Japan

Historic and cultural heritage

Japan is a complex, dynamic society that has undergone enormous change in the past 125 years,
converting itself from a feudal state into a modern industrialized nation and an economic
superpower. In doing so, the Japanese have absorbed Western technology, science, education
and politics, while still keeping their unique cultural identity. The Japanese have always been
distinctly aware of the difference between foreign and native things, and very early they
recognized the value of borrowing from others, while maintaining their Japaneseness (Gannon,
1994). For the most part, the only language spoken in Japan is Japanese. The country is an island
culture of almost total ethnic homogeneity (Engholm, 1991). Asian common cultural traits such as
group centredness, authoritarianism and protocol are salient ingredients of the Japanese society.

Contrary to other Asian countries, the collectiveness of Japanese culture has been carried over
to the companies (Kashima and Callan, 1994). A job means identification with a larger entity
through which one gains pride and feeling of being part of something significant, tying an
individual's prestige directly to the prestige of his or her employer. Typically, the company is seen
as a provider of security and welfare. Actually, loyalty to the company even surpasses the family
bond. The Japanese believe in a natural order in society and in Japanese organizations different
rank and statuses are considered perfectly normal, to the extent that people's ranks are usually
more important than their names. The Japanese are great believers in establishing a person's
status as quickly as possible so that the proper interaction and communication can take place.
The language is also used to reinforce the natural order of ranks and statuses. Various endings
are added to words to subtly indicate the status of a person, and at work honorifics are used to
address higher status managers. The Japanese are great believers in doing things the proper
way, following a specific protocol. Kata is the way of doing things, especially regarding the form
and order of the process.
There are katas for eating properly, using the telephone, treating foreigners, and so on. Japanese
tend to believe that conducting something in the proper way will eventually result in doing it in the
most successful manner. Katas were developed within this hierarchical society, because it was
assumed that everyone has defined life roles (bun) in which obligations are spelled out in detail.
Obeyance of the rules reflects one's inner character.
Current environment

Japan has a population of 126 million, of which the labor force constitutes 68 million (54
percent). The female share of the workforce is 41 percent. The education level is high with 43
percent of the age group in 1996 being tertiary students, of which almost half (44 percent) are
female. The average growth rate of the population 1980-1997 is only 0.5 percent, the total
fertility rate (births per woman) is merely 1.4 percent and the life expectancy is 80 years. This
has contributed to a rapidly aging population pyramid. Japan has a total GDP of almost US$42
billion but its average annual growth during 1990-1997 was only 1.5 percent, making this period
a prolonged recession. It has a highly advanced economy where agriculture only amounts to 2
percent of GDP but services account for 60 percent and industry 38 percent. Its major industries
are motor vehicles, electronic machinery and consumer electronic equipment. Electric
machinery and non-electronic machinery are major exports (Far Eastern Economic Review,
1999).

Japan's economy finally began to show signs of a recovery in 1999. Promoted by giant
government stimulus packages, the economy surged ahead at an annualized 7.9 percent in the
first three months of the year. However, other signs were more negative, as the unemployment
rate increased in June to an all-time high level of 4.9 percent. Land prices continued to fall, and
capital expenditure and demand for loans remained low, as firms trimmed excess capacity
instead of investing in new plants and equipment. Restructuring of Japan's financial sector
started in late 1998 and continued in 1999 with massive mergers. These reorganizations were
expected to increase efficiency. However, the most dramatic changes came in the form of
foreign companies buying the control of Japanese companies, massive restructuring resulting in
lay-offs of tens of thousands of workers and ``big bang'' deregulation opening up the protected
financial sector to foreign firms (Far Eastern Economic Review, 1999). Traditional practices
Hiring of workers and managers into entry-level positions directly out of college is common. Pay
rises and promotions are automatic. In the wage system

based on seniority (nenko-joretsu), status and seniority are tied to length of service, rather than
to job duties or merit. Shushin koyo is the lifetime employment system. Participation by
coworkers in after-hours gatherings to foster harmony and cooperation is generally expected.
Workers take responsibility and then accept blame, to protect their superiors from loss of face.
Although subordinates know that they can influence decisions, the ultimate decision comes from
the top. Japanese managers make an active commitment to preserve harmony, through
intricate social rituals like gift giving, bowing to superiors, and using honorific language to show
deference. They keep their opinions to themselves, rarely expressing true feelings (honne),
instead voicing tatamae feelings, revised to harmonize with those of the group. Japanese
managers humbly decline to take credit for personal achievements, even when credit is due.
They cooperate with their coworkers in every way they can to complete their tasks without
involving their boss in any mistakes and problems along the way. Every group member is
responsible for lending a hand in achieving the objectives of the group (Engholm, 1991).
Operationally, workers belong to production teams with fluid job assignments. They often gain a
broad perspective on production by being rotated through different departments. Such
investments in breadth of skill and overall understanding of the production process are justified
by the strong lifetime employment guarantees bonding workers to their companies and allowing
the skilled and experienced production workers to contribute to management decisions
(Doeringer et al., 1998).
Changing HR practices

Sources of change

The breakdown of the keiretsu (interfirm network) system of crossshareholding and preferential
trading among member corporations of a business group (Gerlach, 1992) has badly hurt the
safety net of supporting the long-term growth strategy of Japanese firms and their ability to
protect employees from downside market risks (Lincoln et al., 1996). Deregulation is another
force for change. It has made Japanese markets more accessible to competitors, foreign as well
as domestic. In heretofore protected industries ± like financial services, distribution and
agriculture ± few firms are prepared for the onslaught of competition and uncertainty (Lincoln
and Nakata, 1997). The aging population also has clear implications for corporate human
resource practice. With an aging workforce, the permanent employment and seniority system
burdens firms with rising numbers of higher-paid and less productive workers. Previously, these
systems were more suitable to employers, since the steep seniority escalator resulted in less
payment for the relatively young workforce and the permanent employment norm reduced the
uncertainties and costs of high staff turnover. Finally, the transition to a service economy
combined with socio-cultural and socio-economic changes has had a profound effect on Japan's
employment institutions. Although leading-edge manufacturers are still competitive, their

contribution to Japanese domestic employment and income is shrinking, in favor of the

emerging service sector as the next great engine of jobs and wealth. Employment practices of
sales and service firms are different from those of manufacturing. Their younger workforce is
more mobile, less committed to work and the firm. Furthermore, since the organization of work
in service firms is less team based, individual performance is more easily evaluated.
Accordingly, occupational skills are valued over firm-specific skills, so that broad job experience
becomes the main driver of wages and performance rather than loyalty to one employer
(Debroux, 1997; Lincoln and Nakata, 1997; Ornatowski, 1998). Gender issues are rapidly
surfacing in the Japanese traditionally male dominated corporate world. Japanese women, long
locked in the crouch of teaserving office ladies or contract workers performing low-skilled work
on the assembly line, are standing up (Kenney et al., 1998). Professional young women are
flocking to new high-tech ventures, where gender does not seem to matter much. Such
opportunities have been increasing steadily over the past few years and the Equal Opportunity
Law, passed in 1985, which ``requested'' employers to ``make efforts'' not to discriminate, was
recently revised to make discrimination illegal. Seku-hara, Japanese slang for sexual
harassment, has become a buzzword feared in many a corporate and government office.
Needless to say, there are no female directors on Japanese boards of major corporations. This
is not likely to change in the near future due to entrenched cultural values and institutional
practices (Bostock and Stoney, 1997).

Lifetime employment

Traditionally, this type of employment refers to core employees, leaving out temporary workers,
subcontractors, seasonal workers, part-timers and dispatched employees. It is mainly practiced
by larger companies and it applies to the enterprise group or keiretsu, not excluding the
possibility that the employee can be transferred to another company (shukko) (Ornatowsky,
1998). There is evidence of a continuing commitment to the lifetime employment principle.
Results of a recent survey of directors, personnel managers, union officials in 308 major
Japanese companies undertaken by the Japan Productivity Center for Socio-Economic
Development reveal that almost 90 per cent of the respondents indicated that their companies
planned to provide workers with continuous employment until retirement. Furthermore, 82
percent characterized lifetime employment as advantageous, while only 18 percent believed it to
be disadvantageous (Lincoln and Nakata, 1997; Ornatowski, 1998).

Firms have used various means to scale down labor costs. The Japanese Ministry of Labor
reported recently that 34 percent of the firms surveyed had undertaken one or more of the
following: overtime reduction (23 percent), cutbacks in the recruitment of core workers (13
percent), intrafirm transfers (10 percent), outplacements to affiliates and subsidiaries (8
percent), dismissal of part-time and temporary workers (4 percent), furloughs and other
temporary

suspension of work (4 percent), and voluntary early retirements (2 percent) (Lincoln and Nakata,
1997). Also the government seems determined to avoid an abrupt departure from the lifetime
employment system. The Japanese Ministry of labor subsidizes up to two-thirds of the wages of
the employees whose firms implement temporary factory shutdowns instead of genuine layoffs.
Starting in 1994, the further reinforcement of the existing employment adjustment measures has
resulted in about 4 million workers (around 6.3 percent of the labor force) receiving subsidies at
one time or another (Debroux, 1997).

Recruitment and careers

Cutting back new hiring is not such a simple and risk-free way of reducing labor costs as it may
seem. Maintaining a stable yearly influx of new graduates reassures the labor market of the
stability and trustworthiness of a Japanese firm and corporations fear that their competitiveness
for new talent will be threatened by reduced hiring. However, the traditional system of hiring
inexperienced graduates from eÂlite universities is being called into question and a growing
number of companies claim an interest in hiring white-collar and technical workers without
college degrees. The firms are administering sophisticated tests and other screening devices to
select high quality recruits, whatever their deficits in academic certification. However, there are
lingering doubts as to how fundamental this shift in hiring practice is. Merely a professed
openness on the part of employers to recruit from non-conventional sources does not really
signify a fundamental new trend (Lincoln and Nakata, 1997). Some companies, like Toyota, are
considering a ``new flat'' (nuufratto) organization aiming at lower management density, shorter
chains of command and, it is hoped, dampened employee expectations of upward career
mobility. Although abolished by some large manufacturers, most companies still pursue a policy
of rewarding what effectively is a ``dummy'' title, such as kacho (section head) to employees
who have not made the actual grade. Although an employee of kacho rank in the ability or
status (shokuno) hierarchy has no management role, but remains a staff member, his
compensation and status ranking is equivalent to that of true section heads. Advancing in the
status hierarchy does not mean becoming a manager; only those with a genuine talent for
leading others become managers. Given the reduced availability of titles due to the de-layering,
this practice of ``dummy'' titles is likely to survive, at least in the short run (Debroux, 1997;
Lincoln and Nakata, 1997).

Payment systems

In the nenko system, employees who join the firm without any work experience are paid a low
starting salary but can look forward to steady raises with increasing age and seniority until
retirement (Lincoln and Kalleberg, 1990). Such a system depends on lifetime employment,
because, without the guarantee that they will be around to collect their return on their early
career investment, employees would find it unattractive. At the same time, under lifetime
employment, the organization has an incentive to continually invest in training and it does not
risk the loss of its investment or proprietary knowledge. The consequence is that both parties,
the firm as well as the employees, have a long-term stake in the development and success of
each other (Lincoln and Nakata, 1997).

Recently, growing numbers of companies are explicitly weighting ability and performance over
tenure and age in salary decision. Since the early 1990s, some companies have developed a
system of job ability-based wages focusing individual worker performance over one year
compared with goals set at the beginning. This new system is quite close to a true performance-
based pay system. It has been termed ``annual salary system'' (nen posei) and has been
introduced by about 10 percent of large companies. This system is primarily used for managers
and general managers, not for lower level employees. The monetary benefits to employees, if
any at all, are typically small (Debroux, 1997; Lincoln and Nakata, 1997; Ornatowski, 1998).

The attempt to shift from nenko to performance pay illustrates the dilemma companies face.
Managers worry that the resulting inequities will destroy morale and cohesion. Furthermore,
most companies would not like to see younger people supervise older ones. Also, there are
fears that individual merit pay will ruin the Japanese system of team-based production, where
stronger team members assist weaker ones for the good of the performance of the team as a
whole (Lincoln and Nakata, 1997).

The continuities in the Japanese employment systems are as striking as the changes, especially
when one considers the depth and length of the economic recession. Based on data from 1,618
firms, Morishima (1995) identifies three different types of attitudes and actions of firms toward
employment system reform. One group of companies tries to change their wage system from
seniority based to performance based and these firms try at the same time to use the external
labor market to recruit workers. Although they represent the highly publicized trend away from
traditional Japanese employment practices, these companies only make up 10.8 percent of the
sample. Most firms (56.8 percent) have retained the traditional employment system representing
the majority force of continuity. A third group (32.4 percent) shows a mixed picture consisting of
firms that are reforming the wage system, while maintaining long-term employment practices.
These findings highlight the striking resilience of traditional practices as well as some important
changes. Other surveys indicate a similar pattern (Thelen and Kume, 1999).

Technological changes have revealed some of the limits of traditional practices based on
seniority-based wages and on-the-job training. The basic assumption of the traditional system
was that workers would become ever more valuable to the company, as they acquired more
experience on the job, justifying their steadily increasing wages. However, recent rapid
technological developments have surpassed the skills of many experienced workers. The need
to fill this gap has increased the competition among firms for promising young workers, not so
much because of their relatively lower wages, but because of their adaptability to new
technology. Furthermore, increasing competition in product markets requires breakthrough
innovations more than incremental adjustments in product development, the latter associated
with onthe- job training. Breakthrough innovations may require more flexible staff policies based
on external labor markets rather than internal experienced-based systems of skill formation.
These observations suggest that the changes in Japanese traditional managerial practices are
but partial adjustments to adapt to a new market context rather than a genuine transformation of
the entire employment and wage system (Thelen and Kume, 1999).

Labor relations

The Japanese enterprise based unions (kigyo-nai kumiai) have had a conciliatory attitude in
salary negotiations in favor of a strong stance on job security for their members. Unions would
guarantee cooperative behavior by their members, in exchange for appropriate behavior by
companies and the

integration into the firms' training, wage setting, and redundancy systems. Furthermore, firms
could rely on the role of organized business as a last resort defender, if the union did not fulfil its
side of the agreement. This balance has now changed with the concurrent weakening of the
traditional trade unions, business associations and keiretsu networks. Currently, both sides are
less able than before to guarantee that the other side will be well behaved, even worrying that
the other side would have an incentive to leave the relationship. Middle managers are the
targets of the nuufratto delayering process and they feel a growing need to defend their
interests. However, the Trade Union Law only recognizes unions as representing the interests
of the employers. Short of official recognition, more groups may form inside the companies to
defend the interest of the core white-collar employees and their implicit non-lay-off contract. The
system of company-based unions may be severely undermined if such groups extend outside
companies to become horizontal regional or national white-collar unions. Also non-union
employee representation may pose a threat to the traditional enterprise-based unions.
Japanese firms have devoted great effort to develop participation in management by using non-
union representation practices innovatively and effectively to structure and expand employee
representation in decision making. There are two types of employee associations.
Approximately onethird are voice-oriented organizations, while the remaining two-thirds focus
on recreational activities. Voice-oriented employee associations frequently discuss industrial
planning and working conditions with management, and managers typically appreciate their
functions of aggregating and communicating views of employees (Sato, 1997). These aspects
of non-union employee representation have been largely ignored in the literature but are vital to
understand contemporary labor relations in Japan.

http://www.whatishumanresource.com/hrm-in-japan
HRM in the USA
This is a brief sketch of some of the main issues facing Human Resources Management
(HRM) in the United States during the 1990s. I will focus on policy problems rather than
techniques, though the latter are of great importance to practitioners. Two themes run through
this discussion, a strong theme relating to increasing public regulation of the HR function
and a weaker theme of increasing interest in participative management and high-commitment
systems. The Human Resources function Personnel administration, for many years a step-
child in management was rechristened human resources management (HRM) during the late
1970s and early 1980s and is enjoying a renaissance in both academia and the real world.
Personnel had grown grew in status during the 1930s and 1940s largely because of the
wartime labour shortage, the union threat, and the later need (in many companies) to adjust
to being unionized (Jacoby, 1985). Then as unionmanagement relations "matured" and
became routinized, other, seemingly more pressing functions, such as production, marketing,
finance, and law, began to receive the bulk of top management's attention. In the early
1970's things began to change again. New legal requirements, dealing with safety, equal
employment opportunities and the like, forced radical changes in selection, evaluation, and
promotional procedures among others. This in turn raised HR specialists' status and budget.
In the late 1970s, as the economic climate turned sour, many top managements began to view
HR policies as critical for reducing costs, increasing organizational flexibility, and even
insuring survival. Industrial relations, personnel, and organization development policies
became increasingly closely coordinated (Beer and Spector, 1984). In some cases this
meant using hard-ball tactics to keep unions out of nonunion worksites and to extract deep
economic concessions at locations where unions already existed. In other instances, it
involved developing cooperative new relationships in which the union serves as equal
partner. Regardless of strategy, the purpose was to increase shop-floor efficiency and to
soften the effects of rigid work rules, often developed for an earlier technology. Perhaps in
a majority of instances, however (particularly where the companies employ few blue-collar
workers), policy toward unions was subsidiary to broader interests, especially efficiency,
flexibility, and management development. Indeed ~ a point to be stressed — HRM in most
companies was and is primarily concerned with managers and white-collar employees, not
blue-collar workers. Many of the new initiatives came from top management itself as line
managers began "asserting greater control over industrial relations policy issues because
industrial relations and human resources professionals were slow to change" (Kochan,
McKersie, and Chalykoff, 1986, p. 494). In some companies, these new policies meant
wholesale replacement of oldtime industrial relations experts who had "become increasing
isolated, conservative, and less influential" by "a new set of human resource management
specialists who were more conversant with different types of planning, behavioralscience-
based innovations in work organization and personnel systems" (Kochan and Piore, 1985,
p.5). Thus, when General Motors' Vice President of Labor Relations retired, he was replaced
by the former director of the company's quality of working life program, not by someone
whose career had been in industrial relations (Kochan and Cappelli, 1984). Similar changes
occurred at Ford and Chrysler. As top management demonstrated greater interest in HR
policies, the status and perhaps the clout of the newly named HR departments seemed to
grow, especially according to such indices as title of top officer, staff size, budget, salary
level (Strauss, 1987), and number of MBAs hired. The HR department, for example, became
more frequently involved in long-run strategic planing. As a consequence, according to a
Wall Street Journal article (April 27, 1983, p. 1), former personnel workers received "at least
30% higher pay...if the company uses the trendy "human resources" title." Along with this
came some other developments. First, there have been some important technical
breakthroughs in selection, evaluation, and performance appraisal. These rather dull areas
suddenly became rather hot — at least in academia. Secondly there was much greater
willingness to experiment. Often new policies were tried out in a several departments or
plants before being introduced uniformly. These developments have occurred in the context
of increasing government regulation.

The role of law

At one time sharp contrasts could be drawn between the HR practices in the U. S. and those
in Continental Europe. On the Continent these practices were tightly regulated by law, in the
U. S. they were comparatively unfettered. True, Roosevelt's New Deal brought laws
protecting unionization, and establishing some fairly minimum wages. It also introduced tax-
supported unemployment and oldage (superannuation) benefits. But aside from union-
management collective bargaining agreements, management's HR practices were relatively
unregulated. Beginning in the 1960s, however, a series of laws were enacted which dealt
with such topics as occupational safety, employer-funded superannuation funds,
discrimination, and equal employment. In 1960 President Reagan was elected on a platform
calling for deregulation. His administration was marked by a considerable slackening in the
rigor with which the executive branch enforced the laws, a policy followed to a lesser extent
by George Bush, his successor. But none of the old legislation was repealed or significantly
weakened. Indeed a new series of new laws were enacted, some strengthening previous laws
(regarding, for example, discrimination against the aged and disabled) and others branching
out in completely new directions, for example severely restricting employers' use of
polygraphs (lie detectors). Meanwhile, as permitted in the federal system, states have been
passing laws on similar topics. No single law has had a major impact, but their cumulative
effect has been considerable. Furthermore, Congress is considering a long list of HRrelated
bills, many of which will eventually be passed, though some are likely to be vetoed by the
President. Tower 8-2-91 page 3 The legal push comes not just from the federal Congress.
The U. S. is a litigious society, and state courts have been actively expanding employee
rights, creating a new body of common law, especially with regards to unfair dismissal. The
net effect is much boarder governmental intervention into HR practices, from hiring to
discharge. Some call this the Europeanization of American HRM. These relatively new laws
and court decisions have had a big impact on the HR decision-making process. It has become
more formal, more time-consuming, and more bound by paper work. All this has helped
upgrade the HR function. Labour relations. Unions have become considerably weaker, in
a process not much different from that occurring in Britain. From a 1955 peak of
approximately 33% of the labour force, union density has declined to 16% in 1991. But these
figures mask the decline in the private sector, where density has dropped from over 35% in
1955 to about 12% today and is still declining. Meanwhile the public sector has assumed an
increasingly important union role. Public-sector unionism was minimal in 1955; today, close
to 37% of governmental employees belong to unions and this figure is holding constant.
Why the decline? One reason is that traditionally unionized industries, especially
manufacturing, mining, transportation, utilities, and construction have grown much less
rapidly than the nonunion industries, such as trade and services. Factories have moved to the
non-union southern states. Additionally, nonunion employers have adopted tougher, more
sophisticated, and more effective techniques to keep their organizations "union free." Often
they compete with unions through the adoption of high-commitment policies providing
participation, job security, individual job rights, and due process. Further, in government-
run elections designed to determine whether workers want union representation, employers
campaign vigorously, taking advantage of every technicality the law allows. Often their
tactics skirt or even violate the law, since the penalties for doing so are minimal. An
increasing (though still small) number of already-unionized firms have rid themselves of
unions altogether. A common technique is to provoke a strike and then to replace the striking
workers with new employees. More commonly management has sought to negotiate
"concessions," that is, new contracts which provide fewer benefits than those which are
expiring. Often they do this through whipsawing, that is through threatening the plant in
question and moving its work to another plant, either in the U.S. or overseas. Bargaining as
a whole has become much more decentralized. As union strength has decline, so have the
number of strikes. On the other hand, a considerable number of union-management relations
might be characterized as being relatively cooperative. In steel, automotive and a few other
industries unions and managements have sought to work together. Though the adversarial
aspects of their relationship will never be eliminated, numerous joint efforts have been
undertaken to resolve common problems, especially relating to productivity, substance abuse,
and the like. Though unions are still significant in some industries, their role in HRM
generally is considerably reduced. Forty years ago it was the union movement Tower 8-2-91
page 4 which took the initiative in beginning forth new HR ideas - and management reacted.
Unions were largely responsible for the spread of private pension and health plans and for
the concepts of seniority and discipline based on just cause. Today management has the
upper hand. In some cases management has exercised its power in ways that I view as anti-
social and shortsighted. In other cases, its influence has been quite positive. Many recent
HRM initiatives come from the women's agenda (if not from the women's movement itself):
comparable worth, flextime, child care, elder care, and the freedom to move in and out of
the labor force. Some of these have been widely adopted already. Others are likely to be
adopted during the 1990s.
High commitment policies.
There is much discussion of high-commitment policies, though perhaps more talk than
practice. By high-commitment I mean policies designed to develop broadly trained
employees who identify with their organization and who are prepared and trusted to exercise
high orders of discretion. Along with this comes a commitment from the firm to provide job
security and the opportunity to develop a satisfying career (not just a job). Key components
of this strategy are participation, lifetime employment, career flexibility, and new forms of
compensation. Together they constitute a "high commitment culture". These policies
require heavy investment in human capital, and in some ways are like the stereotype of
Japanese management. But, they are not like Japanese management in that they give
employees a considerable amount of free choice and individual rights. Some of the leaders
in this development, IBM and Hewlett-Packard, for example, are nonunion. However
General Motors new Saturn Division, NUMMI (the GM-Toyota joint venture) and Xerox
show that equally innovative plans can be adopted in genuine collaboration with unions.
There is nothing basically inconsistent between the high commitment HR and collective
bargaining. In fact the chances of such firms as IBM and HP backsliding from their present
good intentions would be much reduced were they unionized. Unions might keep them
honest. Though high commitment organizations may constitute the main wave of the future,
this wave has hit some big rocks. The U. S. economy is shifting from manufacturing to
service. Firms once protected from competition are subject to its full rigors. Many previously
stable industrial giants (e.g., A.T. & T.) have been forced to "restructure" and "downsize",
sometimes as a result of takeovers, leveraged buyouts and the like. Quite often organizations
emerge from such restructuring with a high debt level and a desperate need for cash flow.
As a result they liquidate their human assets at a rapid rate. Not only are skilled managers,
professionals, and workers thrown on the ash heap, but expensively nurtured "corporate
cultures" are quickly shattered. If companies are treated like commodities, to be bought and
sold on an auction market, people are likely to be treated similarly. Thus, at the moment,
disinvestment in human resources seems to predominate over high commitment. Over the
long this trend may switch.

Participation.
There is considerable experimentation with various forms of participation. Expanded
employee involvement is at the heart of the high commitment strategy. Participation, it is
hoped, will increase employee satisfaction and commitment as well as organizational
effectiveness. If successful, all parties gain. Participation is hardly new. Informal
participation, as a style of consultative management, has been preached for a long time, but
the last few years have seen a considerable increase in formal participative schemes. These
schemes can be grouped under three heads: (1) job redesign, for example, job enrichment,
(2) quality circles and autonomous work groups, and (3) joint union-management or
employee-management committees (see Ramsay in Chapter 11). All three forms of
participation seem to have proliferated more widely in the U. S. than in Britain (compare
Millward and Stevens, 1986 with Cooke, 1990). Job enrichment, quality circles, and
autonomous work groups appear to be more common in non-union plants. In some companies
they have been introduced to keep unions out. Joint committees exist primarily in the
unionized sector. According to the limited research to date, most participation schemes
succeed in bettering something. They increase satisfaction, productivity, or quality or they
improve turnover, safety or union-management relations. A problem in the U. S., as in the
U. K. (Maclnnis, 1985), is that many of these schemes are shortlived. They succumb to a
variety of ills: opposition by unions, workers, supervisors, or top management or merely
half-hearted support; problems with regards to equitable compensation; or distrust, too high
expectations, or burnout (Strauss, in press). There are critics who argue that participation
is merely a fad, which will pass. In some instances this is certainly the case. But over time
participative work techniques may become more satisfying for workers and more efficient
for management. Like drug use, participation is an acquired habit, but a habit which is
difficult to shake. Participation doesn't come naturally; generally it represents an unstable
social system. Autocracy is simpler. Fortunately, however, managements and unions are
now learning the organizational skills required to make participation work. In time its success
rate should improve.
Work schedules and careers
Many workers are more interested in when they work than in participating at work. This is
shown, for example, by the increasing union demand that workers be free to turn down
overtime. It is also evidenced by the considerable interest in new approaches to work
scheduling, such as the compressed work week, flexitime, and job sharing, as well as the
expansion of an older arrangement: part-time work. And "telecommuting," the opportunity
to work at home via computers, has become more common. What these plans have in
common is that they are designed to permit employees to enjoy their life off the job, as
opposed to on it. For some workers, these new schedules represent a changing lifestyle which
downgrades work as a Tower 8-2-91 page 6 source of satisfaction. But for many women
and some men it is important chiefly as an opportunity to combine work with family life.
Indeed, work schedules have become a major issue for some women's groups. The demand
for change is expressed most frequently by university graduates and MBA-trained women
who are competing with men for managerial careers. For some women the "mummy track",
which slows the promotion timetable enough to allow for family obligations, meets the need.
For others it does not. Lately neo-feminists have become interested not just in equality on the
job, but in equality plus the chance to bring up a family without undue harm to career.
Beyond flextime, there are open, flexible career systems. These include the freedom to move
back and forth from full to part-time to zero-time work (for example, in response to family
demands) -- and to do so without jeopardizing one's status as a permanent employee. It may
mean calculating seniority cumulatively rather than the consecutively. It also involves the
right to a phased-retirement (a right especially important since mandatory retirement has
become illegal). The demand for career flexibility is also associated with greater concern with
burnout and the opportunity to shift work if one gets stale. In "open career systems"
individuals are given considerable freedom to manage their own careers. In such settings one
finds features like realistic job previews, (RJP, a procedure in which job applicants are frankly
told a job's disadvantages), a chance to bid on jobs and training opportunities, and the
freedom to accept or decline transfers. To assist employees in making wise career choices
requires assessment centers to evaluate skills, as well as more opportunities for counseling.
Although many of these demands came from the women's movement, they are of interest to
men, too, and particularly to professionals and managers. Flexible careers systems are
certainly consistent with the philosophy of participation and high commitment. On the other
hand, flexibility may be hard for organizations to provide. Individual and organizational needs
often mesh quite badly. The Utopia in which everyone does his or her own thing may be far
off. As yet, open career systems are more talked about then practiced.
Core vs. peripheral employees
One of the objectives of high commitment companies is to provide something akin to
Japanese- style lifetime employment. In this, their objectives are much like those of unions,
which typically insist that their members receive a constant stream of income from the day
they are hired to the day they die: they get it in the form of wages, vacations, sick leaves, jury
pay, unemployment benefits, pensions, and the like. High commitment companies provide
similar benefits for their core employees. In both cases, most of the economic uncertainties
of life are transferred from the employee to the employer. Maintaining life-time employment,
in the face of the vagaries of the market, is difficult for many businesses. An increasingly
common solution among American high commitment companies is to do this in the Japanese
way. They absorb peak workloads through overtime, subcontracting, "agency temporaries,"
part-time and on-call work, and the like. In slack times they protect their core employees by
reversing this process, i.e. eliminating overtime and dismissing peripheral workers, such as
temporaries and subcontractors. Tower 8-2-91 page 7 Consistent with this policy the number
of part-time and on-call employees has grown considerably. Sub-contracting also has
increased. The kind of work subcontracted ranges from janitorial and equipment maintenance
to topmanagement decision-making (in the latter case the subcontractors are called
management consultants). Some employees (especially working mothers) dislike being tied
down to full-time permanent jobs and prefer flexibility. Quite a lot of people like the
independence of being subcontractors. But few of these people enjoy much security. On the
whole they are low paid, have few fringe benefits, and most are women. A high percentage
of part-time workers, possibly a majority would prefer full-time regular employment. At least,
they might like the choice to be full-time or parttime to be their's. not the employer's. Thus,
the growing distinction between core and other employees accentuates what economists call
the "segmented labor market" and creates serious social dilemmas. The substantial job
security enjoyed by core employees merely accentuates the insecurity suffered by the rest. A
secondary labor force is the ugly backside of high commitment policy.
Downsizing and outplacement
When business is seriously depressed, there may be too little work for even core employees.
Then management must chose between making layoffs as soon as the need seems apparent
and so maintaining a "tight shop", or of delaying the decision until absolutely necessary and
meanwhile finding some sort of activity for surplus workers. High commitment firms tend to
follow the policy of delay. They search for temporary assignments for unneeded workers and
perhaps provide them special training or subsidize their transfer to other plants. If business
gets still worse they accelerate attrition through fairly lavish voluntary early retirement
schemes. Indeed early retirement has become a favorite strategy for downsizing companies
which, in effect, bribe workers to quit. Even these steps may not be enough. Many Silicon
Valley companies have felt forced to abandon their previous strong no-layoff policies. Indeed
the 1980s in the U.S. have seen the largest number of layoffs since the Depression. They has
occurred even in such presumably stable industries as banking, telephones, retail groceries,
and chemicals. According to one estimate, almost one-quarter of the jobs in major (Fortune
500) companies permanently disappeared during this period (Daily Labor Report. April 6,
1990). Managerial positions, which once were viewed as sacrosanct, have become just as
much at risk as blue-collar jobs. What distinguishes current "outplacement" from the earlier
"sack" is the delicacy with which it is made. A whole new art of firing people has been
developed. Aside from the considerable expenses which are incurred to induce older
employees to accept early retirement, some companies finance training for new occupations,
subsidize job-finding trips, continue employee pay and benefits, and give them time-off to
look for a new job. Outplacement counselors, a new breed of morticians listen to "outplacees"'
emotional traumas, assist in writing job applications, coach interview skills, and generally
help in the job search. These HR policies are not uniformly followed, of course, not even in
hi-tech industry. A large percentage of employers offer little or no protection against layoffs.
During the 1980s job security became a major union objective, often given Tower 8-2-91 page
8 higher priority than wage increases. When long-time unionized employees in the auto and
steel industries are made redundant, they now enjoy guaranteed income streams equaling or close
to equaling their pre-redundancy pay. In some cases these streams continue until the worker is
ready for retirement. To support this program General Motors has committed $4.3 billion over
the current contract period. Employees in other industries are rarely so fortunate. Often they
receive only limited government- financed unemployment insurance (the dole) at a rate no more
than half the employee's pre-redundancy pay, paid for no more than 26 weeks. There are
relatively few legal restrictions on employers' right to make layoffs. In 1988 Congress passed a
law (over President Reagan's veto) requiring 60 days notice before making "mass layoffs" or
closing down a plant. Experience to date suggests that complying with the law is less of a burden
than management has feared; on the other hand, it has done less than its proponents had hoped to
reduce unemployment or to ease the transition to new employment.
Discrimination and equal employment.
Equal employment — not collective bargaining -- has been the most significant HR issue in the
United States since the mid-1960s. Beginning in 1960 a series of state and federal laws have
banned discrimination on the basis of ethnic origin, religion, gender, age and physical disability.
These laws and their interpretation are complex and technical and have provided employment for
a large number of lawyers and testing experts. Such laws have real teeth]. They are enforced in
a number of ways, through action by the federal Equal Employment Opportunities Commission
or its state counterparts, through special regulations applying to government contractors, and
thorough class-action suits filed on behalf of categories of job applicants or employees alleged to
have suffered from discrimination. Settling these suits have cost companies substantial sums of
money. As this is written, AT&T has agreed to a $66 million settlement to compensate employees
discriminated against because of pregnancy. Equal employment regulations cover many aspect
of work: hiring, promotions, redundancies, compensation, and even training opportunities. As the
U. S. Supreme Court put it, the law "proscribes not only overt discrimination but also practices
that are fair in form, but discriminatory in operation. The touchstone is business necessity. If an
employment practice operates to exclude Negroes and cannot be shown to be related to job
performance, the practice is prohibited." This means that if a selection practice (such as a
recruitment procedure, test, interview protocol, or a weight requirement) screens out
proportionally more individuals from any one ethnic or gender category, then the procedure's
"business necessity" must be validated. For example, job applicants' test scores must be
statistically correlated with relevant aspects of work performance. In practise, too, the legal
process often requires "goals" and "time tables" and even flexible "quotas" ("affirmative action"),
especially where the employer can be shown to have discriminated in the past. These
requirements have forced a radical changes in the procedures used to select, evaluate, and promote
employees at all levels. Performance appraisal procedures have been overhauled to reflect actual
behavior rather than attitudes or traits. Promotional ladders have been resigned to insure that
women are not held Tower 8-2-91 page 9 down by "glass ceilings". Great efforts have been
made to recruit minorities, including offering university scholarships to promising candidates.
"Work sample" tests have been introduced which test the specific skills required for the job
in question. Applicants for the job of customer service representative, for example, may be
evaluated in terms of how they respond to simulated customer telephoned complaints. As a
consequence of these efforts there has been significant increases in the employment of women
and ethnic minorities in occupations that were once entirely white and male. Nevertheless
wide disparities in employment and earnings remain. Women may have gained more ground
than blacks. A large black underclass is only marginally in the labor force. Still, real progress
has occurred. By now the legally mandated adjustments in company policy have largely been
made. Organizations have learned how to live under equal employment rules and yet preserve
a degree of flexibility. For this reason, big business showed little interest in following the
Reagan administration's call to dismantle the regulatory machinery. Recently a series of
Supreme Court decisions has disturbed this equilibrium by interpreting the laws more
narrowly. In response, women and minority groups have sought legislation which would both
overturn these decisions and extend the reach of the law. Significantly, when big business
representatives agreed to a tentative compromise with women and minority groups, their
efforts were vetoed by the Bush Administration which sought to make political capital of the
issues of "quotas" and "reverse discrimination." In fact, equal employment for women and
minorities is much less an issue than it was in the 1970s. The main undecided questions today
relate to promotions and to the aged, handicapped, homosexuals (in some jurisdictions), and
opportunities for women to combine maternity and careers. "Comparable worth" is an issue
which received more attention in the mid- 1980s than it does now. Current law requires that
men and women be paid equally when they perform the same or closely similar jobs. But
women's groups have argued that jobs which are performed primarily by women should be
paid wages equal to those of male jobs of "comparable worth", even if the jobs are not closely
similar. They object, for example, to the common practice of paying truck drivers and
electricians more than nurses, even though nurses require considerably more training and bear
much more responsibility. In effect, comparable with advocates seek a major reorganization
of wage-setting in American industry. To meet their demands would require a massive job
evaluation scheme in which the requirements of every job would be compared to every other.
Understandably this proposal has met considerable resistance. Arguing that an unfair wage
stricture constitute a form of discrimination, women's groups, made some progress in a few
lower courts, but higher courts hesitated to become involved in so difficult a process. In some
states, female government employees won major adjustments, either through legislation or
collective bargaining. At the moment, however, comparable worth has made little headway.
Mandatory retirement is now prohibited in most occupations. Likewise, discrimination on the
grounds of age (over 40) is illegal. Together these provisions make it difficult for employers
to replace older, presumably less energetic Tower 8-2-91 page 10 employees, with younger,
possibly more enthusiastic ones. Elaborate documentation of poor performance is required
before older employees may be demoted or replaced. Many of the key legal cases here have
involved top executives. Evaluations of executive performance are inevitably subjective and
subject to dispute. Displaced executives can better afford to hire lawyers than can low-paid
production workers. Additionally, juries may grant punitive as well as remedial damages in
age discrimination cases, thus making these cases attractive to lawyers. There have been some
dramatic awards (some reduced on appeal). In some of these cases employees have produced
"smoking guns" confirming the employer's purpose, with for example, a memo stating an
intent to "rejuvenate the organization and bring in fresh, young blood." In recent years,
companies have learned to avoid obviously discriminatory statements, document
performance, provide periodic performance appraisals, and give employees opportunities to
improve their performance before firing them. As a result the number of cases won by
plaintiffs has declined. An estimated 43 million Americans suffer from some form of mental
or physical disability, and a high percentage of disabled individuals are unemployed. In
1990 the Americans with Disabilities Act strengthened previous legislation designed to
protect this terribly disadvantaged minority. The new law prohibits employers from
discriminating in hiring disabled persons, provided that with "reasonable accommodation,"
they can perform the essential functions of the job in question. The meaning of "reasonable
accommodation" is bound to lead to extensive litigation. For example, variations in the way
the job is done may be required. Special equipment may have to be provided. Ramps may
need to be built for the wheel-chair bound. But accommodation is required only so long as it
doesn't cause an "undue hardship" to the employer. In determining "undue hardship" (another
fuzzy term) the cost of the accommodation must be balanced against the employer's size.
Experience under the older regulations suggest that large employers can make necessary
accommodations relatively easily, provided they show flexibility and imagination. Perhaps
the most noticeable change will be an increase in the number of ramps and toilets suitable for
those in wheelchairs. But small employers, in particular, will object to the seeming pettiness
of some regulations.

Individual job rights

Recent years have shown a growing concern for individual job rights. By contrast with
participation and flexible career systems, both of which give individuals freedom to make
choices within the organization, the rights to be discussed here protect the individual from
the organization and its members. In effect they say the organization can go so far -- and no
further. Some of these rights have been obtained primarily through legislation, others through
court decisions or unions contracts. Many raise controversial questions. For example: Tower
8-2-91 page 11 What rights does a professor have to see confidential evaluations of her work
by her peers? What rights does anyone have to prevent dissemination of material in his file to
others? Who can have access to reports prepared by company doctors and psychiatrists? Under
what circumstances can a supervisor search an employee's desk or clothes locker? What freedom
of dress and hairstyle does one have on the job? Under what circumstances can one's employer
inquire about one's sexual or political behavior off the job? What rights does one have to smoke
on the job? What rights does one have not to be bothered by other peoples' smoking? For the
most part these are new, recently articulated issues. For instance, they were not on traditional
union agendas, and indeed they stem largely from changes in overall social values. Perhaps the
greatest controversy relates to drug testing. Can/should the employer test everyone? Only those
in critical jobs, such as airplane pilots, who who might do serious harm were they influenced by
drugs? Or only those who demonstrate overt signs of being currently drugged? What deductions
can the employer draw from a single positive test (since false positives are common)? Suppose
the test is accurate, what is the employers' obligation: To inform the police? To discharge the
employee quietly? Or to send him to an expensive, employer-paid cure? A 1988 law requiring
federal contractors to maintain drug-free workplaces has contributed to the growing use of drug
tests. Controversy has been greatest with regards to random testing, with civil libertarians arguing
the employees should not be penalized for off-the-job drug use as long as it does not
demonstrably affect their on-the-job performance. Unions have been ambivalent on the drug-
testing issue, fearing being seen as supporting drug-use. For the most part they have insisted on
procedural safeguards and that drug users receive treatment rather than discipline. Analogous
issues are involved with genetic testing, polygraphs, AIDS, and alcoholism. Do polygraphs,
AIDS, and genetic testing violate individual privacy? Are AIDS, alcoholism, and drug addition
occupational handicaps to which the employer must make a reasonable accommodation? Where
does one draw the line? With union endorsement, bills have been introduced into Congress and
state legislatures which would restrict electronic monitoring in the office and the use of
undercover agents to check on sales clerks. For example, they would prohibit assessing job
performance by counting the number of key strikes an employee makes on computer keyboards,
or through listening into telephone conversations with customers. Unions argue that these
practices places workers under excess stress. Most uses of polygraphs (lie detectors) are now
illegal. Challenges are being mounted against paper-and-pencil "honesty" and personality tests
on the grounds that these are often invalid and that the latter frequently probe sexual preferences
and political and religious values. Tower 8-2-91 page 12 Standards are unclear here, and they
are rapidly changing. Until recently, for instance, the right to smoke on the job was generally
recognized, and non-smokers had to accommodate themselves as best they could. Now the reverse
is the case. Employees have won compensation awards from employers for injuries to health
caused by being forced to work in smoke-filled rooms. Many companies now heavily restrict
smoking, with most of these policies being introduced over the last few years. Some localities
now require employers to offer a smoke-free workplace for those employees who request one. A
few employers go further: they forbid employees smoking (or even drinking) off the job on the
grounds that this increases health costs. The Occupational Safety and Health Administration has
been asked to declare tobacco smoke a work-place hazard. Counterattacking, smokers and
tobacco companies have lobbied for laws establishing a "smokers' bills of rights" which prohibit
discrimination against smokers. Emotions over such issues run high. All of them invite the
legislature to set general standards, although neither management nor civil libertarians may be
happy with the results. Clearly management has less freedom in these areas than it had a few
years ago. Further its freedom is likely to decline even more.

Due process
Formal due process procedures to protect job rights are becoming increasingly common. There
is growing use of ombudsmen, formal grievance and appeals procedures, and even binding
arbitration in nonunion (particularly high commitment) companies. Along with this employees
are having easier access to the courts. There are three developments here. First, judicial decisions
are rapidly eroding the traditional common law view that employment is "at will" and can be
terminated for any reason -- or none. Secondly, unless a company is careful in how it fires an
employee, it may be subject to defamation or libel suits. Thirdly, when an employer discharges a
woman, a member of an ethnic minority, or an older worker, it may be subject to a discrimination
suit. While courts are unlikely to defer entirely to the company's internal adjudication process,
the existence of such a process may constitute a defence against charges of procedural, if not
substantive, unfairness. Thus US workers are gradually gaining the protections provided British
workers under the industrial tribunal scheme, the main differences being that the grounds
according to which American workers can appeal are somewhat different than they are in Britain
and the damages awarded a successful complainant can be considerably more liberal.
Compensation.
There is a growing dissatisfaction with traditional compensation practices, which for U.S. blue-
collar workers, are typically based on job classifications and seniority, adjusted by cost-of-living
changes. It is argued that this system is inflexible, especially in bad times, rewards longevity
rather than performance, and discourages teamwork and job-switching. As a consequence there
is considerable experimentation with alternative compensation schemes, most of which place a
considerable part of the employee's Tower 8-2-91 page 13 earnings "at risk." Among others
the most common new approaches are the following: ...the abandonment of individual piece-
work for gainsharing programs based on departmental, plant, or organization-wide
performance; ...profit sharing and Employee Stock Ownership Plans (ESOPS); ...basing
individual managers' pay on the contribution which they (or the unit under their direction)
make to overall organizational performance; ...greater use of one-time awards and bonuses
which provide recognition for meeting specific goals but which don't enter into base pay
(lump sum bonuses have taken the place of wage increases in many recent labormanagement
contracts) ; ...and finally, for blue collar workers, pay for knowledge, that is pay based on
the number of skills one has learned rather than the particular job classification one is in.
Each of these approaches has its problems and limitations. Some, such as ESOPs, have been
introduced primarily for their tax reasons. Others represent symbolic quid pro QUOS given
in return for blue-collar pay cuts. Attempts to extend top-management bonus systems to lower
levels of management have frequently caused much dissatisfaction. Often, it is alleged, these
programs have been introyced inequitably. There has been growing criticism of the excessive
compensation paid to top managers of unprofitable companies. In numerous instances rank-
and-file workers have been asked to do without pay increases while top management has
given itself outrageous bonuses. There are abuses. Nevertheless, taken as a whole these new
approaches to compensation seek to reward teamwork and performance and to provide the
employer a more flexible wage bill, one which is responsive to fluctuations in the business
cycle. Profit-sharing, ESOP, various bonus and gainsharing systems, all shift some of the risk
of employment back from the company to the worker, and for this reason often meet union
and worker resistance. Still, by emphasizing the fact that company and worker somehow
share a common fate, they remain consistent with the high commitment philosophy. On the
up side, they reward participative efforts.
Fringe benefit
The costs of fringe benefits — forms of compensation other than pay and bonuses -- are
increasing faster in the U.S. than are wages. Understandably they lead to considerable
controversy. Although vacations are shorter in the US and holidays less frequent than in many
European countries, the total cost of fringes is great because pension (superannuation) and
health costs are privately financed to a greater degree than in Europe, . The U. S. has nothing
like the British National Health Scheme. Taxsupported "social security" pays part of the
medical costs for the very poor and those 65 and over. The bulk of the population, however,
relies on employerfinanced health insurance which many small employers don't offer. The
adequacy of this protection varies widely and some 37 million Americans are not covered by
Tower 8-2-91 page 14 any scheme, public or private. These are usually low income people
to begin with. Once taken ill, they can quickly exhaust their meager savings, leaving them
dependent on charity. Another problem: health costs have increased dramatically. Today they
consume 12% of GDP in the U. S., compared with 6% in the U. K. and 9% in France. Some
of the causes for high costs are common throughout the world: an aging population and an
increasingly expensive medical technology (a liver transplant can cost over $100,000). But
one source of expense in uniquely American, the increasing cost of malpractice suits filed
against hospitals and doctors whenever an apparent mistake is made. Not only is malpractice
insurance terribly expensive (typically tens of thousands of dollars per doctor per year), but
to prevent suits, doctors engage in "defensive medicine," for instance, they order an excess
number of expensive tests. Adding further to the costs, neither doctors nor patients have much
incentive to keep costs down. Expenses are too easily passed on to either the employers or
insurance funds. Becoming alarmed at these skyrocketing costs, unions and management,
have experimented with a variety of cost-containment measures. For example, "second
opinions' may be required before non-urgent operations are undertaken, medical bills may be
more closely monitored, or patients may be fully reimbursed only if they use the services of
approved physicians and hospital who have agreed in advance to limit their charges. These
measures have been only modestly successful in controlling expenses. Though the cost of
direct medical service is reduced, that of administration is increased. As the population ages,
pension costs will also increase. The problem is lessened for the moment because pension
funds are heavily invested in stocks, and in recent years stock prices have increased faster
than pension costs, thus providing a financial buffer. This windfall is unlikely to continue for
long. Other problems: some employers have undercontributed to their funds, others have
"recaptured" allegedly excessive contributions, and still others have inappropriately invested
them or have used these funds in struggles for corporate control. Over time, both pensions
and health care benefits will consume an increasing portion of both GNP and total
compensation. As resources get tighter, tensions may increase. Already we see some conflict
between childless people and those with large families, and between younger people who
want income now and older people who want improved pensions. Additional problems
derive from the fact that our current fringe benefit systems were developed to meet the needs
of a traditional family with a working husband and a nonworking wife who assumes childcare
functions. Problems arise when both spouses work and the family acquires children.
Immediately, there is a demand that the employer provide childcare (one of the most difficult
HR issues today). Beyond this, sick leave which initially covered only the wife's period of
confinement (if that) has been frequently extended to include the first few weeks in which
the new baby is home. But children are frequently ill and many employers now allow
employees to use sick-leave time to take care of their ailing offspring. And if it can be used
for sick children, how about for dependent, elderly parents? Or a sick spouse, or "significant
other?" As time goes by the Tower 8-2-91 page 15 distinction between vacations and sick leave
may decline. Eventually it may be eliminated. All this points toward the greater use of "cafeteria
plans" in which employees are given a choice as to the fringes they use. The range of possible benefits
will increase but a reasonably firm cap will be placed on their total cost. The employers will pass
the buck to the employee to make the difficult choice among the many benefits available. But this
will do little to resolve another issue: the widening differences between core employees and the
remainder of the population in terms of the benefits, especially retirement and health benefits, enjoyed
by the two groups. The only reasonable solution is for fewer benefits to be provided privately and
more by the state, either directly or through legally established minimum standards.
Conclusion
To the extent a single theme runs through recent developments, it is that of increasing public
regulation of the HR function. There was a time in the U. S. when employers were almost entirely
unregulated, either by unions or by the government. Employees were looked upon as commodities.
The employer had no obligation toward them except to pay their regular wages. The financial burden
of life's risks — illness, unemployment, old age, death -- were borne exclusively by the employee.
The employee's only right was to quit, a right more than counterbalanced by the employer's right to
discharge the employee at will. Unions arose to redress this balance. Unions gave workers a series
of rights, defended by the grievance procedure. Strong unions also won a comprehensive stream of
benefits for their members. These shifted the risks to the employer. Though unions have now been
greatly weakened, the reforms they introduced have been widely adopted, particularly by large,
"progressive" companies. Indeed these reforms play a major part in the HR policies of high
commitment organizations. But voluntary adherence is not enough. Relieved of the union threats,
many companies became as arbitrary as old. Further, unions had given relatively low priority to the
grievances of women, minorities, and the handicapped. In the face of public pressures Congress and
the courts have gradually begun fashioning new rights and regulations. For some companies, these
did little more than formalize what they already felt to be good HR policies. For others, adjustment
has proved difficult, but rarely impossible. This general trend toward greater formalization and
regulation is occurring simultaneously with a somewhat weaker trend toward participative
management and high commitment policies. Both trends strengthen the HR function.

Human resource management, industrial relations and the German

business system
Turning from the academic debate to empirical evidence, we will illustrate the interplay of human resource
management, industrial relations and the legal system which is so important to understand the status quo of
human resource management in Germany. We will first shortly describe the key labour market institutions.
Then, we will summarize the results of empirical studies on HR practices in Germany. We will turn to the
specific question of how foreign MNCs deal with the German institutional environment. Finally, we will
provide an outlook for the German HRM debate.

Key labour market institutions

There are three German labour market institutions that had and still have a strong impact on human resource
management: collective bargaining, co-determination, and initial vocational training (Müller 1999 a/b).
Collective bargaining
In most industries, terms of individual employment, such as salaries or working hours, are framed by a general
contract between trade unions and employer associations or employers. These collective bargaining
agreements are negotiated for the respective industry on a regional level. It is important to note that companies
are not forced to be members of the employers association and thus to accept the collective bargaining
agreements. Nevertheless, about two thirds of the German workforce were covered by collective bargaining
by 2001 (Schmidt/Röbenack/Hinke 2003). As a consequence, there used to be a high degree of
standardization in conditions of employment within industries. However, in the context of recent national
and international economic developments (e.g., reunification, global competition), employers have argued that
regulations of collective bargaining are too inflexible and do not take into account specific economic
conditions of individual companies. Two different developments can be found as a consequence. On the one
hand, companies either leave the employers association entirely or spin-off autonomous parts which are no
longer covered by industry- wide collective bargaining. On the other hand, trade unions and employers
association agree on more company-specific flexibility allowing companies to deviate from standard
bargaining conditions in certain economic and competitive constellations 68 A. Giardini, R. Kabst, M. Müller-
Camen: HRM in the German Business System (see also Singe/Croucher, this issue). Thus, the influence of
collective bargaining on HR decisions, while still strong, seems to be decreasing.

Co-determination
Co-determination is probably the most influential labour market institution as far as HR issues are concerned.
The basic idea of the German co-determination model is to let employees participate in management’s
decision-making processes. This participation is indirect, that is, it functions through employee representatives
and formalized bodies of co-determination, backed by an extensive legislation that grants a broad range of
rights with regard to information and determination (Works Constitution Acts of 1952/1976 at the board
level and Works Constitution Acts of 1972 at the plant level; for a more detailed description see Lane 1989;
Jacobi/Keller/Müller- Jentsch 1998). Basically, there are two main institutions of co-determination:
codetermination at the board level and co-determination at the plant level in the form of works councils and.
With respect to co-determination at the board level, German law requires joint stock (AGs) and limited liability
companies (GmbHs) with more than 500 employees to set up a supervisory board with both employee and
shareholder representatives. Although usually the shareholder side has a majority within the board there is at
least an informal influence for the employees’ side. Historically, the German system of industrial relations was
famous for board level co-determination, however, during the last two decades co-determination at the
workplace has become more and more important. Works councils can be set up in companies with five or
more employees, if the employees wish to do so. This opportunity is taken up by the vast majority of German
companies (Bertelsmann Foundation/Hans- Böckler Foundation 1998; Weber/Kabst 2000). The employee
representatives who constitute the works council have to be elected by the employees. The works council has
extensive rights with regard to HR issues. As we will see in more detail, many HR policies cannot be
implemented without the consent of the works council. Traditionally, strong ties exist between the works
council and the trade union of the respective industry, as many employee representatives are also member of
a trade union. However, to say that work councils’ influence in a company equals trade unions’ influence
would be an improper (but also quite common) oversimplification.

Initial vocational training

After regular school education, young people have the opportunity to enter a system of initial vocational
training or apprenticeship. It is sometimes called the “dual educational system” because it combines both on-
the-job training in companies and stateregulated vocational and general training in specific schools. It covers
a wide range of clerical, technical, and craft professions. Completion of the training takes between two and
three years, depending on the profession and previous education. This system of apprenticeship is jointly
governed and regulated by professional organisations (e.g. chamber of commerce or chamber of handicrafts),
by employer associations, and by the unions. As with the previous two labour market institutions, compliance
with the initial vocational training system is not mandatory even though – in the face of generally decreasing
willingness of companies to participate – there have recently been atmanagement revue, vol 16, issue 1, 2005 69
tempts by politicians to introduce legal sanctions if not all school leavers get the offer to do a vocational
training.

Reception of the HRM philosophy in companies operating in Germany

Against the background of this specific institutional environment, how has the HRM philosophy been adopted
in Germany? For years, a rather negative picture has been drawn. Lawrence (1991) provided one of the most
frequently cited accounts of HR practices in Germany. Based on case studies of twelve companies in West-
Berlin he concluded that German labour market institutions have a restrictive impact on the management of
personnel within companies. More specifically, he argued that through collective bargaining managers have
lost their direct influence on pay negotiations, that works councils condition their activities in such a way that
they become reactive rather than pro-active, and that the necessity of initial vocational training leads to an
overemphasis on training issues. Similarly, Wever (1995) emphasized that the German business system is
highly institutionalized. She observed some severe disadvantages of what she called a “negotiated approach”
to HR issues in German companies. This approach is characterised, for example, by slow change, high
bureaucratization and reduced initiative. Thus, the institutional environment has been perceived as
predominantly negative for the implementation of HRM. However, recent studies paint a more complex
picture of how HRM principles are being translated into practice in Germany. Based on the (still limited)
empirical evidence, we will now review the application of HRM practices along the central topics of HR, that
is, selection, training, appraisal, compensation, communication, and employment stability. We are well aware
of some differences between economic sectors and between East and West Germany with respect to HR
issues but since our intention is to draw an overall picture, we will not go into too much detail.

Selection.
A key element of the HRM philosophy is the careful selection of the workforce. This includes the use of
formal or standardized selection methods (e.g., structured interviews, formal tests, assessment centers). The
most common way of selecting applicants in Germany is a multi-step procedure that consists of an initial
screening of the application papers (e.g., curriculum vitae, school and academic records, references). In the
next phase promising candidates are interviewed at least once, in most cases by an HR expert and a supervisor
for the position to be filled. The interview itself is predominantly unstructured or semi-structured. Formal
tests are rarely used. Assessment centres are applied mostly for the selection of management trainees. Also,
German companies generally refrain from the use of formal written tests, such as IQ tests or personality
questionnaires (Dietz et al. 2004; Schuler/Frier/ Kauffmann 2000; Weber/Kabst 2000). Written assessment
tests (for basic competences such as writing and arithmetic) are only used for the selection of applicants that
come directly from school. This tradition of relative reluctance to use formal selection methods may reflect
the influence of two of the three mentioned labour market institutions. First, many applicants have undergone
the initial (or further) vocational training. During these rather standardised qualifications the employer gets a
relatively good picture of the employee’s potential. Thus, in-depth exploration of the applicants abili70 A.
Giardini, R. Kabst, M. Müller-Camen: HRM in the German Business System ties seems not to be as important (Müller
1999b). Second, co-determination allows works councils to refuse the use of selection instruments. In our
experience, there is a something like a tradition of works councils rejecting standardised systems of appraisal,
as in their opinion they often involve unfair procedures and are subject to many biases. Thus, the validity of
written tests is questioned and, as a consequence, not in widespread use. In sum, the HRM prescription of
careful selection is only followed for the selection of some groups of applicants.
Training.
A highly qualified workforce is also considered a central goal of HRM. This can be achieved with a large
investment in training, which may also support the goal of functional flexibility (Friedrich et al. 1998). In the
German system there are three general types of training. First, as noted above, initial vocational training is a
highly regulated and, within the respective profession, standardised form of training. Apprentices are trained
on-the-job in their “home” company, as well as of-the-job in specific vocational schools. Upon completion
of the two to three years of training the relationship between the company and the apprentices officially ends.
However, there is a good chance that companies hire the former apprentices as regular employees, because
they have acquired company-specific knowledge as well as general competencies in their profession. Second,
there is a nationwide standardised system of further vocational training. Here, technical as well as management-
related topics are covered. In some industries, certain certificates are officially required to obtain supervisory
positions, for example, the “Certified Foreperson” (Industriemeister) and the “Artisan Foreperson”
(Handwerksmeister). However, in most cases the companies’ investment in this type of further qualification
is limited. Course fees are often only partly refunded and there is only a limited release from work duties.
Third, there is company-specific training on both technical and non-technical issues, such as software, safety,
foreign languages, etc. Practically all large companies also offer specific courses for management. It is worth
noting, that by law, employees in Germany are entitled to utilise a certain number of workdays for qualification,
although this privilege is not used widely. In general, labour market institutions in Germany limit organisational
autonomy on qualification issues to a large extent. For example, companies have only an indirect influence
on the curriculum for initial and further vocational training, at least with regard to the off-the-job components.
There is also some pressure from unions and politics to fulfil a certain quota of apprentices relative to the
overall number of employees. Moreover, works councils have rights regarding the implementation and change
of training courses and have a say in which employees have access to courses, even though these rights are
not used extensively (Müller 1999b). However, while organisational autonomy on training content is reduced,
it is safe to say that German labour market institutions in general strengthen the provision of training.
Employee representatives have a strong interest in highly qualified employees because qualifications are seen
as strong arguments for increasing salaries or against company attempts to reduce workforce. Even the
standardisation of initial vocational training has advantages for the company because a company knows more
or less exactly what skills are to expect from an applicant who has completed initial vocational training for a
certain profession. management revue, vol 16, issue 1, 2005 71 In sum, the relatively high degree of
standardization and regulation in the German economic system is reflected in the form of the training
system(s). However, in line with the HRM philosophy, labour market institutions ascribe training and
qualification a high importance.

Appraisal.
The existence of performance appraisal systems in companies operating in Germany varies significantly
between industries and employee types (Müller 1999b; Weber/Kabst 2000). For example, a high percentage
of companies in the field of financial services and chemical firms have such a system, while in the health
system the rate is rather low. Moreover, often only management is covered by the appraisal system. This is,
at least in part, a consequence of the extensive rights of works councils on both the implementation and the
content of the system. There is a tendency of employee representatives to reject formal appraisal systems,
because these instruments are seen as means to put more pressure on employees, especially when the appraisal
is linked to compensation.4 As a consequence, mostly employees on higher organisational ranks are affected
by these systems. These employees (called “exempts”) do not fall under collective bargaining agreements
because their salary is significantly higher, and works councils have only limited influence on their working
conditions. Thus, in the case of employee appraisal, co-determination is a strong restricting factor, but only
with regard to lower organisational ranks.
Compensation.
The HRM philosophy prescribes both adequate basic compensation and performance-related pay. As above,
to understand the German compensation system one has to distinguish “regular” or tariff employees and
exempts. Collective bargaining ensures a relatively high minimum wage for tariff employees. Variable pay
accounts only for a small part of the overall salary. Often, bonuses are fixed, and thus have lost their character
as a motivational instrument. Other bonuses are distributed collectively on a monthly or annual basis.
However, over recent years there has been a strengthening of the weight of individual performance (Weber/
Kabst 2000). Unions have realized the increasing importance of a more individualized pay, which reflects both
perceived economic necessity and the more individualistic orientation of employees. Thus, in some industries,
employee associations and unions have started to jointly develop models for linking performance appraisal
systems and compensation (e.g., Huber/Schild 2004). However, at the level of works councils and employee
representatives, there is still a strong resistance against what is perceived as converting collective compensation
into an individualized system, which may lead both to decreasing solidarity between employees and decreasing
wages. Compensation for exempts (see above) is more strongly based on developments in the labour market,
company policies, and individual negotiation. Variable and performance- related pay plays a more important
role, especially with increasing hierarchical level, although compared to other countries its weight is still small,
partly as works councils have some influence on compensation decisions that concern low-level exempts. 4
For a more differentiated discussion in respect to profit sharing and employee share ownership see
Kabst/Matiaske/Schmelter (in press). 72 A. Giardini, R. Kabst, M. Müller-Camen: HRM in the German Business System
In sum, when considering the importance of German labour market institutions on compensation decisions
a sharp line needs to be drawn between tariff employees and exempts. For the first group, collective bargaining
provides a stable frame for individual compensation that strongly reduces managerial autonomy with regard
to tariff wages. Everything “on top” is to some extent a result of negotiations between the company and the
works council. As a general tendency, it can be said, that agreements in collective bargaining have become
somewhat more flexible in recent years. For example, in some industries and under specific conditions
companies are allowed to pay wages below the minimum level for new employees. Unions support
implementation of more variable and/or individualized pay components to some extent, while works councils
are more critical about this development. For exempts there is only a very limited influence of market labour
institutions. For this group of employees performance- related individual pay becomes increasingly important.5
Communication.
Frequent employee communication is an important part of the HRM philosophy, because it is believed to
instil higher organisational commitment in the workforce. Three types of communication can be distinguished:
top down (company to employee), bottom up (employee to company), and two-way (interactive). With regard
to top down communication, most companies have some sort of mission statement. Moreover, in medium-
sized and large-sized companies management guidelines can also be found. These guidelines prescribe the
characteristics of the leadership philosophy, which normally is a cooperative or participative leadership style.
In-house journals, which contain all sorts of company-related information, can be found in most of the large
companies. With regard to bottom up communication, standardised attitude surveys have become increasingly
important. Forms of two-way communication (e.g., workshops) are sometimes used after these surveys, when
results and possible consequences are discussed on the level of departments or work groups. As a general
tendency, direct communication, either in the form of meetings or electronic has increased (Weber/Kabst,
1999). Works councils play a crucial role in employee communication. Works councils often consider
themselves to be the distributing centre between management and employee. Co-determination law largely
backs this. Management is required to share relevant economic information with works councils. Also, the
previously outlined rights of the works council lead to a constant exchange between management on all levels
and the works council (Müller 1999b). With regard to top down and two-way communication, the works
council is entitled to hold regular meetings that all employees can attend during their regular work hours. This
is not necessarily a nuisance to top management. In some companies management regard these meetings as a
main vehicle for distributing information. Works councils are important also for bottom up 5 Describing the
general point of view, significant exceptions exist. Industries faced with strong external pressure from European
neighbouring countries in respect to wages (e.g. construction) have an interest in extension of sectoral collective
bargaining. Another exception concerns so called “Öffnungsklauseln”, that is, exemptions from collective bargaining
standards in respect to working hours or wage adaptations in industries like metal or chemistry that are, however,
surprisingly rarely used (Schlese/Schramm 2004). management revue, vol 16, issue 1, 2005 73 communication, because
attitude surveys need to be approved by the works council. Also, employees often communicate with line or
top management via employee representatives, although – comparing Cranfield survey data from 1992 and
2000, this medium seems to have lost some importance (Gaugler/Wiltz 1993; Weber/Kabst 2000).

Employment stability.
Employment stability is another means prescribed by the HRM philosophy to instil commitment to the
company (Wood/Albanese 1995). The existence of an internal job market and the preference for internal
promotion are two related antecedents of employment stability. Both policies seem to be relatively widespread
in German countries (see e.g., Müller 1999b). Indirect evidence comes from the 2000 Cranfield survey, which
reported very low fluctuation rates for Germany (Germany West: 5.7%, Germany East: 3.8%; for comparison,
UK: 14.0%). Another indicator for a concern for employment stability of companies operating in Germany
is the widespread policy of avoiding compulsory redundancy when workforce has to be reduced. Indeed, 2000
Cranfield survey data indicates that the most important strategy to reduce workforce in Germany is to not
extend fixed-term contracts, followed by early retirement in West Germany and dismissals in East Germany
(which may reflect the still very tense economic situation in this area). Thus, in large companies reducing
employee numbers is a matter of years rather than months. Co-determination is somewhat important for
employment stability. Works councils can demand that internal applicants should be preferred when vacant
positions have to be filled. As was pointed out above, works councils have a say in the selection of personnel.
With regard to workforce reduction, in general co-determination and other laws make it difficult to lay people
off. Companies have to attend to very formal procedures, which, for example, require that works councils
have to be informed well in advance about dismissals and their reasons. They can veto dismissals and
sometimes play a supporting and active role when employees take legal actions against their dismissal. In the
case of mass layoffs the works council participates in developing strategies to reduce undue hardship for
employees. In sum, co-determination fosters employment stability to some extent, either in accordance with
company policy (e.g., internal promotion) or as a means of protecting employees against undue dismissals.
Overall conclusion.
Our analysis of how HRM principles have been implemented in German companies shows two things. First,
labour market institutions restrain managerial autonomy on human resource issues to a large extent. Second,
however, this does not mean, that in general these principles are rejected. Instead, it can be argued that some
principles (e.g., with regard to training or communication) are strongly supported by these institutions. Even
more, the high priority of these principles has crystallized in formal structures – and this occurred before, and
thus independent of, the German HRM discussion that began in the 1980’s. Undoubtedly, the implementation
of other HRM principles and practices (most importantly appraisal and performancerelated pay) is inhibited
by labour market institutions. However, this resistance seems to wane and to give way to more innovative
solutions. 74 A. Giardini, R. Kabst, M. Müller-Camen: HRM in the German Business System

The lack of strategic integration of HRM in Germany – a myth?

The HR function in Germany is predominantly thought of as less strategically integrated than in other
countries (e.g., Begin 1997; Sparrow/Hiltrop 1997). Traditionally, three indicators have been used to analyse
the extent of strategic integration of the HR function in empirical studies: The HR director is present on the
executive board, the HR function is involved early in the planning process of the business strategies, and
there is a written HR strategy (Wächter/Müller-Camen 2002). However, Wächter and Müller-Camen (2002)
argue that this result may be based on an inappropriate conceptualisation of Strategic HRM as well as on a
neglect of the particularities of the German institutional environment (see also Brewster et al. 1997). Instead
they argue that the integration of HR and business strategy is not necessarily associated with the HR function
but rather with other institutional actors. With regard to the first indicator, the presence of the HR director
on the executive board of the company, Wächter and Müller-Camen (2002) see two problems. First, executive
boards of German companies with up to two thousand employees are small and generally not very specialised,
thus reducing the sheer probability of HR directors being on the board. Second, according to co-determination
law, companies with more than two thousand employees have to appoint a “labour director”, who is
responsible for HR issues. However, in most cases the labour director is not the head of the HR department
because he or she is often responsible for other issues, as well. Considering the second indicator, the
involvement of the HR department in the development of the business strategy, the authors argue that the
indicator itself is flawed. It is not enough to look at whether the HR function participates or not. Instead,
one should analyse how HR issues, in general, are considered. Co-determination law provides several paths
through which HR issues find their way into business strategy. In large companies, employee representatives
as well as union officials are part of the supervisory board of a company, to which the executive board has to
report. Moreover, because the works council has a say in issues related to personnel policies, companies that
want to implement new HR practices as part of a new corporate strategy are advised to discuss these strategies
well in advance. Once an agreement is reached, the process of implementation will be less plagued with
resistance. Finally, works councils, at least in large companies, are run quite professionally, with full-time
employee representatives and supportive staff. Thus, as Wächter and Müller-Camen (2002) argue, it is not
unusual that works councils actively demand strategic changes and put pressure on top management. The
validity of the third indicator, that is, the existence of a written HR strategy, is somewhat questionable in the
German context. This is also related to codetermination rights. Wächter and Müller-Camen (2002) argue that
because of the continuing need for negotiation typical procedures, modi operandi and, thus, a common
(although not conflict-free) understanding of strategic issues have developed which are a functional equivalent
to written HR strategies. To sum up, Wächter and Müller-Camen’s (2002) analysis challenges the mainstream
conceptualisation of Strategic HRM. When operationalised in the traditional way, HR strategy in Germany is
indeed not well integrated into the corporate strategy management revue, vol 16, issue 1, 2005 75 – if it exists at
all. However, this conclusion is also a product of the sometimes onesided focus on the HR function. The
German approach to Strategic HRM cannot be understood without considering the specific role that co-
determination plays. Or as Brewster et al. (1997: 19) suggested, “in the German case the integration of HR
issues through the collective cultural consciousness and in legislation may be a more important influence on
corporate strategy than the direct integration of HRM through the personnel department.”

The human resource management of foreign owned companies in Germany

So far we have mainly described the interplay of HRM philosophy and labour market institutions from the
perspective of indigenous companies. However, one can argue that this perspective may overemphasize the
role of these institutions, because German companies have operated within this institutional framework for
decades. Thus, they have adapted to the status quo without trying to challenge real or perceived constraints
of the system. Therefore, describing the way foreign multinational companies (MNCs) in Germany act
within this system is a necessary and valuable supplement to what we have said so far. More specifically,
strong “country-of-origin effects” in subsidiaries, that is, the relatively unlimited transfer of home-based
industrial relations and HR practices, would challenge the notion of Germany as an objectively restrictive
business system. There seems to be an increasing interest in HR policies of foreign MNCs in Germany as
it is demonstrated by some recent empirical studies (Ferner/Varul 1999; 2000;
Gooderham/Nordhaug/Ringdal 2004; Müller 1998, 1999a; Royle 1998; Schmitt/Sadowski 2003; Wächter et
al. 2003; see also Singe/Croucher 2005, this issue). Most of these studies deal with the practices of US or
UK MNCs, which seems plausible given the significant differences between the German and the Anglo-
Saxon business systems. We want to briefly review the main findings with regard to industrial relations and
HR practices. There is mixed evidence on the compliance of UK and US MNCs with collective bargaining.
Based on 13 case studies of UK and US MNCs, Müller (1998, 1999a) reported country-of-origin effects with
regard to collective bargaining. That is, five of the subsidiaries rejected collective bargaining and settled for
local solutions. Similar results reported Wächter et al. (2003), in their study of ten US MNCs. Some of the
studied subsidiaries complied with collective bargaining agreements, but nevertheless had a policy of
“keeping the union out of the company”. In part, the authors suggested, this strategy has to do with keeping
up a “non-union” image in the eyes of the parent country. However, in their comparative survey of 165
UK/US subsidiaries and 132 German firms, Schmitt and Sadowski (2003) found that about 69 percent of
the subsidiaries were covered by collective bargaining, a percentage rate even slightly higher than in the
German sample. Thus, the evidence on compliance with collective bargaining is somewhat ambiguous.
Nonetheless, studies seem to suggest that more subtle forms of resistance seem to be more common than
outright avoidance. Results on employee compensation, which is obviously connected with collective
bargaining, point to a home country-effect. Schmitt and Sadowski (2003) found in 76 A. Giardini, R. Kabst, M.
Müller-Camen: HRM in the German Business System their study that about 56 percent of the employees of
UK/US subsidiaries but only 35 percent of the German employees received some from of variable pay.
Müller (1999b) observed that the subsidiaries that rejected collective bargaining also tended to pay more
performance related incentives. With regard to compliance with co-determination Schmitt and Sadowski
(2003) reported that an astonishing 86 percent of the surveyed UK/US subsidiaries had a works council,
while this was the case only for 70 percent of the German sample. They termed this an “overshooting” host-
country effect. They hypothesized that the subsidiaries seek to give the impression of being “good corporate
citizens” (Schmitt/ Sadowski 2003: 420). Moreover, they reported additional survey data that showed that
the subsidiaries regard the works council as an important channel for communication between management
and employees. Wächter et al. (2003) also observed a high agreement with co-determination, while the case
study evidence from Müller (1999b), who found that 6 of 13 UK/US MNCs did not or only partly complied
with codetermination, somewhat deviates from this general picture. Wächter et al. (2003) provide some
interesting insights on the handling of work councils in US subsidiaries. They found that the studied
subsidiaries were quite active and innovative in their relationship with the works council. They used the
flexibility which is inherent (but not always recognized) in co-determination law. By keeping the trade
unions out of the companies, the works councils function as part of management, for example, supporting
it in issues of organisational change. There are also examples, however, of MNCs that instead of dealing
innovatively with co-determination try to avoid it (Royle 1998; Wever 1995). Based on a case study of
McDonalds, Royle (1998) developed a typology of strategies that companies can use to avoid or at least
weaken works councils. Except for illegal measures, such as harassment and threatening behaviour, all
strategies are well within legislation, but they make use of loopholes or simply take advantage of the
flexibility of the codetermination law. Strategies that point at avoiding the establishment of a works council
are, for example, to transfer corporate units into different ‘ownership’, or using a marginalised or transitory
workforce with less willingness to establish a works council or to simply close a unit and rebuild it with a
different workforce. Strategies to weaken the influence of works councils are, for example, to buy-out
employee representatives to let works councils collapse or to nominate “company-minded” employees for
works council elections. On the issue of initial vocational training there seems to be a more pronounced
country-of-origin effect. In Schmitt and Sadowski’s (2003) study about 75 percent of UK/US subsidiaries
participated in the vocational training system, while in the German sample about 88 percent of the
companies did. Moreover, the rate of apprentices relative to the whole workforce is 2.6 for the subsidiaries
and 5.3 for the German sample. Instead, UK/US subsidiaries seem to rely more strongly on on-the-job
training, the preferred form of training in the home country (see also Müller 1998). In general, whether
country-of-origin effects or host-country effects in UK/US subsidiaries can be found seems to be
dependent on the attribute at which one looks. Works councils have obviously been accepted as integral
parts of the German economic system. Some subsidiaries have found innovative ways to integrate it into the
management revue, vol 16, issue 1, 2005 77 companies’ strategy of internal communication. The results for
collective bargaining are mixed, although it seems that the system leaves enough leeway for UK/US MNC’s
to implement variable pay schemes. For initial vocational training the impact of the home country seems to
be stronger. The differences between these characteristics may, as Schmitt and Sadowski (2003) argue, have
to do with their visibility. Rejecting the establishment of a works council may evoke considerable public
attention (for an example see Royle 1998), while this is less so with regard to the preference for
performance- related pay. In sum it appears that the German business system is not as restrictive as it is
often suggested. As Wächter et al. (2003: 105-106) put it: “Potential investors tend to regard the German
system as being very strongly regulated. They focus particularly on hard factors such as indirect labour costs
and often fail to recognise the scope for flexibility which the German system does offer… Companies which
have invested successfully in the German business system have learnt how to challenge and use
institutional restrictions in order to be locally responsive to the rigidities of the system at the same time as
being able to implement standardised HRM strategies. Such companies place significant demands on the
German system with the result that their German subsidiaries are successful and productive.”

Emerging Trends of HRM Practices in Bangladesh

Though HRM in Bangladesh still resembles traditional personnel management practices, in recent years,
researchers have identified changes that indicate progress in terms of strategic HRM practices (Absar et
al., 2014; Khan, 2013). First, the role and importance of HRM is increasing in organizations in
Bangladesh. Many large organizations have already established separate HRM departments and hired
professional HRM personnel with relevant education, knowledge and experience. A few organizations
have even upgraded the status of HRM managers and incorporated the head of the HRM department on
the corporate board. The development of professionalism and the establishment of professional
associations and organizations may have prompted this elevation of HRM roles, because it has changed
the attitude and perception of business communities towards the importance of HRM practices (Absar,
2014). The government, with help from the World Bank, established the Bangladesh Institute of
Management, which offers specialized degrees and diplomas in HRM and related areas. Most public and
private universities in Bangladesh now also offer Bachelor of Business Administration (BBA) and Master
of Business Administration (MBA) degrees, with specialization in HRM. In addition to the educational
institutions, two professional associations, namely, the Institute of Personnel Management (IPM) and the
Bangladesh Society for Human Resource Management (BSHRM), have been formed by recognized HRM
specialists to promote the HRM profession and development of HRM practices in Bangladesh. The
BSHRM is organizing annual HR conferences on regular basis and working to develop professionalism
among the HRM managers of the country (Absar, 2014). The contribution of BSHRM is widely
recognized by the global HR community, and it has granted membership of Asia Pacific Federation of
Human Resources Management (APFHRM) and the World Federation of People Management Association
(WFPMA). Therefore, further developments in terms of HRM practices and recognition HRM professions
are expected in near future. Second, shifts in recruitment and selection practices are also visible in
Bangladesh (Absar, 2011; Mia & Hossain, 2014). Private sector organizations are beginning to emphasize
competency-based approaches in their recruitment and selection practices. Organizations are moving away
from the traditional view of educational qualifications and experience to one focused more on individual
achievements and work-related competencies. Employers are changing their focus from “what” to “how”
to use qualifications and knowledge criteria. In the context of huge levels of unemployment, where
sometimes more than 1000 applicants vie for a single position, educational achievement (i.e., grade point
average) is still used to reduce the number of applications to a manageable figure. However, because
competencies are assessed in a subjective manner, the manipulation of such criteria may still
Downloaded from hrm.sagepub.com by Mohan Thite on December 16, 2015 182 South Asian
Journal of Human Resources Management 2(2) occur. As the HRM profession gains momentum and
HRM managers become better equipped, the use of competency models appears to be more widespread.
The dissemination of competency-based practices from multinational corporations (MNC) and
international organizations is quite evident in different sectors (Absar, 2014; Chowdhury & Mahmood,
2012; Mahmood, 2014). Globalization has changed the landscape of modern workplaces, and
organizations are facing continuous automation and technological challenges in the changing nature of
their business. These technological changes have placed increased pressure on organizations to update
employees’ knowledge and skills in order to compete in the global arena. The pace of industrialization in
Bangladesh also has intensified the competition for talented employees among organizations. To cope
with the competition, organizations are now realizing the importance of investing in employee training
and development activities, and are establishing separate human resource development (HRD)
departments, including specialized professionals and experts. In some cases, the appointment of a Human
Capital Manager or Talent Development Manager indicates the increased presence of HRD activities in
Bangladesh (Absar et al., 2014). Attitudes towards employees are changing. Rather than considering
employees as a cost or negligible resources, employers are realizing the potential value of highly skilled
employees and are investing in employee training and development activities. Certainly, this shows a
bright future for HRD. The introduction of performance-related pay (PRP) is explicit in private sector
organizations, mainly in multinationals and leading local organizations in Bangladesh (Absar,
Nimalathasan & Mahmood, 2013). However, public sector organizations are still lagging behind in
implementing such practices because of legal complexities. Most public sector organizations still consider
seniority as the main criteria for pay and promotion. According to civil service employment regulations,
entry-level seniority needs to be maintained throughout the service period. Employees who receive a
minimum pass mark in the annual performance evaluation automatically qualify for a pre-specified annual
salary increment, as determined in the National Pay Scale. However, there is no scope to reward any
employee by more than this pre-specified increment, irrespective of their level of performance. In
contrast, private sector organizations, concerned about productivity and growth, are gradually moving to
PRP to improve productivity and employee motivation (Khan, 2013; Mia & Hossain, 2014). However, the
operation of PRP and the selection of criteria to assess performance seem to be contentious issues. For
example, the PRP system could have a negative effect on employees, who might not receive a pay raise
because of apparent inefficiency or incompetence. In recent years, private sector organizations have shifted
their attitude towards workers and trade unions. In several instances, employers have taken the initiative
to resolve industrial disputes, enabling unions and management to cooperate at the plant or sector level
and avoid government intervention. Employers and employees both view this as a welcome step, because
the earlier tripartite nature of the conflict resolution process seems to have been ineffective owing to
government involvement and ulterior political motives. The bipartite dispute resolution mechanism in
the garment and leather sector seems to be a good example of an effective Downloaded from
hrm.sagepub.com by Mohan Thite on December 16, 2015 Mahmood and Absar 183 industrial
relations process in the Bangladeshi context. The Bangladesh Garments Manufacturers and Exporters
Association (BGMEA) established a conciliationcum- arbitration committee, consisting of a chief
arbitrator and 18 members with equal representation from the BGMEA and the labour organizations in
the sector. In the leather sector, the Bangladesh Finished Leather, Leather Goods and Footwear Exporters’
Association executive committees and trade unions meet every two years to discuss workers’ and
employees’ grievances. Through mutual consultations and understanding, they have resolved many
disputes, reflecting amity between workers and employees. Other sectors are also moving towards more
congenial conflict resolution mechanisms, which is a positive sign for the future of industrial relations
(Absar et al., 2013; Hossain et al., 2012). As we mentioned earlier, lack of comprehensive studies on HRM
practices in Bangladesh make it difficult to discern overall scenarios, and therefore, we collected
information from many different sources. However, very recently (January 2014), as a rare initiative, the
Ernest and Young LLP and the Bangladesh Society for Human Resource Management (BSHRM) jointly
conducted a survey on HRM practices in Bangladesh with a sample of 1000 HRM managers from
different sectors of the economy.

The highlights of the survey are presented in the following (Box 1) which could help to illustrate a partial
scenario of HRM in Bangladesh.
• About 33 per cent of organizations used internal referral and word of mouth in the employee
recruitment process. Use of social media and mobile applications are very limited (i.e., less than
10 per cent) in the recruitment process. • Around 40 per cent of the organizations use formal
background or reference check in the selection process. • About one-third of the organizations
indicated outsourcing recruitment process sometimes in the past to recruitment managerial
employees. • More than 25 per cent of the organizations do not conduct training need analysis
and do not provide training to employees on regular basis. • Performance appraisals indicators
include mostly functional achievements rather than behavioural aspects of the jobs. However,
IT and telecommunications sectors are leading to introduce structured performance appraisal
system and employee training need identification process. • More than 55 per cent of the
organizations do not have any defined employee reward and recognition programme. However,
66 per cent organizations of first moving consumer goods, pharmaceuticals sectors and
telecommunications sectors reported to have short-term incentive programmes. • About 95 per
cent of the organizations do not provide long-term incentives to retain employees. • About 75
per cent of the organizations have structured mechanisms to deal with employee grievances. •
About 30 per cent of the organizations reported to have preventive mechanisms to avoid
employee conflicts.

Future Challenges of HRM Practices in Bangladesh

In Bangladesh, women’s participation in the formal labour market used to be nonexistent. However, this
scenario is changing fast with the rapid industrialization of the garment, electronics and other labour-
intensive industries. Bangladesh is now considered a supplier of products to MNCs in the garment,
electronics, pharmaceutical and other labour-intensive industries, and employers are blamed for labour
exploitation and unethical HRM practices. Bangladesh is far behind in terms of implementing equal
employment opportunities and inclusive employment practices (ILO, 2013). People with disabilities,
women and minority groups are still deprived of employment opportunities. HR managers are facing a big
challenge in adjusting to diversity management and inclusion issues, as these require changes in
employment policies, such as those dealing with working hours, health and safety measures, statutory
maternity leave, a work–life balance, childcare facilities and so on (Bowden, 2014). While as a signatory
of ILO conventions, there may be laws and regulations to deal with these emerging issues, implementing
these laws is a daunting task in a traditionally conservative male-dominated and hierarchical society.
Though Bangladesh is a country with abundant labour, employers still complain about a shortage of highly
skilled employees in many professions, as well as a lack of competent senior level employees. In the
absence of an integrated national education and HRD policy, educational institutes are producing
thousands of non-technical and non-vocational graduates every year. This creates a huge imbalance in the
labour market. Many highly educated graduates remain unemployed, on the one hand, while knowledge-
intensive industries face skill shortages on the other. In addition, in recent years, the free-market economy
has intensified competition in different industries, and companies now face stiff competition in acquiring
and retaining talented employees. Previously, with limited options in terms of employment opportunities,
job security and senioritybased pay and promotion were used to motivate employees. However, the
expectations of the new generation are quite different to those of earlier generations, and traditional
methods of motivating employees are no longer effective in the new labour market. As a result, HR
managers are struggling to attract and retain the talent required by organizations. The legal context of
Bangladesh is viewed by some as a barrier to introducing the latest HRM practices. For example,
organizations cannot initiate any restructuring or retrenchment without the approval of trade unions. Most
public sector organizations are overstaffed and incurring huge operating losses every year. However,
trade union leaders seldom support any kind of restructuring, as this could lead to job losses for the union
members. Similarly, organizations need to use flexible employment practices to adjust to seasonal labour
force requirements. However, labour laws in Bangladesh turn it very complicated for the organizations
to hire part-time employees or to change employment contracts from a full-time permanent position to a
temporary or adjunct position. Such a rigid regulatory environment handicaps HRM managers who need
to implement appropriate and effective HRM practices in their organizations (Mahmood, 2008; Sarker,
2006). Downloaded from hrm.sagepub.com by Mohan Thite on December 16, 2015 Mahmood
and Absar 185 As Bangladesh is moving from being a developing economy to an emerging economy,
people’s expectations and values are also changing. In the last 20 years, because of globalization and the
IT revolution, people are better informed about the world, work and civic facilities of modern life. While
previous generations worried about savings and job security, the new generation of employees are more
concerned about relationships, a work–life balance and meaning in their work. Women are joining the
labour market in increasing numbers, and the number of working couples is increasing too. While women
professionals are moving towards higher-level employment positions, they face a daunting challenge to
maintain a work–life balance and career development in the traditional Bangladesh society (ILO, 2013).
In Bangladesh, politics determines or influences most business decisions. It is difficult to differentiate
between a businessperson and a politician. Businesspeople need to maintain contact with political leaders
to obtain loans from banks or to get necessary support from the government or supporting agencies. As
mentioned earlier, recruitment, promotion, trainee selection, salary adjustment, management– union
relationships and so on, are all influenced by politics and politicians. Political ideology became prominent
in employee recruitment and selection, training and promotion activities in public sector organizations.
Private sector business owners also consider political links or the background of employees to achieve
their long-cherished political motives (Chowdhury & Mahmood, 2012). However, for long-term industrial
development, businesses need to separate themselves from national politics. In addition, national policies
need to remain constant across changes in the government, and businesspeople should not be harassed
for their political beliefs. For HRM managers, moving beyond this tradition of political links, without the
consent of owners, could be a big challenge when implementing the latest HRM practices (Hossain et al.,
2012). The HRM managers in multinational corporations also face a dilemma in maintaining the balance
between global HRM prescriptions and the requirements of local subsidiaries in Bangladesh. As
globalization bring the world closer, HRM practices in Bangladesh are also influenced by multinationals
and other dominant ideologies. Many multinationals have been operating in Bangladesh for a long time,
and their financial performance is better than that of the local competitors. MNCs are role models in
developing systematic HRM practices and leading local companies are trying to imitate their practices
(Chowdhury & Mahmood, 2012; Mahmood, 2014). However, owing to cultural and institutional
differences, the efficacy of these practices for local companies remains in doubt.