: Types of Incentive-Based Compensation Systems


Adapted from (Noe et al, 2006:505).

7.6.1.1 Merit Pay Programmes


Merit pay programmes link pay to performance by basing an employee’s annual increase on
performance appraisal ratings (Noe et al, 2006:504). The employee’s performance is
essentially rated only by the his/her direct supervisor.

Merit pay programmes have been criticized by Deming (cited in Noe et al, 2006:507) who
argues that it is unfair to rate individual performance as “apparent differences between
people arise almost entirely from the system that they work in, not the people themselves”
(Deming cited in Noe et al, 2006:508). A further criticism of this approach is that it
discourages teamwork. It is also argued that merit pay programmes do not actually exist in
that merit increases are allocated within the boundaries of predetermined merit increase
budgets.

7.6.1.2 Individual Incentives


Individual incentives, like merit pay programmes, are based on an individual’s performance.
However, in contrast to merit pay programmes, they are not incorporated into an employee’s
base pay and therefore need to be earned and re-earned (Noe et al, 2006:510).

Individual incentives tend to be rare and therefore have the disadvantage of not providing for
the development of a problem solving, proactive workforce (Noe et al, 2006:510). Further,
as with merit pay programmes, individual incentives tend to undermine teamwork.
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7.6.1.3 Profit Sharing


Profit sharing provides for payments (not incorporated into base salary) which are “based on
a measure of organization performance (profits)” (Noe et al, 2006: 510).

The advantages of profit sharing include employees in approaching issues from the
perspective of the business owner and labour costs being reduced during difficult periods
(Noe et al, 2006:511). Disadvantages of profit sharing include the failure of employees to
identify the relationship between the work which they perform and the organisation’s profit.
Also, profit sharing does not necessarily provide for the high motivation of individual
employees (Noe et al, 2006:512).

READING ACTIVITY

Read the following journal articles and then answer the questions which follow.
• Thomson, D (1996) ‘Sharing Corporate Wealth – Have We Forgotten How To
Share?’. Human Resource Management. October, pp 10 – 12.

• Thomson, D (1997) ‘Institutional Barriers to Profit Sharing’. Management


Today. February, pp 34 – 37.

1. In these two articles, what are the key issues which Thomson identifies with
regards to profit sharing?

Comment on Activity

The two articles by Thomson recognise the importance of profit sharing within today’s
business environment.

The article entitled ‘Sharing Corporate Wealth – Have We Forgotten How to Share?’
highlights the weaknesses of a number of compensation systems in that it asserts that after
concluding individual employment contracts “….we have one contract per employee…we do
not have any other contracts or arrangements in terms of which these individual employees
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will be persuaded to work together as a team. Surely we should have some group sharing to
secure the involvement of employees in the enterprise?” (Thomson, 1996: 11). In addition to
identifying how profit sharing can secure employee involvement and promote teamwork,
Thomson (1996:10-12) questions why many organisations have failed to provide for profit
sharing.

In Thomson’s (1997:34-37) second article he focuses on how economic sharing should be


provided for within today’s organisation. It is argued that a number of institutional barriers,
such as hierarchy and industry wide collective bargaining, prevent organisations from
engaging in profit sharing. So as to successfully implement profit sharing, Thomson
(1997:34-37) argues that it is important that:

• management understand profit sharing as partnership between “the contributors of


capital (the shareholders) and labour (the employees)” (Thomson, 1997:37);
• profit sharing schemes are developed participatively within the organisation; and
• once developed, the profit sharing scheme should be submitted to the trade union for
approval (Thomson, 1997:38).

7.6.1.4 Ownership
Ownership may be achieved through the issuing of share options to employees or by
implementing employee stock ownership plans (ESOPs). The advantages and disadvantages
of ownership are similar to that of profit sharing.

7.6.1.5 Gainsharing
Gainsharing provides “a means of sharing productivity gains with employees” (Noe et al,
2006:516). This differs from profit sharing in two ways: the programme measures
departmental / group performance and payments are made more frequently than with profit
sharing schemes.

An advantage of gainsharing is that it usually involves rewards such as employee


participation and problem solving.

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7.6.1.6 Group Incentives and Team Awards


In contrast to gain sharing plans, group incentives and team awards are applied to the smaller
work group. This approach involves rewarding employees at the level of the team or group.
An advantage of this approach is that competition between individuals is reduced (Noe et al,
2006:517). However, this competition may be replaced by competition between teams and
groups, which is a disadvantage.

7.6.1.7 Balanced Scorecard


It has been shown that the various incentive based compensation programmes have both
advantages and disadvantages. So as to overcome the disadvantages and capitalize on the
advantages, it is recommended that organisations design a mix of compensation programmes
to meet the needs of the particular enterprise and its employees. The balanced scorecard is
an approach which would provide for this in that it enables companies to “track financial
results while simultaneously monitoring progress in building capabilities and acquiring
intangible assets they would need for future growth” (Kaplan & Norton, 1996:75).

7.6.2 Ensuring the Effectiveness of Incentive Compensation Systems


In order ensure the effectiveness of incentive compensation systems Noe et al (200:525)
emphasise that:

• Employees should participate in decisions relating to incentive compensation systems;


• Effective communication should take place to ensure that employees understand the
incentive based compensation system; and
• Organisations should take note of the fact that not only incentive pay plans impact on
productivity and performance, but so too does the manner in which employees are treated
(Noe et al, 2006:525).

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 SELF CHECK QUESTION 2

Read the case study entitled ‘At Northwest, An ESOP in Name Only’ provided
below and answer the following questions:

1. Is money alone sufficient to make an ESOP effective?

2. How do the ESOPs at Northwest and United differ?

3. Would you suggest any changes be made to the Northwest ESOP?

(Questions above have been taken from Noe et al, 2000: 444)
The answer to this self-check question may be found at the end of this section

Case Study : At Northwest, An ESOP in Name Only


When Northwest Airlines Inc. staved off bankruptcy in 1993 by selling a third of the company to
employees, both sides hailed the pact as the start of a new relationship between workers and
managers. “Airlines historians,” predicted Northwest’s top spokesman, “will probably record the
events of the last year as the metamorphosis of a company and perhaps an industry.”

Well, not quiet. Today, Northwest’s labour relations are the industries worst. It’s pilots struck on
August 29th and neither side seems in a hurry to settle. Even if they do soon, the unrest is likely to
spread to the mechanics, who rejected a tentative pact on August 19th. Flight attendants may not be far
behind.

Still, don’t blame employee stock ownership plans for Northwest’s woes. Northwest’s experience
shows, by conspicuous absence, what ESOPs needs to successful : genuine employee inputs into
corporate decisions. Only by coupling a financial stake with worker involvement can employee
ownership deliver on its promise. “An ESOP raises expectations that need to be met,” says Corey
Rosen, executive director at the National Centre for Employee Ownership. Otherwise, “You can cause
a company to perform worst because people feel manipulated.”

SHORTCHANGED. Where did Northwest’s ESOP go wrong? For starters, the stakes of many of its
employees don’t vary with the stock price. Northwest was a private company in 1993 and the $900
million that 39 000 employees gave in concessions was as much a loan as a true piece of the
company. Only the pilots – whose large salaries allow them to take more risk – converted their take to
common stock when Northwest went public in 1994. Most flight attendants and machinists did not
follow suite. They can still do so – but at a conversion rate 50% below the pilots’. The rst will be paid
back their concessions in 2003. Their prospects remain the same whether Northwest stock trades at
$60 as it did in March or at today’s $28.

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Even the pilots feel short changed, Sure, they have sold 40% of their stock so far at a gain of $117
million. But that goes into their retirement accounts, while top Northwest executives were able to cash
in millions of dollars worth of stock while it was near its peak. When the company then took out TV
ads calling pilots greedy, many were outraged.
Northwest and its workers also failed to change how the company is run. Yes, 3 union representatives
joined the board and the company asked them to stay on after the givebacks ended in 1996. But at the
airport and in the sky little changed. “We still have some of the employee committees,” says pilot
spokesman Paul Omodt, “But obviously, they are not listening to us.”
Compare that with UAL corp’s United Airlines Inc., whose employees bought fifty five percent of the
company in 1994. At UNITED, the workers share came back in stock and ticker-watching is now a
daily ritual among employees, Moreover the two sides set up procedures so that employees have a say
in running the place; workers vetoed a proposed merger with the US Airways in 1995. The two sides
also used mediation more often to resolve such issues such as retiree benefits. United pilots hoped to
reach a new contract before the current one expires in April of 2000 – a rare feat in the industry. Of
course, United has its own labour troubles, but even those reflect the holes in its ESOP. Last spring,
the airline and the International Association of Machinists and Aerospace Workers traded angry
words when the IAM tried to sign up ticket agents. The union succeeded largely because agents felt
excluded by the 1994 ESOP. Still, United culture helped to prevent outright warfare. Says United
CEO Gerald Greenwald, “To me the test is whether we are able to talk out way trough the tough
issues.”
That’s a test Northwest and its unions have failed miserably. Pilots and executives are staring each
other down while planes sits idle and other workers mull their own strikes. The question now is
whether managers and employees can patch up their differences and get off the ground. If they wait
too long, they risk a fate similar to that of Eastern Airlines Inc. or Pan American airways Inc.- carriers
that set up ESOPs in the 1980’s without really changing relations with employees. Just look at the
corporate obituaries to see what happened to them.

Source: Noe et al (2000:443-444)

7.7 Summary

This section of the HRM module guide examined the HRM activity of Compensation. In so
doing, the nature of compensation was investigated and the development of compensation
structures and levels was studied. The types of incentive-based compensation systems and
the criteria for their effective implementation were also examined.

Section 8 of this module guide will focus on Employee Benefits and Services.

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7.8 Answers to Self Check Questions

Self Check Question 1

Model Answers

You are the HR Manager for a medium sized organization. The Managing Director has
asked you to evaluate whether your organisation’s current pay structure is market related.

1. How would you go about doing this?


In order to determine whether your organisation’s current pay structure is market related you
would need to conduct a market pay survey in which you would benchmark your
organisation’s compensation practices against those of your competitors (Noe et al, 2000). In
conducting the market pay survey you would need to determine:
• Who your product-market and labour-market competitors are so that you may include
them in the survey;
• Which jobs are sufficiently representative in terms of level, functional area and product
market to include in the survey (Noe et al, 2000).

Your survey should also investigate the return on investment which your competitors are
receiving for the compensation packages which they are offering to their employees.

2. If you were to find that your organisation’s compensation structure differed from
competing organisations, what might the reasons for this be?
Your organisation’s compensation structure may differ from your competitor’s in that you
may provide rewards other than compensation. For example, your organisation may use
flexible working hours or intensive training for all employees as a means to reward
employees.
3. What could the consequences be for your organisation for having a compensation system
which is not in line with your competitors?
Noe et al (2000) point out that if your organisation’s compensation structure is above that of
your competitors, your organisation may find it difficult to compete because of its high
labour costs. On the other hand, if the market pay survey shows that your organisation is
paying below your competitor’s compensation structure, your organisation may have
difficulty in attracting and retaining suitably qualified and experienced employees.

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Self Check Question 2

Model Answers
Case Study: ‘At Northwest, An ESOP in Name Only’ (Noe et al, 2000: 443-444)

1. Is money alone sufficient to make an ESOP effective?


Money alone is not sufficient to ensure that an ESOP is effective. As Noe et al (2000) point
out, monetary incentives need to be supported by an environment which fosters trust,
cooperation and employee commitment. Thus when implementing an ESOP it is imperative
that management give attention to the creation of a company culture which encourages
employee belonging, involvement and commitment.

2. How do the ESOPs at Northwest and United differ?


The ESOPs at Northwest and United differ with regards to the following:
• Northwest employees hold only one third of the company’s stock, while United
employees hold 55% of the company’s stock.
• Northwest do not feel as if they have the ability to contribute to the company’s decisions,
while United employees do have a say in the running of the company.
• Fewer strikes occur at United than at Northwest.

3. Would you suggest any changes be made to the Northwest ESOP?


The changes which need to be made at Northwest would primarily revolve around the
creation of a climate which values employee participation. Employees should be allowed to
vote on major issues and contribute to Northwest’s operational decisions.

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SECTION 8

EMPLOYEE BENEFITS AND SERVICES

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CONTENTS

Learning Outcomes

Reading

8.1 Introduction

8.2 The Nature of Employee Benefits and Services

8.3 Reasons for Growth in Employee Benefits and Services

8.4 Types of Employee Benefits and Services


8.4.1 Leave
8.4.2 Unemployment Insurance
8.4.3 Compensation for Injuries and Diseases
8.4.4 Pension Funds
8.4.5 Insurance
8.4.6 Other Employee Benefits and Services

8.5 Administration of Employee Benefits and Services

8.6 Summary

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LEARNING OUTCOMES

The overall outcome for this section is that, on its completion, the student should be able to
demonstrate a comprehensive understanding of employee benefits and services. This overall
outcome will be achieved through the student’s mastery of the following specific outcomes:

1. Discuss the nature of employee benefits and services.

2. Identify and discuss the reasons for the growth in employee benefits and services.

3. Identify and critically discuss the various types of employee benefits and services.

4. Discuss the importance, and the process involved, in effectively administering employee
benefits and services.

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READING

Prescribed Reading:

• Noe, R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M. (2006) Human
Resource Management: Gaining a Competitive Advantage 5th Ed. Boston:
Irwin McGraw-Hill. pp 532-569

• Nel, P.S., Van Dyk, P.S., Haasbroek, G.D., Schultz, H.B, Sono, T. and
Werner, A. (2004) Human Resource Management 6th Ed. Cape Town:
Oxford. Chapter 11

Recommended Reading:

Books
• Carrell, M.R., Elbert, N.F., Hatfield, R.D., Grobler, P.A., Marx, M. & Van der
Schyf, S. (1997) Human Resource Management in South Africa. pp 390 – 409.
• Ivancevich, J.M. (1998) Human Resource Management 7th Ed. Boston: Irwin
McGraw-Hill. pp 375 – 401.

Journals and Legislation


• Boase, N. (1996) ‘Childcare – Logical Extension of Parental Rights?’. People
Dynamics. April, 14 (3), p 37.
• Cockrum, R.B. (1982) ‘Has the Time Come for Employee Cafeteria Plans?’.
Personnel Administrator. July, 27 (7), pp 66 – 69.
• RSA (1997) ‘Basic Conditions of Employment Act (Act No 75 of 1997)’.
Government Gazette No. 18491. Pretoria: Government Printer.
• RSA (2000) ‘Unemployment Insurance Bill’. Government Gazette No. 20952.
Pretoria: Government Printer.
• RSA (2001) ‘Pension Funds Second Amendment Bill, 2001’. Government
Gazette No. 22021. Pretoria: Government Printer.
• Ryland, E.K. & Rosen, B. (1988) ‘Attracting Job Applicants with Flexible
Benefits’. Personnel. March, pp 71 – 73.
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8.1 Introduction

This section focuses on Employee Benefits and Services. In so doing, the following will be
examined:
• The nature of employee benefits and services
• Reasons for growth in employee benefits and services
• Different types of benefits and services
• Administration of benefits and services

8.2 The Nature of Employee Benefits and Services

Today, organisations provide employees with a range of benefits and services.

" ACTIVITY

Consider your organisation’s approach to employee benefits and services

1. What benefits and services does your organisation provide for its employees?

2. Why does your organisation provide its employees with benefits and services?

3. What factors might influence your organisation’s approach to the provision of


benefits and services?

Comment on Activity

Nel et al, (2006:534) defines employee benefits as “items in total package offered to
employees over and above salary, which increase their wealth or well-being… such as
pensions, sick pay, … ” On the other hand, Ivancevich (1998:376) defines employee benefits
as “indirect financial compensation….employer provided rewards and services other than
wages and salaries”.

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Organisations may provide employee benefits and services to keep the organisation
competitive in attracting and retaining employees, to improve employee performance, to
fulfil agreements with trade unions, and/or to comply with legislation (Ivancevich,1998:376).
Nel et al (2004:268-272) emphasise that the reward environment is thus the starting point for
adding value to the organisation and it would result in lower labour turnover, lower
absenteeism and better public relations.

Identify five factors which may influence the organisation’s provision of services and
benefits. These are:
• Government requirements as stipulated by legislation, for example unemployment
insurance, accident insurance and pensions.
• Economic and labour market conditions. Under difficult economic conditions,
organisations looking for the best employees will look for better benefits and services,
which usually mean non-taxable income.
• The aims of management may affect these benefits and services. For example,
management might strive for employee satisfaction or oppose trade unions.
• Competition can prompt an organisation to adapt or expand its benefit plans.
• The preferences or attitude of employees towards the programme. In order for benefits to
increase employee satisfaction. Employees must know what their benefits are and must
prefer the benefits in their organisation to those offered by competitors. In addition, they
must know that the benefits will satisfy their needs better than the benefits offered by
competitors.

8.3 Reasons for the Growth in Employee Benefits and Services

The offering of employee benefits and services effectively emerged during the Great
Depression of 1929 to 1933, as a result of Franklin Roosevelt’s legislative programme to
buffer the devastating effects of the Great Depression (Noe et al, 2006:536). A further factor
which initiated the growth in employee benefits and services is the tight wage control and
labour shortage brought about by World War II, which resulted in employers using benefits
to attract and retain suitable employees (Noe et al, 2006:536).

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? THINK POINT

The passage above identifies two reasons which initiated the growth in employee
benefits and services. What more recent factors have contributed to the expansion
of employee benefits and services?

Comment on Think Point

The following relatively recent factors which have contributed to the growth in employee
benefits and services:
• Taxation: in order to provide employees with some form of tax relief, salaries may be
structured to incorporate tax-free benefits.
• Labour Market Conditions: organisations often use employee benefits in order to attract
and retain employees.
• Insurance Costs: in order to address the rising costs of medical treatment, disability
insurance and pension funds, employers attain insurance for their employees as a group.
• The Influence of Trade Unions: their biggest contribution has been the improvement
and increase in the number of benefits initiated by the employers.
• Changed Employee Needs: The rise in living standards has resulted in employees
focusing on the satisfaction of their higher order needs (Noe et al, 2006:536-538).

8.4 Types of Employee Benefits and Services

Employee benefits and services may be classified as voluntary or mandatory. As Figure 8.1
shows, in South Africa, mandatory employee benefits and services include leave,
unemployment insurance and compensation for injuries and diseases. Voluntary employee
benefits and services within South Africa include pension, insurance and employee services
such as childcare programmes and food services.

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EMPLOYEE
BENEFITS & SERVICES

MANDATORY VOLUNTARY

• Leave • Pension

• Unemployment • Insurance
Insurance
• Employee
• Compensation for Services
Injuries & Diseases

Figure 8.1: Voluntary and Mandatory Employee Benefits and Services


Adapted from Nel et al (2004:279-281)

" ACTIVITY

Consider your experience within South African organisations. How does the
South African environment (particularly the legal environment) affect an
organisation’s provision of the employee benefits and services identified in Figure
8.1 above.

Comment on Activity

The impact of the South African context on an organisation’s provision of employee benefits
and services will be addressed in the discussion of the various types of benefits below.

8.4.1 Leave
Leave benefits include:

• Annual leave
In South Africa, the Basic Conditions of Employment Act of 1997 specifies that employees
are entitled to at least 21 days paid annual leave per 12 months of employment.

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• Sick leave
This refers to the “The number of days sick leave to which an employee is entitled depends
on company policy regarding seniority and period of service” (Nel et al, 2004:280). In South
Africa, the Basic Conditions of Employment Act of 1997 specifies that employees are entitled
to six weeks paid sick leave per 36 months of employment.

• Maternity leave
Expecting female employees are entitled to maternity leave. In South Africa, the Basic
Conditions of Employment Act of 1997 specifies that “an employee is entitled to at least four
consecutive months maternity leave” (section 25[1]).

• Family responsibility leave


Family responsibility leave provides for the taking of paid leave
o When an employee’s child is born or an employee’s child falls ill; or
o On the death of the employee’s spouse or close family member.

8.4.2 Unemployment Insurance


Unemployment insurance essentially provides for the insurance of employees who may lose
their earnings as a result of illness, pregnancy or termination of service.

In South Africa, the Unemployment Insurance Fund came into effect as a result of the
Unemployment Insurance Act of 1946, which was later replaced by the Unemployment
Insurance Act of 1966. This piece of legislation is currently under review and the
Unemployment Insurance Bill was released in 2000. This bill serves to address the
shortcomings of the 1966 Act which include:
• Weak enforcement and compliance measures;
• A rigid benefit structure;
• No comprehensive database of contributors; and
• Discrimination against certain categories of employees (RSA, 2000).

8.4.3 Compensation for Injuries and Diseases


In South Africa the Compensation for Occupational Injuries and Diseases Act of 1993 has
replaced the Workmen’s Compensation Act of 1941. This piece of legislation serves to
regulate the compensation received by employees who contract a disease or are injured while
working (Carrell et al, 1997:395).

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8.4.4 Pension Funds


A pension provides for the funding of an employee’s retirement. Objective of a pension fund:
• to ensure that after retirement employees have a continued source of income in order to
maintain approximately the same standard of living as before (Nel et al, 2004: 280); and

Two types of pension plans exist:


• The contributory plan where the employee and employer both contribute to the plan; and
• The non-contributory plan that is financed by the employer (Carrell et al, 1997).

In South Africa the Pension Fund Act of 1956 is currently being reviewed so as to bring the
legislation in line with current international practice. The Pension Funds Second Amendment
Bill of 2001 was released during January 2001.

8.4.5 Insurance
Employers normally provide employees with medical insurance as well as life and disability
insurance.

Medical Aid Schemes


Medical aid schemes provide medical coverage for both the employee and his/her
dependants. Employers and employees both contribute to the costs of the medical aid
scheme (Carrell et al, 1997:400). In South Africa, recent legislation regarding medical aid
schemes presents a number of challenges to the administration of these schemes.

Disability and Life Insurance


Many employers, in recognizing the importance of salary continuation after illness or
disability, provide their employees with disability insurance (Carrell et al, 1997:401).
Further, a number of employers also offer life insurance for their employees where the
standard policy provides a death benefit of five times an employee’s annual rate of pay
(Carrell et al, 1997:401).

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8.4.6 Other Employee Benefits and Services


Organisations may also offer the following employee benefits and services:
• Food Services where tea and lunch facilities are provided, such as cafeterias;
• Education Expenses where employers provide partial or full reimbursement for an
employee’s study fees (Carrell et al, 1997:403);
• Transportation Programmes where employers may, for example, provide the services of
a company bus or offer company cars to certain grades of employees;
• Housing Subsidy where an employer may subsidise the employee’s repayment of his/her
housing loan;
• Childcare Programmes where the employer will either subsidise childcare costs or
provide childcare facilities (Carrell et al, 1997:401).

READING ACTIVITY

Read the following journal article:


• Boase, N. (1996) ‘Childcare – A Logical Extension of Parental Rights?’.
People Dynamics. April, 14 (3), p 37.

What issues does Boase (1996) raise?

Comment on Reading Activity


Boase (1996:37) emphasises that parental rights (not just maternity rights) of employees
should be given attention in the workplace. It is argued that “traditionally employers have
not been willing to assume responsibility for childcare, even though working-class parents
with preschool children make up the largest proportion of the workforce”.

Boase (1996:37) argues that companies should address this issue by:
• Recognising that childcare is a social responsibility of the company;
• Recognising that childcare is not solely a mother’s responsibility;
• Recognising that the use of family members (e.g. grandparents) to care for children is
becoming less common;
• Providing flexi-time for working mothers;
• Providing a childcare facility in the workplace;
• Subsidising crèches and the training of childminders.

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In summary section 8.4 addressed the types of employee benefits and services which
organisations may provide. These include leave, unemployment insurance, compensation for
injuries and diseases, pensions, medical insurance, life and disability insurance and other
employee services such as childcare programmes.

8.5 Administration of Employee Benefits and Services


Employee benefits and services programmes need to be managed effectively.

? THINK POINT

How does your organisation go about managing its employee benefit and service
programme? Is your organisation’s approach effective? Why / Why not?

Comment on Think Point


Ivancevich (1998) argues that the following process will assist a company in effectively
managing its employee benefits and services programme:

• Step 1: Set Objectives and Strategy for Benefits


The organisation needs to decide whether to adopt a:
o pacesetter strategy where the organisation will be first with the latest benefits which
employees desire;
o comparable benefits strategy where the organisation will match the benefits provided by
its competitors;
o minimum benefits strategy where the organisation will only provide mandatory benefits
(Ivancevich, 1998).
It is important that the benefits strategy which is chosen supports the overall organisational
strategy.

• Step 2: Involve Participants and Unions


Input from an organisation’s employees and unions will enable the HRM function to
implement appropriate employee benefits and services (Ivancevich, 1998). This will enhance
the value of the benefits to the employees and in so doing increase their effectiveness.

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• Step 3: Communicate Benefits


The communication of benefits to employees also serves to increase their effectiveness.

• Step 4: Monitor Costs Closely


It is important that the HRM function ensures not only that the benefits which the
organisation offers are cost effective, but that the administration of the benefits and services
is efficient as well (Ivancevich, 1998).

8.6 Summary

This section addressed the HR issue of Employee Benefits and Services. In so doing, the
nature of employee benefits and services was examined and reasons for the growth in
employee benefits and services was investigated. The types of employee benefits and
services offered by organisations, as well as the administration of such benefits, were also
studied.

Section 9 will focus on Human Resource Management and Employment Relations.

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SECTION 9

HUMAN RESOURCE MANAGEMENT


AND EMPLOYMENT RELATIONS

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CONTENTS

Learning Outcomes

Reading

9.1 Introduction

9.2 In search of a definition: from industrial relations to employment relations

9.3 The major theories of employment relations


9.3.1 The pluralist perspective
9.3.2 The unitarist perspective
9.3.3. The radical or “Marxist” approach

9.4 The parties to the employment relationship and their respective roles

9.5 The Labour Relations Environment


9.5.1The Micro-environment
9.5.2 The Macro-environment

9.6 Summary

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LEARNING OUTCOMES

The overall outcome for this section is that, on completion, the student should be able to
demonstrate a basic understanding of employment relations within a national context. This
overall outcome will be achieved through the students mastery of the following specific
outcomes, in that a student will be able to:
1. Define the concept of employment relations
2. Identify and discuss the major theories of employment relations.
3. Explain the concept of the tripartite relationship by having identified the parties to the
labour relationship.
4. Identify and be aware of how the various environmental factors impact on the labour
relationship.

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READING

Prescribed Reading:
• Noe, R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M. (2006) Human
Resource Management: Gaining a Competitive Advantage 5th Ed. Boston:
Irwin McGraw-Hill. pp 532-569

• Nel, P.S., Van Dyk, P.S., Haasbroek, G.D., Schultz, H.B, Sono, T. and
Werner, A. (2004) Human Resource Management 6th Ed. Cape Town:
Oxford. Chapter 11

Recommended reading:
• Bendix, S. (2000) Industrial Relations in the new South Africa.3rd edition
revised). Cape Town: Juta and Co.

• Nel, P.S, Swanepoel, B.J., Kirsten, M., Erasmus, B.J. and Tsabadi, M.J. (2005)
South African Employment Relations: Theory and Practice.5th edition.
Pretoria: Van Schaik Publishers.

• Venter, R. (ed) (2003) Labour Relations in South Africa (revised edition) Cape
Town: Oxford University Press.

Journals and Legislation


• Boase, N. (1996) ‘Childcare – Logical Extension of Parental Rights?’. People
Dynamics. April, 14 (3), p 37.
• Cockrum, R.B. (1982) ‘Has the Time Come for Employee Cafeteria Plans?’.
Personnel Administrator. July, 27 (7), pp 66 – 69.
• RSA (1997) ‘Basic Conditions of Employment Act (Act No 75 of 1997)’.
Government Gazette No. 18491. Pretoria: Government Printer.
• RSA (2000) ‘Unemployment Insurance Bill’. Government Gazette No. 20952.
Pretoria: Government Printer.
• RSA (2001) ‘Pension Funds Second Amendment Bill, 2001’. Government
Gazette No. 22021. Pretoria: Government Printer.
• Ryland, E.K. & Rosen, B. (1988) ‘Attracting Job Applicants with Flexible
Benefits’. Personnel. March, pp 71 – 73.

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9.1 Introduction

“Labour relations” is an all-encompassing term used to describe the dynamic complexities of


the various relationships between the parties to the employment relationship. It provides a
theoretical and practical framework by means of which the relationship between individual
employees and employers and also the relationship between the collectives (such as trade
unions, employers’ organizations and the state) and individuals or between one collective
body and another are regulated.

Salamon (1998:3) suggests that industrial relations is often perceived as being synonymous
with stereotypical blue-collar, all-male unionized workers in the mining or manufacturing
industry. The term labour relations however tends to reflect to a greater extent the realities of
the employment relationships in the post-industrialized era.

The growth of the services industries facilitated to a large extent by the growth in
information technologies and changing global demographics has prompted the need for an
accurate definition and study of the employment relationship. Although the relationship
between employees and employers does include an element of conflict it is actually
interdependent. This interdependence between the parties to the employment relationship
ensures mutual reliance for the realization of their respective aspirations whether they be
work or non-work related. Thus the purpose of labour relations can be seen as the creation
and promotion of harmonious working environments through the regulation of the
employment relationship.

9.2 In search of a definition: from industrial relations to employment relations

An early attempt to define the field of industrial relations was made by Dunlop (1958) He
defined an industrial relations system as follows:
“ It is comprised of certain actors (managers, workers, and specialized government agencies),
certain contexts (technological characteristics, the market an the distribution of power in the
society), an ideology which binds the industrial relations system together and body of rules
created to govern the actors at the workplace and the work community (Dunlop, 1958:7).”

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According to Dunlop (1958), the actors establish rules for the workplace and work
community. These rules are essentially aimed at governing the relations and the interaction
between the actors and therefore include the establishment of justice in the workplace. He
also emphasized that the environment surrounding the workplace influences the actors and as
such the industrial relations system of any country exists alongside other systems such as the
economic systems and the technological system.

Flanders (1965:4) defined industrial relations as a study of the institutions of job regulation.
Hyman (1975: 12) preferred to focus on the processes of industrial relations describing the
field as the study of the processes of control over work relations which include job regulation.
Early perspectives tended to focus on the conflict regulatory aspects and the institutions
involved in the rule making and work control processes in the employment context.
Gradually other perspectives developed and since the 1980’s the definition and scope of this
field has attracted renewed interest and debate in the early 1990’s the debate was taken
further when it was renamed employment relations.

The acknowledgement of the centrality of the employment relationship – in its totality –to
industrial relations thus greatly facilitated the broadening of this field both in theory and
practice. This shift has brought about the merging of human resource management and
industrial relations into what has now become known as employment relations. Employment
relations as a field thus cover everything that emanates from or impacts on the employment
relationship.

9.3 The major theories of employment relations

Salamon (1998:5-9) suggests three major approaches to labour relations namely the pluralist
approach, the unitarist approach and the radical or Marxist approach. Each of these will be
discussed in more detail below.

9.3.1 The pluralist perspective


The pluralist perspective views the employing organisation as a coalition of individuals and
groups with diverse objectives, values and interests. It presupposes that organizations are
multifaceted, complex groupings of individuals who align themselves with other members of
the organisation sharing similar views, values and objectives (Venter 2004:7). The different
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groups in the organisation are competitive in terms of leadership, authority and loyalty. Trade
unions are accordingly accepted as a legitimate forum for coordinating various interests and
expressing them accordingly. There is a greater scope for conflict because of this interface
between a variety of interest groups and a greater dissemination of power that has now been
accepted as rationale and inevitable (Salamon, 1998:7).

Conflict is primarily the result of the tensions that arise between the parties to the
employment relationship as a consequence of the differing roles they play. Management is
responsible for the efficiency, productivity and productivity and profitability of the
organisation. The concerns of the individual worker are, however wider than this and include
personal aspects such as higher pay, better working conditions, job security and more
meaningful work. Conflict results from industrial and organizational factors rather than from
individual, personal factors. The conflict that does arise is manageable through a system of
negotiated trade-offs and settlements. The pluralists argue that in the employment
relationship there is a constantly shifting balance of power that needs to be maintained
through compromise and collaboration (Venter, 2004:7).

The pluralist perspective therefore typically concentrates on how to regulate and


institutionalize conflict in order to contain and control its impact on the parties and their
relationships. The state is viewed as the guardian of public interest and should provide the
machinery to institutionalize the conflict.

9.3.2 The unitarist perspective


The unitarist perspective views the organisation as an integrated group of people having a
unified authority structure with common values, interests and objectives. Management is the
only source of authority in the organisation. Its right to manage is legitimate and any
objections to this are seen as irrational ((Nel, Swanepoel, Kirsten, Erasmus and Tsabadi,
2005:7). Conflict is perceived as being irrational and is most often of a direct clash between
opposing ideologies (Salamon, 1998:6). Managers generally attribute conflict to a clash of
personalities or a general failure on the part of employees to understand the decisions taken
by management as a whole or to a breakdown in managerial communication (Venter,
2004:7). Trade unions are viewed as being subversive providing a direct affront to the power
and authority of management who “know what is best for their employees” and make
decisions accordingly.
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9.3.3. The radical or “Marxist” approach


The radical approach is also known as the “ Marxist” or “class conflict” perspective. Its
proponents concentrate on the nature of the society that the organisation finds itself in. It
assumes that workers are oppressed for the sake of capitalist interests. Labour-management
relations are viewed as a mere extension of the class conflict, between the “haves” and the
“have-nots” which permeates the capitalist society as a whole.

Organisations are accordingly geared to wealth generation and the labour relationship is
structured to conform to the devolution of power from top to bottom. Marxism by contrast
promotes an order in which productive capacity (including land, capital and labour) and the
fruits thereof are owned by and shared among the people (Vories, 1991:88).

Industrial conflict can therefore be seen from a Marxist perspective as an expression not only
of organizational conflict but of wider divisions within society as a whole (Salamon, 1998:9).
Accordingly trade unions should only be seen as vehicles of fundamental societal change.
One of Marx’s biggest criticisms was that it alienates workers mainly due to the strict
division of labour that seeks to achieve maximum efficiency. A factory system ultimately
alienates workers from their produce, their potential, their efforts and each other. All
employees efforts are geared toward the production for the benefit of employer and the
employee. Under a Marxist system there is no division of labour. Everything is produced for
the benefit of the whole rather than the individual and society rather than the market will thus
determine what is produced for whom. (Vorhies, 1991:88). Ideally people will work for the
sake of working and not what they stand to gain in return.

9.4 The parties to the employment relationship and their respective roles

The labour relationship is essentially a relationship between employer and employees, as well
as between employer/employee and the state, thus making it a tripartite relationship (Venter,
2003:9).
The role of the state is to create, by means of policy and legislation a framework within
which the other parties can conduct their relationships.
The employer refers to the organisation as a legal entity and the employing organisation. The
employee traditionally refers to the workers and their representative bodies, namely trade
unions (Nel, et al. 2005:13).
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The State

Secondary Secondary
employment employment
relationship relationship

Employers and
employer Labour and
organisations Trade Unions

Primary employment relationship

The Tripartite Relationship (Venter, 2003:9)

It is important to realize that the state plays a less than equal role in the relationship, except
when it is the employer itself. The primary focus of the employment and labour relationship
is therefore the relationship between employer and employee, with the state filling a
secondary or supportive role.

The relationship is therefore divided into two categories:


• The secondary employment relationship –which is the relationship between the state ,
the employee and the employer.
• The primary employment relationship – which is the relationship between the
employee and the employer.

The labour relationship is a dynamic one, as the interactions between parties often occur in a
turbulent environment. The secondary employment relationship is a facilitative relationship
in which the state provides the framework for conducting the primary employment
relationship. The state establishes the rules and regulations governing the interactions
between employee and employer. The degree to which the state intervenes in the primary
employment relationship ranges along a continuum from minimal to maximal intervention.

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The degree of state intervention is an extension of the prevailing system of government and
its socio-economic policies.

Bendix (2000:16) points out that in the employment relationship there is continuum between
conflict and co-operation, each governed by its own power relations and processes.

NEGATIVE POLE POSITIVE POLE

Diverging interests, Common interest in


goals, values and needs continuation of the organisation

CONFLICT CO-OPERATION
No or little Increasing
trust trust

POWER OVER POWER TO


(Coercive Power, (Expert power, Referent Power) Reward
Power)
POWER SHARING
Joint Task-related
problem-solving decisions

INSTITUTIONALISATION PARTICIPATION
OF CONFLICT
CO - DECISIONMAKING

COLLECTIVE INDIVIDUAL INDIVIDUAL AND


COLLECTIVE

The Interaction Continuum (Bendix, 2000:16)

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The interaction is characterized by the following (Bendix, 2000: 17-19):


• Custom and tradition
• Legislation
• Mutual agreement
• Ethical considerations: trust, integrity and fairness

External influences on the employment relationship are:


• The socio-political system
• Societal influences
• The economic dispensation
• The influence of trade unions
• Technological developments

9.5 The Labour Relations Environment

Every organisation is influenced by the environment in which it operates. A good


organisation is earmarked by its ability to anticipate change and respond accordingly. The
human capital and the labour relationship are in essence prone to influence by a number of
moderating factors from both within and outside the organisation.

The labour relations environment, (Venter, 2003:17)

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9.5.1 The Micro-environment

This comprises of its:


• Culture
An organisation’s culture consists of shared values, norms and beliefs that help to unite
the members of that organisation in a common purpose. A strong culture will enable a
firm to adapt to environmental changes and to co-ordinate and integrate its internal
operations (Wright, Kroll and Parnell, 1998:244).

• Leadership
Strong leadership is increasing in importance as an ingredient for a successful
organisation. The age-old debate regarding the interchangeability of the terms
“management” and “leadership” continues unabated. However, while all leaders are
managers, it does not necessarily mean that all managers are leaders. What distinguishes a
leader from a leader from a manager is that leaders secure the co-operation of their
followers. Thus, a positive labour relationship is dependent on the ability of an
organisation’s leadership to create a harmonious, productive and sound working
environment (Venter, 2004: 18).

• Communication structures
Effective labour relations obviously depend on positive communication. Organisation’s
often make the mistake of relying extensively on top-down communication. This
contradicts from the principles of participation and co-operation that form the basis of
much of the new age labour dispensation. Language increasingly becomes an issue
especially in diverse countries like South Africa, thus organisation’s need to be aware of
the language requirements of their workforces and to adjust their communications
policies accordingly (Venter, 2004:19).

• The nature of the workforce


Cultural diversity is one component of a workforce that needs to be considered by an
organisation sensitive to its diverse nature. The number of women employed as also an
important issue. Generally speaking, Southern African organisation’s are still lax in
promoting gender empowerment and many are still male dominated. Sexual orientation is

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also another sensitive matter to be considered (Grobler, Warnich, Carrell, Elbert and
Hatfield, 2002:45). Finally, sight, hearing, physical, psychological, or other disabilities
need to be considered.

• Policies and procedures


Policies and procedures are the elements that provide direction in and regulate the
activities of the organization and its members. Organisations have a range of policies and
procedures that co-ordinate and facilitate the labour relationship (Venter, 2004:20).

9.5.2 The Macro-environment


This comprises of its external environment:
• The economy
The economic environment can be further sub-divided into a number of factors that
typically impact on the employment relationship.

These are:
• Government policy
• Inflation and unemployment
• Globalisation and retaining the competitive edge
• Technology

• The socio-political environment


The prevailing political dispensation should reflect the ideology supported by the
majority of the constituents. Since these are employers and employees their political
aspirations will often be reflected in the workplace. In the same vein, worker’s ideals may
be reflected in the political arena since they would typically vote for the party that best
accommodates their socio-economic needs (Venter, 2004:20).

• The legal framework


A country’s labour legislative framework comprehensively regulates all facets of the
employment relationship, from basic employment rights and the conditions of
employment at one end to the employment practices at the other (Nel et al,2005:26).

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Within the South African context, the following legislation is important:


• The Labour Relations Act of 1995
• The Basic Conditions of Employment Act of 1997
• The Occupational Health and Safety Act of 1993
• The Employment Equity Act of 1998
• The Skills Development Act of 1998

? THINK POINT

The Changing face of the employment relationship (Venter, 2003:525)


• The relationship between the employer and employee will move away from what can be
loosely described as a ‘master-servant’ relationship in which employees are subservient to
the employer. Instead, alliances will be formed between providers of labour and suppliers
of work. Within these alliances the parties will interact on an equal contractual footing.
• The role of trade unions will become increasingly redundant as the suppliers of labour
and employers increasingly negotiate on a contractually equal footing.
• The roles of the lower to middle management tiers in organizations will increasingly
become redundant as employees are given increased autonomy and control.
• Work itself will be less rigidly governed by rules and regulations.
• There will be less commitment and loyalty and a higher turnover of contingent and
contract workers.

9.6 Summary
This section focused on Human Resource Management and Employment Relations. In doing
so the nature of the subject has been examined and it has been established that employment
relations is a “living” field of study that evolves around and is played out daily in workplaces
around the world

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SECTION 10

CAREER MANAGEMENT

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CONTENTS

Learning Outcomes

Reading

10.1 Introduction

10.2 The Career in the Twenty-First Century

10.3 The Importance of Career Management to Employers and Employees

10.4 Career Stages

10.5 Career Planning

10.5.1 Organisational Career Planning


10.5.2 Individual Career Planning

10.6 Career Development

10.7 Summary

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LEARNING OUTCOMES

The overall outcome for this section is that, on its completion, the student should be able to
demonstrate a comprehensive understanding of career management. This overall outcome
will be achieved through the student’s mastery of the following specific outcomes:

1. Define the concept of the ‘career’.

2. Critically discuss the changing nature of the career.

3. Identify the importance of career management for employers and employees.

4. Identify, discuss and apply the various career stages.

5. Critically discuss organisational and individual career planning.

6. Critically discuss career development.

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READING

Prescribed Reading:

Prescribed Reading:

• Noe, R.A., Hollenbeck, J.R., Gerhart, B. and Wright, P.M. (2006) Human
Resource Management: Gaining a Competitive Advantage 5th Ed. Boston:
Irwin McGraw-Hill. pp 380-420

• Nel, P.S., Van Dyk, P.S., Haasbroek, G.D., Schultz, H.B, Sono, T. and
Werner, A. (2004) Human Resource Management 6th Ed. Cape Town:
Oxford. pp 424-467

Recommended Reading:

Books

• Carrell, M.R., Elbert, N.F., Hatfield, R.D., Grobler, P.A., Marx, M. & Van der
Schyf, S. (1997) Human Resource Management in South Africa. pp 344 – 366.

• Ivancevich, J.M. (1998) Human Resource Management 7th Ed. Boston: Irwin
McGraw-Hill. pp 483 – 515.

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Journals

• Caudron, S. (1994) ‘HR Revamps Career Itineraries’. Personnel Journal.


April, 73 (4), pp 64 – 76.
• Ettorre, B. (1996) ‘A Conversation with Charles Handy on the Future of Work
and an End to the “Century of the Organization”’. Organizational Dynamics.
Summer, 25 (1), pp 15 – 27.
• Greengard, G. & Kinnard, W. (1995) ‘The Key to Your Career Growth May
Be a Job Change’. Personnel Journal. October, 74 (10), pp 100 – 106.
• Hall, D.T. & Moss, J.E. (1998) ‘The New Protean Career Contract: Helping
Organizations and Employees Adapt’. Organizational Dynamics. Winter, 26
(3), pp 22 – 38.
• Hardijzer, C. (1999) ‘Careers: Treading a Tricky Path within the Changing
World of Work’. People Dynamics. November – December, 17 (11),
pp 42 – 46.
• Kossek, E.E., Roberts, K., Fisher, S. & DeMarr, B. (1998) ‘Career Self-
Management: A Quasi-Experimental Assessment of the Effects of a Training
Intervention’. Personnel Psychology. Winter, 51 (4), pp 935 – 954.
• Thompson, P.H., Zenger Baker, R. & Smallwood, N. (1986) ‘Improving
Professional Development by Applying the Four-Stage Career Model’.
Organizational Dynamics. Autumn, 15 (2), pp 49 – 63.

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10.1 Introduction

This, the final section of the HRM module guide, focuses on Career Management. In so
doing, the following will be examined:
• The Career in the twenty-first century
• The importance of career management
• Career stages
• Career planning
• Career development

10.2 The Career in the Twenty-First Century

Graham & Bennett (cited in Nel et al, 2004) define the concept of a career as “a series of
jobs that follow a hierarchy of levels or degrees of difficulty, responsibility and status
” (p 500).

READING ACTIVITY

Before reading the two journal articles listed below, answer the following
question.
1. In your opinion how does the ‘career of today’ differ from the ‘career of 30
years ago’?

Now read the following two journal articles and answer the question which
follows.
• Ettorre, B. (1996) ‘A Conversation with Charles Handy on the Future of Work
and an End to the ‘Century of the Organization’. Organizational Dynamics.
Summer, 25 (1), pp 15 – 27.
• Hardijzer, C. (1999) ‘Careers: Treading a Tricky Path Within the Changing
World of Work’. People Dynamics. November – December, pp 42 – 46.

2. According to Handy (cited in Ettorre, 1996) and Hardijzer (1999), what does
the career of today (and the near future) comprise?
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Comment on Reading Activity

The articles of Ettorre (1996) and Hardijzer (1999) outline the nature of the ‘career’ at the
beginning of the twenty-first century.

Ettorre (1996) presents a conversation with the management philosopher Charles Handy
regarding his views on the future of work and the organisation. In his discussion with Ettorre
(1996), Handy asserts that in the near future he sees “…. a withering of the ‘employment
organization’….a lot of scripts will need to be rewritten, including the script that includes
job security in a corporation followed by a comfortable retirement. A lot of us will become
‘portfolio workers’ – selling our skills to a variety of clients…and all of us will be looking
beyond work to find meaning and identity” (Handy cited in Ettorre, 1996: 16). Handy argues
that the organisation of the future will be ‘Athenian’ in nature which focuses on teamwork
and expertise in the solving of organisational problems (Ettorre, 1996). According to Handy,
within the twenty-first century ‘Athenian’ organisations will employ half the people that
were employed by organisations in the twentieth century, and those individuals who are the
most competent “will become independent workers, selling back into the organization for the
most part, but into several organizations at the same time” (Handy cited in Ettorre, 1996:
20).

Like Handy (cited in Ettorre, 1996), Hardijzer (1999) also recognizes the dynamic nature of
the twenty-first century career. Hardijzer (1999:43) emphasises that “…in past decades,
companies played a far more prominent role in defining career options and determining the
career progress of individuals…the idea that a career lies primarily within a company is a
myth”. Hardijzer (1999:46) identifies the career of today to be ‘protean’ which refers to a
career which is “shaped more by the individual than the organisation and may be redirected
from time to time to meet the needs of the person”. Given this protean career, the challenge
for employees lies in proactively managing their volatile career path.

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10.3 The Importance of Career Management to Employers and Employees

Career management may be defined as “the process of designing and implementing goals,
plans, and strategies that enable HR professionals and managers to satisfy workforce needs
and allow individuals to achieve their career objectives” (Carrell et al, 1997: 347).

? THINK POINT

Consider your organisaton. What benefits could result from the implementation
of an effective career management programme?

Comment on Think Point

The implementation of an effective career management programme could bring about a


number of benefits for both the employer and the employee. These include:
• The ability of the organisation to gain competitive advantage within both the local and
global context as a result of the maintenance of the organisation’s intellectual capital;
• The organisation would avoid the negative effects of obsolescence;
• Increased employee job satisfaction and motivation; and
• Reduction in staff turnover due to satisfied employees (Nel et al, 2004:459).

10.4 Career Stages

A career may be viewed in terms of career stages, each of which corresponds to a particular
life stage of an individual (Ivancevich, 1998).

? THINK POINT

Consider your career thus far. Are you able to identify in the region of two to four
‘stages’ in your career?

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Comment on Think Point

Nel et al (2004:460) argues that all individuals experience a number of career stages, each of
which serves to address particular individual needs. The various career stages identified by
and the corresponding needs which these stages address are depicted in Figure 10.1.

NEEDS

Safety, Security, Safety & Security Achievement, Esteem & Self


Physiological Needs Autonomy & Self Actualisation Actualisation
Needs Self Actualisation Needs Needs
Needs

CAREER STAGES

Pre-Work Establishment Advancement Maintenance Retirement

Figure 10.1: Career Stages (adapted from Nel et al, 2004:460)

The career stages depicted in Figure 10.1 include:


• Establishment where the individual enters into an organisation and becomes an
employee.
• Advancement where the individual starts progressing in his/her career (Ivancevich,
1998).
• Maintenance where the individual strives to maintain the gains which he/she has made
from his/her past performance.
• Retirement where the individual completes one career and may move to another
(Ivancevich, 1998).

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10.5 Career Planning

Career planning should be performed by both the individual and the organisation.

" ACTIVITY

1. Identify the career planning programmes which your organisation has


implemented. Comment on the effectiveness of these programmes.

2. Identify the career planning initiatives which you as an individual have


taken, and comment on their effectiveness.

Comment on Activity

10.5.1 Organisational Career Planning


Section 3 of this HRM module guide explored the HRM function of HR planning. It was
identified in this section that organisations need to forecast in order to identify the number
and nature of employees which the organisation will require in both the short and the long
term future. In order to meet the future labour needs of the organisation, management should
engage in career planning (Carrell et al, 1997:348).

Organisational career planning may be achieved through the development of individual


development plans for employees (Carrell et al, 1997:348). Such a plan provides details of
an employee’s potential progression (vertical, lateral or diagonal) from one job to another
according the goals of the organisation. The plan also specifies the development activities
which will be conducted to prepare the employee for the identified future positions (Nel et al,
2004:462).

Such career planning enables the organisation to not only successfully prepare for and
achieve its goals, but it also serves to ensure that individual employee’s career goals are
realistic.

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10.5.2 Individual Career Planning


As identified in section 10.2, the changing nature of work requires that the individual
employee take charge of his/her career management. Kossek, Roberts, Fisher & De Marr
(1998:935) identify that the career environment is “changing from a traditional one that is
‘bounded’ and driven by orderly employment relations with one employer to one that is
boundaryless and increasingly self-directed by the employee”.

In order to be career self-managers employees need to engage in career planning through:

• Career exploration which involves the collection and analysis of career-related


information (Kossek et al, 1998:935);
• Seeking developmental feedback so as to identify and address one’s strengths and
weaknesses;
• Enhancing one’s job mobility preparedness which involves developing competence in
informal networking internal and external to the employee’s organisation, and being
proactive in gathering information on new job opportunities and acting on these
opportunities (Kossek et al, 1998:936).

10.6 Career Development

Career development needs to take place in order to ensure that the goals established in career
plans may be achieved. Career development programmes may involve a wide range of
training and development interventions, such as on-the-job training, in-house training
programmes, off-site training programmes and coaching (Nel et al, 2004:463).

Given the dynamic nature of today’s career, as identified in section 10.2, career development
interventions should also focus on developing the employee’s career self-management
competence.

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READING ACTIVITY

Read the following journal article:

• Kossek, E.E., Roberts, K., Fisher, S. & DeMarr, B. (1998) ‘Career Self-
Management: A Quasi-Experimental Assessment of the Effects of a Training
Intervention’. Personnel Psychology. Winter, 51 (4), pp 935 – 954.

1. Kossek et al (1998) conducted an investigation into the effectiveness of


interventions which focused on improving an employee’s career self-
management competency. Discuss the findings of this study.

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Comment on Reading Activity

The study conducted by Kossek et al (1998) found that the formal training programmes were
used by organisations in an attempt to develop career self-management skills within
employees. These training programmes involved employees in undergoing self assessments
to increase their awareness of their individual values and attitudes. The programmes also
provided the employees with information and skills to enhance their understanding of, and
commitment to career self-management.

The results of the study showed, however, that career-self management interventions did
“…influence employees’ career self management behaviours, but in the opposite direction of
the training’s intent” (Kossek et al, 1998: 946). The researchers noted that this result was
probably influenced by the fact that the concept of career self-management was “far ahead of
the reality the employees faced in the current culture and the existing human resource
systems” (Kossek et al, 1998: 948). It was emphasised that attention should be given to the
organisational culture and climate and supporting HR interventions when implementing
career self-management programmes.

10.7 Summary

This section investigated Career Management. In so doing the career in the twenty-first
century, the importance of career management to the employer and employee and the various
career stages were examined. Career planning and career development were also studied.

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NOTES :

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SECTION 11

BIBLIOGRAPHY

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