HUMAN RESOURCE MGT Study Pack.pdf

STUDY PACK ON HUMAN RESOURCE MANAGEMENT © Copyright (2021) The Chartered Institute of Bankers of Nigeria All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the prior written permission of the copyright owner. ISBN: 978-978-57181-8-8 Published in Nigeria by The Chartered Institute of Bankers of Nigeria (CIBN) Bankers House PC 19, Adeola Hopewell Street, Victoria Island, Lagos, Nigeria. Printed in Nigeria by The CIBN Press Ltd Lagos, Nigeria. Email: [email protected] 2 FOREWORD The new Banking Professional Examinations Syllabus which has been in use since 2014 was reviewed in November 2019 in line with the Policy of the Institute to review its Syllabus every five years and because it is a total revamp of the old Syllabus, the Governing Council of the Institute resolved that Study Packs for all the modules should be developed. The intension was to ensure that the Study Packs were made available for the use of students prior to the full take off of the new Syllabus in April 2022. Efforts have been made and the best Subject Experts were assembled to author/review all the modules of the Syllabus. Three (3) Resource Persons (Subject Experts) were commissioned to produce each Study Pack. For each Module, two (2) Subject Experts developed while one (1) reviewed the document after which it was forwarded for an independent universal editorial review for grammar and contextual presentations. With the re-structuring of the Banking Professional Examinations Syllabus in Modules, making it broader in coverage and knowledge as well as its emphasis on practical application of knowledge of the candidates in this era of ever- changing banking landscape driven by technological advancements, the production of Study Packs for all the modules is a worthwhile venture to adequately equip the students for the examinations. This Study Pack therefore is primarily intended to provide comprehensive study materials for the students preparing the Banking Professional Examinations. It assumes a prior knowledge of the subjects which make up the module and is organised into sections and chapters for convenience of study. It also contains questions and answers for revision purposes at the end each chapter and logically arranged to cover all the various sections of the Syllabus. This is to ensure systematic learning and understanding to achieve the expected learning outcomes. The Study Pack has been deliberately prepared in line with the Curriculum to reduce the number of other publications the students would have to read to pass the examinations. It is therefore a handy tool for students preparing for the examinations and can effectively be used for revision as well. It is hoped that readers, whatever their experience, will find the Study Pack invaluable to the understanding of the subject matter and enhancement of their knowledge, technical skills and competencies to efficiently carry out their job roles. Meanwhile, in view of the dynamism of the subject area, students are still encouraged to read further to continuously update their knowledge. The Study Pack can also be useful as resource and reference materials for students of banking and finance as well as other social management sciences in tertiary institutions. Practitioners would also find it a useful reference guide. I wish those who will have cause to use this Study Pack the best of luck. ’Seye Awojobi, Ph.D, FCIB Registrar/Chief Executive 3 Acknowledgement The Study Pack is an invaluable publication which would not only assist students preparing for the Banking Professional Examinations but also go a long way in providing information to individuals seeking to improve their knowledge of the Banking and Financial industry. It is designed to address skill gap in various fields of study by providing critical knowledge and technical knowhow which would improve competencies thereby creating a fusion between theoretical knowledge and its practicability in the industry, the ultimate objective of the Study. On behalf of the Governing Council, Members and Management of the Institute we acknowledge the intellectual prowess of the authors: Hajia Binta Fatima. Ibrahim, FCIB, MNIM, Managing Director/ CE Expressions Consult Limited and Professor Sunday Ayodele Enikanselu, Managing Partner, Enykon Consult Ltd as well as Mr Victor Banjo, HCIB, Director, Executive Education, Lagos Business School, Pan- Atlantic University for reviewing the book. We also accord appreciation to numerous contributors who one way or the other were involved in the production of the Publication. Our indebtedness also goes to the members of Capacity Building & Certification Committee for their immeasurable support to the publication especially, the Chairman, Mr. Rotimi Omotoso, FCIB, and the Vice Chairman, Mr. Saubana Ogunpola, FCIB. This work would not have been accomplished without the efforts of the Management of the Institute led by the Registrar/Chief Executive, ‘Seye Awojobi, Ph.D, FCIB, Group Head, Capacity Building & Certification, Mr. Segun Shonubi, HCIB assisted by Senior Manager, Capacity Building & Certification, Mr. Kayode Adeyemi, Manager, Capacity Building & Certification, Mrs. Linda Daniel, FCIB and indeed the entire staff of the Capacity Building & Certification Division. Lastly, our acknowledgement would be incomplete without thanking the Office Holders of the Institute under the Chairmanship of Dr. Bayo Olugbemi, FCIB for their tremendous contribution to make this publication a reality 4 Table of Contents CHAPTER ONE 1 CE6A: BUSINESS AND HUMAN RESOURCES MANAGEMENT 1 1.1 FUNDAMENTALS OF HUMAN RESOURCES MANAGEMENT 4 1.1.1 Overview of Human Resources Management 4 1.1.2 Historical view of human resources management 37 1.1.3 Corporate Human Resources Management – Key Objectives 43 1.1.3.1. Achieve organizational goals 44 1.1.3.2. Work culture 44 1.1.3.3. Team integration 45 1.1.3.4. Training and Development 46 1.1.3.5 Employee motivation 46 1.1.3.6 Workforce empowerment 47 1.1.3.7 Retention 47 1.1.3.8 Data and compliance 48 1. 2.0- The impact of Human Resources on the business 49 1.2.1- Managerial planning and supervision function 49 1.2.2 Other business functions 49 1.2.3 Recruitment and selection methods 50 1.2.4. Benefits and compensation methods 53 1.2.5. Effective managerial decision-making process 62 1.2.6 Competency framework and core requirements around controlled functions 70 1.3 Human Resources Techniques adopted in Business Management 81 1.3.1. Contemporary Human Resources Management 81 1.3.2. Strategic Human Resources Management 83 1.3.3. Human Resource Ethics in Business Management 89 5 1.3.4. Key aspects of managing a business and human resources - social responsibilities, quality management and employees 101 CHAPTER TWO 130 CE6B: DEVELOPING AN HR STRATEGY 130 2.1. THE CONCEPT OF HR STRATEGY 134 2.1.1 Overview of Strategy 134 2.1.1.1. Vertical and Horizontal Integration Processes 136 2.1.2. Overview of Human Resources (HR) Strategy 138 2.1.2.1. Strategic Advantage 139 2.1.2.2. Managing HR Strategies 141 2.2.1. HR Strategy Development Framework 148 2.2.2. HR Strategy Implementation 156 2.2.2.1. Overcoming the Barriers 158 2.2.2.2. Understanding People Flow 159 2.2.2.3. Managing Risks in Human Resources Management 161 CHAPTER THREE 256 CE6C: MOTIVATION, TRAINING AND SKILLS DEVELOPMENT 256 3.1. EMPLOYEE PERFORMANCE MANAGEMENT 261 3.1.1 OVERVIEW OF PERFORMANCE MANAGEMENT 261 3.2. TALENT DISCOVERY AND DEVELOPMENT 299 3.2.1. The Training Process 299 3.2.2. Learning and Development Process/Strategy 313 3.2.3. Steps to Developing a Learning and Development Strategy 317 3.2.4. Human Resources Development 327 3.2.4. Formulating and Implementing Learning and Development Strategies 335 3.2.5. Planning and Implementation of Learning and Development Programmes 342 6 3.2.6. Managers’ Roles in Talent Discovery and Development 347 3.3.0. SKILLS DEVELOPMENT 352 3.3.1. Communication and People Skills 352 3.3.2. Job Grading Structure 358 3.3.3. Skills Development 364 CHAPTER FOUR 383 CE6D: TALENT MANAGEMENT AND INDUSTRIAL RELATIONS 383 4.1. Talent Management 387 4.1.1. Overview of talent management: reward, compensation, and benefits – types and strategies adopted by employers 387 4.1.2. The Reward System 408 4.1.3. Bank compensation structure 427 4.1.4. Employees’ benefits, allowances, and pension contributions 434 4.1.5. Employees’ compensation, grade, and payment structure 441 4.1.6. Compensation theory on talent management 449 4.2. RETENTION PROCESS 456 4.2.1. Retention structure – Key processes 460 4.2.2 VALUE OF HUMAN CAPITAL 467 4.2.3. Gender diversity issue 469 4.2.4. Managers’ role in maintaining employees’ retention 475 4.3 EMPLOYEES AND INDUSTRIAL RELATIONS 479 4.3.1. Industrial relations – Importance and theories 483 4.3.2. Industrial relations framework impact on the Nigerian banking system 488 4.3.3. Industrial conflict resolution in the Nigerian banking system 491 4.3.4. Employees’ associations and trade unions 493 4.3.5. Labour bargains, disputes, and resolutions 494 7 4.3.6. Detailed rights and responsibilities of both the employer and employee 509 4.3.7. Disciplinary procedures 513 4.3.8. Employees’ welfare 520 4.3.9. Employment laws and contract in Nigeria 527 CHAPTER FIVE 542 CE6E: LEADERSHIP 542 5.0. Leadership 542 5.1. The Meaning of Leadership 543 5.1.1. Functions of a leader 545 5.1.2. Qualities Required and Determinants of An Effective Leader 546 5.1.3. Leadership Styles 549 5.2. Communication skills and people skills 559 5.2.1. Introduction 559 5.2.2. Functions of Communication 563 5.2.3. Principles of Effective Communication 564 8 CHAPTER ONE CE6A: BUSINESS AND HUMAN RESOURCES MANAGEMENT 1. Fundamentals of Human Resources Management 1.1 Overview of Human Resources Management 1.2 Basic concepts, values, and theories 1.3 Historical view of Human Resources Management 1.4 Corporate Human Resources Management – Key Objectives 2. The impact of Human Resources in business 2.1 Managerial planning function and supervision 2.2 Other business functions – organising, staffing, leadership, and control 2.3 Recruitment and selection methods 2.4 Benefits and compensation methods 2.5 Effective managerial decision-making process 2.6 Competency framework and core requirements around controlled functions 3. Human Resources Techniques adopted in Business Management 3.1 Contemporary Human Resources Management 3.2 Strategic Human Resources Management 3.3 Human Resources Ethics in Business Management 1 3.4 Key aspects of managing a business and human resources - social responsibilities, quality management and employees Learning Objectives i. Define human resource management and explain how managers develop and implement a human resource plan. ii. Explain how companies train and develop employees. iii. Be able to discuss why organisations need to adopt a planned approach to their management of human resources. iv. Define human resource planning, and fully discuss the critical elements of the human resources planning model. v. Explain the different theoretical approaches to the staffing process. vi. Understand the importance of job analysis as a pre-requisite for sound and effective staffing. vii. Explain how managers evaluate employee performance and retain qualified employees. viii. Understand the basic concepts of Human Resources Management (HRM). 2 Learning Outcomes i. Explain the fundamentals of Human Resources Management (HRM) ii. Identify the internal functions of a business and the impact human resources has on it. iii. Explain the adoption of Human Resources Management (HRM) concept in business management. iv. Understand and critically discuss the ways in which human resources management contributes to the success and survival of an organisation. v. Gain a good insight into the theoretical discussions about the dynamics of human resources management. vi. Discuss fully the various strategies that management need to put in place to ensure effectiveness in the acquisition, utilisation, training, and development, maintainance and reward of employees in your organisation. vii. Identify and contribute to better decisions about the design of strategies for organizing cooperation, and managing conflicts in workplace labour management relations. viii. Respond positively to problems in unfamiliar contexts. ix. Identify and apply innovative ideas, methods, and ways of thinking. 3 x. Demonstrate competence in communicating and exchanging ideas in a group context. xi. Be able to advance well-reasoned and factually supported arguments in both written work and oral presentations. 1.1 FUNDAMENTALS OF HUMAN RESOURCES MANAGEMENT 1.1.1 Overview of Human Resources Management CASE Howard Schultz has vivid memories of his father slumped on the couch with his leg in a cast. The ankle would heal, but his father had lost another job—this time as a driver for a diaper service. It was a crummy job; still, it put food on the table, and if his father could not work, there would not be any money. Howard was seven, but he understood the gravity of the situation, particularly because his mother was seven months pregnant, and the family had no insurance. This was just one of the setbacks that plagued Schultz’s father throughout his life - an honest, diligent man frustrated by a system that was not designed to cater to the needs of common workers. He had held a series of blue-collar jobs (cab driver, truck driver, factory worker), sometimes holding two or three at a time. Despite his willingness to work, he never earned enough money to move his 4 family out of Brooklyn’s federally subsidized housing projects. Schultz’s father died never having found fulfilment in his work life - or even a meaningful job. It was the saddest day of Howard’s life. As a kid, did Schultz ever imagine that one day he would be the founder and chair of Starbucks Coffee Company? Of course not. But he did decide that if he were ever able to be effective in the lives of people like his father, he would do what he could. Remembering his father’s struggles and disappointments, Schultz has tried to make Starbucks the kind of company where he wished his father had worked. “Without even a high school diploma,” Schultz admits, “my father could never have been an executive. But if he had landed a job in one of our stores or roasting plants, he would not have left in frustration because the company did not value him. He would have had good health benefits, stock options, and an atmosphere in which his suggestions or complaints would receive a prompt, respectful response.” 5 Figure 1.1: Starbucks founder Howard Schultz Schultz is motivated by both personal and business considerations: “When employees have self-esteem and self-respect,” he argues, “they can contribute so much more: to their company, to their family, to the world.” His commitment to his employees is embedded in Starbucks’ mission statement, whose first objective is to “provide a magnificent work environment and treat each other with respect and dignity.” Those working at Starbucks are called partners because Schultz believes working for his company is not just a job, it is a passion. Employees at Starbucks are vital to the company’s success. They are its public face, and every dollar of sales passes through their hands. According to Howard Schultz, they can make or break the company. If a customer has a positive interaction with an employee, the customer will come back. If an encounter is 6 negative, the customer is gone for good. That is why it is crucial for Starbucks to recruit and hire the right people, train them properly, motivate them to do their best, and encourage them to stay with the company. Thus, the company works to provide satisfying jobs, a positive work environment, appropriate work schedules, and fair compensation and benefits. These activities are part of Starbucks’ strategy to deploy human resources to gain competitive advantage. Figure 1.2: A Starbucks barista serving a customer The process is called human resources management (HRM), which consists of all actions that an organization takes to attract, develop, and retain quality employees. Each of these activities is complex. Attracting talented employees involves the recruitment of qualified candidates and the selection of those who best fit the organization’s needs. Development encompasses both new employee orientation and the training and development of current workers. 7 Retaining good employees means motivating them to excel, appraising their performance, compensating them appropriately, and doing what is possible to keep them. Human resources management (HRM) is the basis of all management activities, but it is not the basis of all business activities. A business may depend fundamentally on having a unique product, like the Dyson vacuum cleaner, or on obtaining the necessary funding, like the London bid to stage the Olympic Games, or on identifying a previously unnoticed market niche, like Saga Services. The basis of management is always the same: getting the people of the business to make things happen in a productive way, so that the business prospers, and the people thrive. Basic Concepts, Values and Theories In general language, a concept refers to an idea, and especially an abstract idea that in scholarly terms can be classified in pursuit of organising knowledge and human experience. Human resources management is an experience that we undergo; we experience forms of employment, such as the experience of ‘being 8 managed.’ In such contexts, not all of us are equally enamoured by being labelled ‘human resources’. In the tradition of studies in management, concepts often appear as discrete ‘boxes’ in models connected by arrows that seek to trace the relationships between such concepts, for example, in attempting to describe processes of cause and effect. Consequently, reference to ‘HRM’ as a field of study and professional practice might appear at face value to put people into such a ‘box,’ i.e., a box labelled ‘resources’ that contains other strategic organisational resources such as capital and equipment, and (less tangibly, perhaps) time, knowledge, and organisational brand. Organisations continue to claim that ‘people’ represent their ‘greatest asset,’ whereas senior members of these same organisations might perceive these people as the major generator of cost (cf. Mayo, 2001). We keep in mind that ‘human resources’ have been people long before they became ‘employees’ or ‘managers’. Both are still human resources in any given organisation. 9 It is valid – and more honest – to refer to Human Resources Management as ‘people management’ (cf. Rowley, 2003). The practice of people management has a long history. Indeed, writing on the area dates to at least the first century, with Columella, a Roman farmer and former soldier whose De Rustica featured one of the earliest tracts on people management. The more recent incarnation of the management of people as human resource management has earlier guises. This range includes the more obvious ones such as personnel management (PM) as well as those concerned with notions of ‘welfarism’ and ‘paternalism,’ with examples around the world from what were often labelled ‘enlightened employers’ and those trying to ameliorate some of the harshness of industrialisation and provide basic working conditions. While historical, these management forms are not exclusive, and modern versions and examples can be seen, to greater or lesser extent, in each of them. The question of how to achieve competitive advantage is the dominant concern of strategic management. In the 1980s, this came to prominence through the research of Professor Michael Porter. A related economic theory - the resource- based view - which re-emerged at this time, holds that competitive advantage is achieved if a firm’s resources are valuable, rare, and costly to imitate. Both of 10 these theories impact on the thinking in respect of people management in organisations. Firstly, approaches and initiatives in respect of people management should be consistent with the overall strategy of the organisation (Fombrun et al, 1984) and secondly, that all resources, especially human resources, contribute to the unique character of organisations and can therefore support competitive advantage. This led to a recognition of people and investment in them as a source of ‘human capital advantage’ (Boxall and Purcell, 2016) rather than a cost to be minimised as much as possible. The other side of the human resources management concept emerged from the organisation behaviour theory. Organisation behaviour (OB) is the study of how organizations function and how people behave in them. In other words, the interface between human behaviour and the organisation and how this impacts on the performance of the organisation. Areas of concern for human resources management, including organisation design, organisation culture and leadership all have their roots in organisation behaviour. However, most critical to the original concept of human resource management are the areas of 11 employee commitment and motivation, more recently described under the ‘catch-all’ term of ‘employee engagement’. The purpose of human resources management is to ensure that the employees of an organization are deployed in such a way that the employer obtains the greatest possible benefit from their abilities and the employees obtain both material and psychological rewards from their work (Graham, 1978). Definitions of Human Resources Management (HRM) There are definitions of human resources management of varying degrees of complexity. ⮚ Human resource management is a strategic, integrated, and coherent approach to the employment, development and well-being of the people working in organisations (Armstrong, 2016:7) ⮚ Human resource management is the process through which management builds the workforce and tries to create the human performances that the organisation needs. (Boxall and Purcell, 2016:) 12 ⮚ “Human Resource Management is a distinctive approach to employment management which seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce, using an array of cultural, structural and personnel techniques.” Storey (1995:) ⮚ “Human Resource Management is a managerial perspective which argues the need to establish an integrated series of personnel policies to support organizational strategy.” Buchanan and Huczynski (2004: 679). ⮚ “Human Resource Management is a strategic approach to managing employment relations which emphasizes that leveraging people’s capabilities is critical to achieving competitive advantage, this being achieved through a distinctive set of integrated employment policies, programmes and practices.” Bratton and Gold (2007: 7). These definitions point to the key characteristics of HRM as identified by Armstrong (2008): The diversity of human resources management: It is difficult to identify universal characteristics of HRM. Models exist and practices vary across organisations, often corresponding to the conceptual version of human resources management in certain instances. 13 The strategic nature of human resources management: The most significant feature of HRM is the importance attached to strategic integration. This requires that human resources planning be consistent with organisation planning. The commitment-oriented nature of human resources management: the notions of mutuality and high commitment underpin human resources management. If all involved in an organisation perceive themselves to be engaged in a mutual endeavour, they are likely to be more committed and consequently to perform at a higher level. People and their talents regarded as ‘human capital’: one of the original academic underpinnings of human resources management is the notion that people, and their collective skills, abilities and experiences are regarded as an asset and source of competitive advantage rather than a cost. Unitarist rather than pluralist, individualist rather than collective in its approach to employee relations: this theory of human resources management contends that employees share the same interests as employers and emphasizes the importance of the relationship between the organization and the individual employee rather than any group or representative body. Human resources management as a management-driven activity: notwithstanding the increase in the number of HR managers and the size of 14 human resources departments, HRM is described by Armstrong (2008:16) as ‘a central, senior management-driven, strategic activity that is developed, owned, and delivered by management to promote the interests of their organisation’. In the early days of human resources management, Purcell (1993), described it as the re-discovery of management prerogative, and Guest (1991), said that human resources management is too important for personnel managers to manage. More recently, there has been considerable emphasis on the role of line managers in delivering on the objectives of human resources management. An emphasis on the needs of the organisation and business goals and values: the concept of human resources management has been based on a management and business oriented philosophy. While the interests of the members of the organisation are recognised, they are subordinated to those of the organisation. However, the theory of HRM is evolving in this area. While human resource unarguably needs to support the achievement of organisational objectives, there is a growing body of opinion that there needs to be more to human resources management than that. HRM needs to have regard for the interests of all stakeholders and the values and standards that society expects in the workplace. 15 Although there is no consensus on the definition or the characteristics of human resources management, it is clear from the above definitions that it is a combination of people-oriented management practices that views employees as assets, not costs; and its main aim is to create and maintain a skilful and committed workforce to gain competitive advantage. The differences in the interpretation of HRM have created two different schools of thought: soft and hard variants of Human Resource Management (Storey, 1992). Soft and hard human resources management are often defined as two main models of HRM. Soft HRM focuses on employee training, development, commitment, and participation. It defines HR functions aimed to develop motivation, quality, and commitment of employees. Hard HRM, on the other hand, concentrates mostly on strategies where human resources are deployed to achieve organisational goals. It is also associated with cost control and head count strategies, especially in business processes like downsizing, lowering of wages, shortening comfort breaks, etc. (Beardwell and Claydon, 2007). 16 Nevertheless, one should bear in mind that hard approaches to HRM contain elements of soft practice, and vice versa. For example, one cannot rule out the issues of employee morale and motivation when planning cost reductions through lowering wages. Just like people come in different shapes and sizes, organizations have different understandings of human resources management. One should remember that human resources management is not defined in isolation, but it must be defined according to its political, economic, and social context. Thus, it is acceptable to have variations in its definition and use. HUMAN RESOURCES MANAGEMENT MODELS HR models help to explain the role of human resources in business. In this text, we will go over the five most practical HR models. These models enable us to explain what HR’s role is, how human resources add value to the business, and how the business influences human resource. The five (5) HR models that we will discuss are: The Standard Causal Model of Human Resource Management The 8-box model by Paul Boselie The Human Resource Value Chain 17 The Human Resource Value Chain Advanced; and The Harvard Framework for Human Resource 1. The Standard Causal Model of HRM The best-known HR model is the Standard Causal Model of Human Resource Management. The model is derived from many similar models published throughout the ‘90s and early 2000s. The model shows a causal chain that starts with the business strategy and ends, through the human resources processes, with improved financial performance. The HR practices follow the human resources strategy. Examples include hiring, training, appraisal, and compensation. These human resources practices lead 18 to certain outcomes which include commitment, quality output, and engagement. These human resources management outcomes lead in turn to improved internal performance. Examples include productivity, innovation, and quality. These outcomes lead to financial performance (e.g., profits, financial turnover, better margins, and ROI). Two interesting relationships are the unmediated human resources management effect, which shows that certain HR practices can directly lead to improved internal performance. For example, good training can directly result in better performance, without necessarily influencing HR outcomes. The reversed causality in the model shows that sometimes a stronger financial performance leads to more investments in HR practices and better human resources outcomes. When performance is strong, employees are often more engaged (a human resources outcome). The model shows how HR activities that are aligned with organizational strategies lead to business performance. According to this model, human resources will only be effective if its strategies are aligned with business 19 strategies (in line with the best-fit theory). Human resources strategies are derived from the overall business strategies. 2. The 8-box model by Paul Boselie A different HR model that is often used to model what we do in human resources, is the 8-box model by Paul Boselie. The 8-box model shows different external and internal factors that influence the effectiveness of what we do in human resources. First, you see the external general market context, the external population market context, the external general institutional context, and the external population institutional context. These are external forces that influence how we do human resources. For example, if there is a shortage of certain skills in the market, this influences how we do our sourcing, recruiting, and hiring, compared to when there is an abundance of qualified workers. The institutional context also changes. Legislation impacts the way we work in human resources (e.g., the day-to-day impact of human resources), while trade unions and work councils also limit what we can do. 20 The core process in the middle starts with the configuration. The company’s history, culture and the technology used are all factors that influence how we communicate in human resources, what we want to achieve, and how effective we are in our HR policies. All these factors influence our HR strategy. The HR strategy consists of six parts: Intended Human Resource Practices: The intentions we have with our recruitment, training, and other practices matter, but this model shows that it is only a starting point. 21 Actual Human Resources Practices: We can have great intentions, but the execution of HR practices is a cooperation between human resources and the manager. When the manager decides to do things differently, the intention can be nice, but the outcome can be quite different. Perceived Human Resources Practices: This is how the employees perceive what is going on in the organization. Human resources and the manager can do their absolute best but if their activities are perceived in a unique way than they were intended and done, the perception will not mirror the actual human resources practices. Human Resources Outcomes: The perceived HR practices (hopefully) lead to certain human resources outcomes. These are like the ones in the Standard Causal Model of Human Resources, described above. Human resources outcomes lead to critical HR goals (i.e. cost-effectiveness, flexibility, legitimacy), which in turn leads to ultimate business goals (i.e. profit, market share, market capitalization – all related to the viability of the organization, and other factors that help to build a competitive advantage). 3. The HR value chain 22 The HR value chain is one of the best-known models in human resources. It is based on the work of Paauwe and Richardson (1997), and creates a nuance on the models above regarding how human resources operate. According to the HR value chain, everything we do (and measure) in HR is divided into two categories: human resources management activities and human resources management outcomes. Human resources management activities are the day-to-day activities, including recruitment, compensation, training, and succession planning. These activities are measured using HR metrics. These are the so-called efficiency metrics. The cheaper we hire and the faster we train, the better. Human resources management outcomes are the goals we try to achieve with the HRM activities. We recruit, we train, and we compensate to achieve certain goals/outcomes. These outcomes include employee satisfaction, motivation, retention, and presence. If we focus on just measuring human resource management activities, we will automatically focus on reducing costs (i.e. maximizing efficiency). However, we should instead focus on human resources management outcomes as this helps to align our processes with our goals. For example, we would rather spend days longer on hiring a new employee (time to hire - an efficiency metric) if this person 23 will be a better fit in the company (quality of hire - an outcome metric). The goal should be to get the best person in the right position, not to cut corners and hire someone as cheaply and quickly as we can. This shows why we should focus on measuring outcomes instead of activities. When HRM activities and HRM outcomes hit their marks, they should lead to better performances. This means that when we recruit the right people, send people to the right training programmes, and retain our key players, the company’s performances increase. Literature also shows a different effect: when company performance is higher, human resources management activities increase as well. This is why more 24 profitable companies usually invest more in HR programmes, including human resources software, and learning and development opportunities for their people. 4. The HR Value Chain Advanced We have researched the literature, but we cannot find an original source for this model. This model is like the HR value chain but with two key differences. It defines the organizational performance in the balanced scorecard. The balanced scorecard contains the key performance indicators from a financial perspective, a customer perspective, and a process perspective. They are integrated into the HR value chain. This document helps to align and show the added value of HR to the business. Secondly, the model starts with HR enablers. These enablers are key to what human resources is doing in the business. This includes HR systems, budget, capable professionals, and other key elements. The thinking is that these enablers need to be present for the value chain to operate effectively. If HR lacks well-trained professionals, if the budget is low, or if the systems are outdated and hamper innovation, human resources will be less efficient in reaching its HR and business outcomes. 25 5. The Harvard Framework for HRM 26 The model starts on the left, with stakeholder interest. These stakeholders include shareholders, management, employee groups, government, and more. These interests define the human resources management (HRM) policies. At the same time, situational factors influence these interests. Situational factors include workforce characteristics, unions, and all the other factors that were listed in the 8-box model. Situational factors and stakeholder interest influence HRM policies which include the core human resources activities, like recruitment, training, and reward systems. When done well, HRM policies lead to positive HRM outcomes. These include the previously mentioned retention, cost-effectiveness, commitment, and competence. These positive human resources management outcomes lead to long-term consequences. These can be individual, organizational, and societal. The Harvard framework is a human resources model that takes a more comprehensive approach toHR, including various levels of outcome. 27 Differences between Personnel Management and Human Resources Management Contrary to mutual understanding, human resources management is not a fancy name to describe personnel management, or an attempt to make personnel management sound more interesting. Although human resources management as we know it today has its roots in the philosophy of personnel management, there are fundamental differences between the two. One of the most important distinctions lies within their aims. Personnel management regards employees as a cost and aims to minimize cost and increase productivity. Human resources management, on the other hand, sees employees as human resources and its main aim is to improve, develop and retain these resources. The second distinction is their function. Personnel management has its roots in industrial relations, where the emphasis is on managing a consensus. Personnel managers play a third-party role, seeking agreement between management and employees at negotiations. However, personnel managers 28 often sided with the management rather than with the employees to counterbalance the power of trade unions (Hendry, 1999). Personnel Management The phrase ‘personnel management’ (PM) is still used in some contexts as synonymous with human resources management. These contexts tend to be given in reference to bureaucratic organisations and institutions where objective stability and rational (albeit inward-looking) decision-making and steeply vertical hierarchical report lines are emphasised (cf. Weber, 1947). However, the concept of PM lives on in more general contexts for human resources management theory and practice, as in the title of the Chartered Institute of Personnel and Development (CIPD), the UK-based community for HRM professionals. Table 1. PM and HRM: key distinctions Dimension Implementatio Stance Practices Timescal Level Importanc n e e 29 PM Professional Reactive Ad hoc Short Operationa Marginal l HRM Line Proactiv Integrate Long Strategic Key e d Consequently, readers might wonder whether there are any real, ‘hard’ differences between earlier forms of managing people (as illustrated by the Columella example above) - Personnel Management(PM); and the more contemporary, post-1980s Human Resources Management (HRM). In relabelling activities that formerly distinguished personnel management now as human resources management, readers might ask whether we are simply putting ‘old wine in new bottles’ (Armstrong, 1987). If pressed, HRM scholars might argue out useful distinctions between personnel management and human resources management, not the least in the six areas illustrated in Table 1. During the so-called ‘golden age’ of Western-style planned economies from the 1950s to the oil and currency crises of the 1970s, personnel management offered most answers to ‘people management’ problems in response to stable or expanding business and employment opportunities (cf. Bratton & Gold, 2007; Tyson & Fell, 1986). 30 HRM as a ‘paradigm shift’ Against this general background, the concept of human resources management emerged from established references to personnel management (cf. Storey, 1989). Using the parlance most favored by researchers, the move from the personnel management to human resources management can be described as a ‘paradigm shift’, i.e. a shift in emphasis and mindset in respect of what a sufficiently influential cadre of HRM scholars and practitioners appear to interpret generally as ‘achieving organisational objectives through people’ (cf. Armstrong, 2006; Mullins, 2006). Establishing a mindset that seeks to explore and interpret HRM as a patterned series of activities and interventions that should serve to add business value to the organisation, allows for interpreting HRM as a series of activities that is explained and, if need be, justified in relation to helping the organisation achieve its business objectives. Interpreted thus, HRM becomes a ‘strategic’ activity, which allowed ‘strategic human resources management’ to emerge as an elaboration of the human resources management paradigm (cf. Mabey & Salaman, 1995). Retrospectively, therefore, identifying and then attempting to operationalise shifts in emphasis between personnel management and human resources management might serve to develop a more strategically sensitive approach to any over- generalised ‘people management’ mindset. Thus, human resources 31 management decisions should be justifiable with reference to a business strategy that itself is responsive to changes in the organisation’s strategic business environment. Human resources management as a management concept As a management concept, HRM came to greater prominence during the mid- 1980s with researchers identified collectively as the Harvard School (Beer et al., 1984). This framework usefully outlined areas and linkages, including the diverse stakeholder interests and the impacts of situational factors that feed into human resources management policy choices, and human resources management outcomes, leading to long-term consequences. At about the same time the Michigan School (Fombrun et al., 1984), sought to emphasise the strategic interconnectedness of HRM activities and of HRM decision-making. This outlined the key areas of human resources management and their linkages and the feedback loops between them, with ‘performance’ as the outcome To illustrate such ideas, we note the following: management decisions with regards to job design will have resource implications for staff selection procedures. For example, the type of people who are likely to apply for a given job vacancy and are likely to be accepted for it. The consequences of selecting 32 one or the other candidate will have implications for the future appraisal of new and existing employees. Differentiated performance appraisals will have resource implications for reward management and, where relevant, provision of further training and development. This more integrated approach towards managing people can be interpreted as being more strategic than the traditional personnel management, where – in the illustration set out above – the emphasis might be on ‘fitting’ people to an existing job rather than remodelling the job. Related to human resources management are the concepts of human capital development (HCD), and human resource development (HRD), where the emphasis is on managing the development and expression of skills and the intelligence that people as employees, might bring towards adding value to the organisation, its customers, and other key stakeholders. In a contrastive emphasis, human resources management tends to emphasise people and development as costs (cf. Mayo, 1999, 2001). Related concepts to HRD/HCD include social capital, intellectual capital and organisational capital management and development. Each of these overlapping concepts assumes that those managers saddled with the responsibility and opportunity to ‘manage people’ are also able and willing to recognise, encourage, guide and co-ordinate the intelligence, skills, motivation, and efforts that employees individually and 33 collectively bring to their work in organisations (Davenport, 1999; Mullins, 2006; Schultz, 1961). Linking HRM to performance As highlighted in Table 1, one of the key variables in the practice of HRM is business strategy. Organisations clearly have varied business strategies, each with implications for human resources management. We can see this in a range of management and business models. These include so-called ‘lifecycle’ models (cf. Kochan & Barocci, 1985), where ‘start-up’, ‘growth’, ‘maturity’ and ‘decline’ phases appear. Porter (1985) has ‘cost reduction’, ‘quality enhancement’ and ‘innovation’ as generic strategies, each of which will seek a distinctive HRM response. Another version is Grubman (1998), which aligns human resources management practices to strategic styles labelled as ‘products’, ‘operations’ and ‘customers. Earlier role-attribution models such as ‘defender’ and ‘prospector’ (Miles & Snow, 1978) have been developed into ‘internal’ and ‘market type’ employment systems (Delery & Doty, 1996). What these typologies indicate is that there are various organisational-related impacts on how people are managed in terms of both human resource management policies and practices and as illustrated in Table 2. 34 Table 2. Table 2. Impacts on types of Human Resources Management Impact on Impact on HRM Timescale focus Option range organisation Phase: Resourcing Maturity; decline Short Simple-Complex Strategy: Rewards Cost; quality; innovation Long Cheap- Expensive Focus: Product; Development operation; customer Other writers have been emphasising how human resources management as a people-oriented management process, needs to justify itself with reference to 35 business performance; with assurances that human resources management interventions add value to customers (cf. Huselid, 1995; Huselid et al., 1997; Varma et al., 2008). Reviewed concepts make explicit connections to individual, team, and organisational performance; others immediately imply such connections, as in the first concept listed in this book: assessment. In truth, many human resources managers – together with line managers, team leaders, and other managers with some level of HRM responsibilities and opportunities – often appear to forget this, focusing too determinedly on the ‘here and now’ of their contributions to organisational performance and under-emphasising (as suggested in Table 2), the complex and long-term ‘value added’ that human resources management might secure. Human resources management across business sectors This shift in emphasis accorded to human resources management has impacted on people management activities across a full range of business sectors; not the least, public sector organisations, non-profit/not-for-profit organisations, and non-governmental organisations (NGOs) which, in combination, remain major employers of labour worldwide. To illustrate, under the so-called new public management (NPM) paradigm, even public sector organisations began 36 to recognise the relevance of conversion to human resources management rather than personnel management framework, to make their decisions more systematically ‘market-oriented.’ This is seen, for example, in ascribing more of a customer/client status to the taxpayer as a ‘consumer’ of public services (Flynn, 2007). 1.1.2 Historical view of human resources management With the changing trends of industry in the competition-oriented environment of open markets, human resources management becomes a significant variable for the efficient growth of any organization. Workforce planning was the very first concept used in ancient eras, and as the time went by, the trends changed dramatically and the concept of workforce planning changed and turned into personnel management. Today personnel management is known as human resources management. Factors or significant variables mentioned by the American writers, Terrey, and Franklin (1996), termed the 6 “M” of management including men, material, machine, money, method, and market. Managing human resources is a meticulous and complex process. According to Harzing and Ruysseveldt, “A better way to understand the philosophy of 37 human resources management demands a thorough understanding about the evolution of the concept itself from the ancestral concept of personnel management.” ⮚ The Gilded Era: Historian Page Smith examines the industrial revolution in “The War between Capital and Labour.” Both labour and capital indulged in war, with armed people fighting from both sides. The situation created was war-like because of the extreme human violence and property destruction because a percentage of the workers were civil war experts. They announced that they were ready to shoot any hiring just the way they were willing to kill Yankees or rebels. American industry captains used to view employees as raw materials and not humans, although those captains faced difficult circumstances in their past. They hired the army personnel to deal with their labour force not caring about the results of their cold and ruthless behaviour. ⮚ Post–World War II (1945–1960) In the days of war, labour movement and utilization exerted influence on the enhancement of employee functions. After the war ended, the unions and associations for human relations emphasized that employee motivation should be increased by using, in addition to money, some social and psychological 38 factors such as acknowledging their work, and appraising their work standards. At the time of war, individuals were categorized in military services, and there were systematic efforts to make employees work in groups to provide better recruitment and selection measures and opportunities. The deepest parts of the classification included job descriptions containing details of tasks, duties, and responsibilities answering the job seekers’ questions. Appropriate compensation and appraisal systems were developed using these job descriptions and plans were executed. ⮚ Social Issues Era (1963–1980) This time span witnessed an extraordinary increase in the enactment of performing and accomplishing labour legislations in the United States. Legislations that controlled various parts of the employment associations; the exclusion of prejudicial practices; provision of retirement settlements; the encouragement of work-related issues like health and safety, tax regulation, etc. As a result, the department of human resources was filled with the extra accountability of legislative fulfilment that consisted of collecting, analysing, and reporting huge data to legislative units. For example, in terms of making everything transparent, there was no favouritism in employment practices, the human resources department needed to attentively collect, evaluate, and keep 39 data regarding all employment functions, such as recruitment, compensation, training, and benefits. It was that time when the personnel department started to be called human resources management departments. This is how the human resources management departments came into being. Another contributory factor was the economic prosperity that took place in all industrialized countries. Employee trade unions embarked on fruitful negotiations for superior working conditions, such as health care and departure settlements. As a result, labour costs rose more than ever before, which forced human resources managers to validate the increase in cost against productivity. The HR function has evolved from being just caretakers with an increased importance of employee involvement and empowerment, and it changed the focus from maintaining employees to bringing betterment for employees. Therefore, the depth and width of human resources management functions extended and thus, brought about the need for planned thinking and superior transfer of human resources services. ⮚ Cost-Effectiveness Era (1980 to the early 1990s) The United States and other international firms had given better attention to reducing costs by deploying automation and other efficiency enhancement 40 procedures, since competition got fierce from the side of European and Asian economies. Moreover, there was an increasing insight within administration because their relative costs were being considered a crucial element of the total budget of the company. Fewer companies had calculated their cost of human resources management to be as high as 80% of their total operating cost. Era of Technological Advancement and the Advent of Strategic Human Resources Management (1990s to Present) Throughout the 1990s, the world went through various drastic changes like increase in the pace of globalization, high-tech progression, especially the internet, web services, and hectic rivalry. Firms today have realized that pioneering and resourceful employees offer a sustainable viable benefits because, contrasting to other assets, intellectual capital is more difficult for competitors to reproduce. For that reason, the human resources management function has gained strategic level importance, with emphasis on how to attract, preserve, and hold talented employees. These developments have been directed to the formation of the HR balanced scorecard (Becker, Huselid, & Ulrich, 2001; Huselid, Becker, & Beatty, 2005), in 41 addition to stressing the importance of the return on investment of the human resources function and its plan (Cascio, 2000; Fitz-enz, 2000, 2002). The greater utilization of technology has altered the meaning and focus of HRM and shifted it to adding value to the organization’s products or services, which has turned the human resources department into the strategic partner of business. “Strategic human resource management originates its theoretical impact from the resources-based analysis of the firm that delights human resources as a strategic asset and a competitive advantage in improving organizational performance” (Becker & Huselid, 2006). Source: (Developing HR as an internal consulting organization, Richard M. Vosburgh, Mirage Resorts, MGM MIRAGE) Milestones of Human Resources Management: The difficulties of the economic situations in the previous decades had given greater importance to the human resources function and the way it supports the overall business goals and objectives. In the down times of the economy, the HR priorities did not favour the right talent, but rather focused on cost reduction and efficiency improvement techniques. 42 1.1.3 Corporate Human Resources Management – Key Objectives The primary objective of resource management is to ensure a seamless experience for the staff and other people associated with management and organizational goals. Objectives of human resources management include ensuring availability of resources, easy access to data, on-time payroll, and ensuring compliances. Human resources management objectives are influenced by organizational goals. The objective of HRM is to ensure a stable work environment with a sound database and efficient operations. Below are the eight (8) main human resources management objectives: 1. Achieve organizational goals 2. Work culture 3. Team integration 4. Training and development 5. Employee motivation 6. Workforce empowerment 7. Retention Data and compliance 43 1.1.3.1. Achieve organizational goals The human resources management function starts here. One major HRM objective is to fulfil organizational goals. Utilizing human resources to achieve business requirements and goals is especially important for effective human resources management. Organizational objectives include workforce handling, staff requirements like hiring and onboarding, payroll management, and retirement. To succeed at the organizational objectives, HR requires efficient planning and execution. Without set parameters for goals achievement, mission, and resources, HRM is incomplete. When the right resources and planning are in place, achieving human resources management objectives is not so difficult. 1.1.3.2. Work culture When it comes to achieving effective human resources management objectives, employee and work environment are the priority factors. Work culture plays a key role in defining HRM and business performance. A human resources manager needs to be active while calling for strategies to foster better work culture. Automated activities like leave approvals, reimbursement request 44 acknowledgment can help you. Quick operations and empowerment of employees help in creating positive vibes at the workplace. Developing and maintaining healthy and transparent relations among team members contribute to building an example of a good work culture. Adopting the right solutions like employee management software can solve more than half of the job challenges. Small steps like short and sound onboarding processes can help build a good image of the workplace. 1.1.3.3. Team integration One of the prime roles and objective of human resources management is to make sure the team coordinates efficiently. There is a need for easy communication between and among teams in an enterprise. The HR manager must ensure that there is a tool to assist in making the integration easier and smooth. Proper connection among employees is necessary to ensure productivity. To make human resources management successful, there is a need to search for better integration portals to make data availability easier for people. A right tool 45 like the self-service portal can bring employees closer to human resource management. 1.1.3.4. Training and Development An effective and performing workforce are two important and basic elements to work upon for achieving basic objectives as an organization. With proper training and the assurance of future opportunities, employees feel safe and organized. Effective employment is highly dependent upon the training practices. Providing opportunities to employees is one great step to ensure good workforce management. There might be difficulties such as planning and scheduling of training sessions, and evaluation of each. To lessen the pain, solutions like training management software can help you with auto-reminders, easy scheduler, reporting, and tracking capability. The HR manager must ensure effective training practices at the firm. 1.1.3.5 Employee motivation The prime objective of human resources professionals is to keep things on the right path. Keep distractions and negative vibes away. For this, the employees need to be addressed and kept motivated throughout. How can HR motivate employees? Empower them. Take their views on board. Involve them in weekly meetings or decisions. Even if they are new, let them join. Keep the morale high. 46 Employee recognition like yearly appraisal based on their performance can help. An automated feedback system for performance appraisal management can keep your employees motivated and ensure productivity throughout the service. When the employees are satisfied and fulfilled, nothing else can prevent you from realising your objectives and goals. 1.1.3.6 Workforce empowerment Talking about employee motivation, nothing can work better than empowering them. Empowering them with tools like employee self-service (ESS) portal can help save HR efforts, too. With the portal, employees can themselves apply for approvals and track them through their mobile phones. Be it leave request, generating pay slip, checking PF account, remaining leave days, upcoming holidays, manager details, etc., HR intervention is least required. r No more need to knock on HR’s door for minor issues. 1.1.3.7 Retention Providing leadership qualities and opportunities; a healthy working environment; and employee retention, are prime objectives and deliverables of the HR manager. Other than employee hiring, onboarding, and training cycle, keeping the employees retained for long is the biggest challenge, and should be a top priority objective for the human resources team. It often occurs that employees 47 leave the organization within two months of onboarding. It can be due to ineffective training management or a rough hiring process. Employee experience needs to be carefully addressed. Careful handling of employees, especially the new hires, can help reduce employee turnover. 1.1.3.8 Data and compliance Functional HR and organizational objectives also include managing company/employee data and compliance. Managing payroll compliance and keeping the company out of any penalties or fines is a huge challenge for human resources professionals. Even a small error or miscalculation can lead to huge penalties which may make the HR manager lose respect. When committing to tasks like employment and payroll, there is need to be careful about laws and regulations. The objective here is to keep any unwanted claims at bay for smooth functioning. Automated software like the human resource management system (HRMS) can help you keep errors out and leave no window for incurring any penalty from the Internal Revenue Service (IRS). It is HR’s responsibility to follow all relevant guidelines and standards for effective employment and compliance with all legal statutes. 48 1. 2.0- The impact of Human Resources on the business To appreciate the impact of Human Resource on the business we will go over the human resources functions. 1.2.1- Managerial planning and supervision function Planning: The planning function of HRM ensures the best fit between employees and jobs while avoiding workforce shortages or surpluses for the organization. There are four key steps of the human resource planning (HRP) process: Analysing present human resources supply; forecasting human resources demand; balancing projected human resources demand with supply; and aligning the first three steps to organizational goals. Directing: This includes activating employees at various levels and making them contribute maximally towards organizational goals. Tapping the maximum potentials of an employee via constant motivation and command is a prime focus for this function of human resources management. 1.2.2 Other business functions Organizing, staffing, leadership, and control. Organizing: this is a function of human resources management which consists of developing organizational structures that ensure the accomplishment of 49 organizational goals. The structure is represented by an organizational chart, which provides a graphic representation of the chain of command within an organization. Staffing: This is the process of recruitment and selection of staff. This involves matching people and their expectations with the job specifications and career path available within the organization. Leadership and Controlling: Post-planning, organizing, and directing. Performance of an employee is to be evaluated, verified, and compared with organizational goals. If performance is deviating from the plan, control measures are to be taken. 1.2.3 Recruitment and selection methods Recruitment and Selection: Recruitment and selection creates a pool of prospective candidates from which the right candidates are selected. According to a study by the Allegis Group, 83% of organizations believe attracting and retaining talents is a growing challenge. Recruitment methods refer to how an organisation reaches potential job seekers. These are ways of establishing contact with the potential candidates. It is important to mention that the recruitment methods are different from the sources of recruitment. 50 The major line of distinction between the two is that while the former is the means of establishing links with the prospective candidates, the latter is the location where the prospective employees are available. Dunn and Stephen have broadly classified methods of recruitment into three categories. These are: 1. Direct Method 2. Indirect Method 3. Third Party Method. Direct Method: In this method, the representatives of the organisation go to the potential candidates in the educational and training institutes. They establish contacts with the candidates seeking jobs. These representatives work in cooperation with placement cells in the institutions. Persons pursuing management, engineering, and medical programmes are mostly recruited in this manner. Sometimes, employers establish direct contact with the professors and solicit information about students with excellent academic records. Sending the recruiter to the conventions, seminars, setting up exhibition stands at fairs and 51 using a mobile office to go to the desired centres are other methods used to establish direct contact with job seekers. Indirect Methods: Indirect methods include advertisements in newspapers, on the radio and television, in professional journals, technical magazines, etc. ADVERTISEMENTS: This method is useful when: (i) An organisation does not find suitable candidates for promotion to fill up higher posts. (ii) When an organisation wants to reach out to a vast territory; and (iii) When an organisation wants to fill up scientific, professional, and technical posts. 3. Third Party Methods: These include the use of private employment agencies, management consultants, professional bodies/associations, employee referral/recommendations, voluntary organisations, trade unions, data banks, labour contractors, etc., to establish contact with job seekers. 52 Now, a question arises: which method should be used to recruit employees in the organisation? The answer to it is that it will depend on the policy of the firm, the position of the labour supply, government regulations in this regard, and agreements with labour organizations. Notwithstanding, the best recruitment method is to look first within the organisation. Screening/selection Screening is seen as the starting point of selection; others consider it as an integral part of recruitment. The reason being that the selection process starts only after the applications have been screened and shortlisted Evaluation and Control: Given the considerable cost involved in the recruitment process, its evaluation and control are, therefore, imperative. 1.2.4. Benefits and compensation methods If organizations want to reward their employees fairly, they need to understand the types of compensation and how to create attractive compensation packages for their employees. Compensation refers to any payments given by an employer to an employee during their period of employment. In return, the employee will provide their time, labour, and skills. 53 This compensation can be in the form of a salary, wage, benefits, bonuses, paid leave, pension funds, stock options, and more. Compensation is also sometimes referred to as remuneration. Understanding the types of compensation is critical to creating an attractive compensation package for current employees. Not only will this help retain top talents, but it will also help attract new talents to the organization. Conducting a compensation analysis and creating a solid compensation strategy is the responsibility of HR, and compensation and benefits professionals. There are two main types of compensation: ⮚ Direct compensation (financial) ⮚ Indirect compensation (financial and non-financial) Everyone involved in creating an employee compensation plan and pay structure must first understand the types of compensation. This is because it is the organization’s responsibility to explain the compensation plan to all candidates and employees. It is especially important during the hiring process, and performance and salary reviews. With so many different options available within the matwo main types of compensation, employees can easily become confused. 54 Direct compensation Direct compensation is a financial (or monetary) form of compensation. Here are the four main types of direct compensation: Hourly: Hourly wages are often provided to unskilled, semi-skilled, temporary, part- time, or contract workers in exchange for their time and labour. Jobs where employees receive hourly wage include the retail, hospitality, and construction industries. Employees who receive hourly wages can earn overtime pay. This pay consists of any additional hours worked outside of their set contract. 55 When setting your employees’ wages, you need to be compliant with the local minimum wage legislation. Salary: Annual salaries are typically provided to most full-time employees or skilled employees and those who fill management positions. A salary often indicates that the organization has invested in this employee for the long-term future. Examples of employees who receive a salary include teachers, accountants, doctors, retail, and hospitality managers. Both hourly wages and salary make up an employee’s base pay or base salary. Commission: Commission is an usual form of compensation provided to employees in sales roles. It will usually be based on a pre-determined quota or target. The higher the quota reached, the higher the commission will be. Commission rates are often based on various specified factors, including revenue and profit margins. Employees will work on commission only or obtain a salary with commission in certain cases. 56 Bonuses: Companies often offer bonuses to employees based on year-end business results or the individuals meeting their set goals. Sometimes, the decision is at the manager’s discretion. Bonuses can be paid annually, quarterly, or even after the completion of each project. Both commission and bonuses fall under incentive pay, along with piece rate, profit sharing, stock options, and shift differentials. However, bonuses can also be paid without an employee meeting a particular target. For example, if the business has had a momentous year and decides to reward everybody. In this case, the bonus would be classified as variable pay. Tips are also a usual form of compensation in people-based industries, particularly hospitality. Another umbrella of direct compensation is deferred pay which includes savings plans and annuity. Merit pay is often given to an employee who meets their targets or performs well in their role. Indirect compensation 57 Indirect compensation is still a financial form of compensation since it has a financial value. However, employees do not directly receive it in cash form. That is why certain types of indirect compensation are viewed as monetary, while others are deemed non-monetary. This often varies between organizations. Indirect compensation is often known as employee benefits or rewards. The following are common examples of indirect compensation: Equity package: Equity as part of a compensation package means the employee is offered equity (ownership) in the company, either through shares of stock or the option to buy such shares. An equity package is common at start-up companies. These businesses may be low on cash or funding and need other incentives to attract and retain employees. Stock options: This form of compensation entitles employees to purchase a set number of shares at a fixed price after a certain period. This is different from an equity package because the employee will not have any ownership in the company. Stock options require employees to work between three to five years before they can access this compensation. 58 Benefits: Typical employee benefits usually include health insurance, life insurance, retirement plans, disability insurance, legal insurance, and pet insurance. Healthcare is a common benefit in the United States of America (USA), since it is expensive to access good medical care. Whereas, in the United Kingdom (UK), healthcare is free on the National Health Service (NHS). Retirement funds and pension plans are also common benefits that employees look for when considering a new role at a new organization. A survey found that 48% of job seekers in the USA said they would be more likely to apply for a job that came with good benefits. So, although the base pay you offer is important, thinking about your overall compensation package is essential. Non-monetary compensation includes benefits like: paid or non-paid time off flexitime learning and development opportunities parental leave childcare 59 company cars phones or laptops, and meals. A survey by Fractl found American employees value healthcare most as a benefit. Additional forms of indirect compensation, including extra vacation time, day-care, and tuition reimbursement, also made the most-wanted list. Silicon Valley companies offer their employees a wide variety of ever-enticing rewards, including concerts, on-site yoga classes, massages, free accommodation stays while on vacation, football tickets, and catered lunches. Although these forms of compensation seem small or superfluous, they can make a tremendous difference to your employee’s. This can improve their overall happiness in and outside of the workplace. It is important that you offer a variety of benefits that will appeal to types of people you employ and are looking to hire in the future. For example, if any of your employees have just become new parents or are looking to start or grow a family within the next few years, they will highly value benefits like parental leave and childcare. 60 In addition, certain forms of compensation can be viewed both as a reward and a disadvantage, depending on the rules you apply to it. For instance, if you provide all employees with a company laptop, are they required to keep this solely for business purposes, or are they free to use it for personal purposes? Individuals could view having two laptops as a hassle. Others may not like the idea of the company tracking and monitoring their entire private browsing history. Therefore, it is essential to be clear on who your core employees are and what they want before creating a compensation plan. Once again, there are differences in what counts as non-monetary compensation between organizations. Total compensation An employee’s total compensation consists of a compensation package made up of all the applicable types of compensation listed above. The total compensation can (and will) often include different rewards and benefits at different job levels. A total compensation statement is helpful for employees. They get a clear idea of everything they are entitled to from the start and the several types of compensation packages on offer, for example, splitting base pay, bonuses, and commissions. This will help employees understand what they are automatically 61 entitled to and what they need to meet targets to earn. They should be able to explain how it works and answer any questions that arise. 1.2.5. Effective managerial decision-making process Managerial decision-making is a process aimed at resolving identified problems and enabling effective and efficient performance of business activities. It is a cognitive process of making choices between many options, based on available information, knowledge, experience, and beliefs of decision-makers. It involves the rational and irrational mechanisms of thinking, depending on the complexity of the decisions that managers have to make, the time that they have for taking such decisions, and the circumstances which condition the criteria for deciding (Ashkanasy & Ahlstrom, 2014). Decision-making is an integral part of the managerial activities, and it is crucial for successful tasks resolving and achieving business goals (Al-Tarawneh, 2012). Therefore, it is an essential process of modern management, representing, in every field, the core function for the manager (Andronaceanu and Ristea, 2014). The entire decision‐making process is dependent upon the right information being available to the right people at the right time. The decision‐making process involves the following steps: 62 1. Define the problem. 2. Identify limiting factors. 3. Develop potential alternatives. 4. Analyse the alternatives. 5. Select the best alternative. 6. Implement the decision. 7. Establish a control and evaluation system. Define the problem The decision‐making process begins when a manager identifies the real problem. The accurate definition of the problem affects all the steps that follow. If the problem is inaccurately defined, every step in the decision‐making process will be based on an incorrect starting point. One way that a manager can help determine the true problem in a situation is by identifying the problem separately from its symptoms. The most obviously troubling situations found in an organization can usually be identified as symptoms of underlying problems. (See Table for examples of symptoms.) These symptoms all indicate that something is wrong with an organization, but they do not identify root causes. A successful manager does 63 not just attack symptoms, he works to uncover the factors that caused these symptoms. All managers want to make the best decisions. To do so, managers need to have the ideal resources — information, time, personnel, equipment, and supplies — and identify any limiting factors. Realistically, managers operate in an environment that normally does not provide ideal resources. For example, they may lack the proper budget or may not have the most accurate information or any extra time. So, they must choose to make the best decision possible with the information, resources, and time available. Time pressures frequently cause a manager to move forward after considering only the first or most obvious answers. However, successful problem solving requires thorough examination of the challenge, and a quick answer may not result in a permanent solution. Thus, a manager should think through and investigate alternative solutions to a single problem before making a quick decision. One of the best-known methods for developing alternatives is through brainstorming, where a group works together to generate ideas and alternative solutions. The assumption behind brainstorming is that the group dynamic stimulates thinking — one person's ideas, no matter how outrageous, can 64 generate ideas from the others in the group. Ideally, this spawning of ideas is contagious, and before long, suggestions and ideas flow. Brainstorming usually requires 30 minutes to an hour. The following specific rules should be followed during brainstorming sessions: Concentrate on the problem at hand. This rule keeps the discussion specific and avoids the group's tendency to address the events leading up to the current problem. Entertain all ideas. In fact, the more ideas that come up, the better. In other words, there are no bad ideas. Encouragement of the group to freely offer all thoughts on the subject is important. Participants should be encouraged to present ideas no matter how ridiculous they seem, because such ideas may spark a creative thought on the part of someone else. Refrain from allowing members to evaluate others' ideas on the spot. All judgments should be deferred until all thoughts are presented, and the group concurs on the best ideas. Although brainstorming is the most common technique to develop alternative solutions, managers can use other ways to help develop solutions. The following are examples: 65 Nominal group technique: This method involves the use of a highly structured meeting, complete with an agenda, and restricts discussion or interpersonal communication during the decision‐making process. This technique is useful because it ensures that every group member has equal input in the decision‐ making process. It also avoids the pitfalls, such as pressure to conform, group dominance, hostility, and conflict, which can plague a more interactive, spontaneous, unstructured forum such as brainstorming. Delphi technique: With this technique, participants never meet, but a group leader uses written questionnaires to conduct the decision making. No matter what technique is used, group decision making has clear advantages and disadvantages when compared with individual decision making. The following are a few of the advantages: - Groups provide a broader perspective. - Employees are more likely to be satisfied and to support the final decision. - Opportunities for discussion help to answer questions and reduce uncertainties for the decision makers. Thedisadvantages include: - This method can be more time‐consuming than an individual making the decision on his own. 66 - The decision reached could be a compromise rather than the optimal solution. - Individuals become guilty of groupthink — the tendency of members of a group to conform to the prevailing opinions of the group. - Groups may have difficulty performing tasks because the group, rather than a single individual, makes the decision, resulting in confusion when it comes to the time to implement and evaluate the decision. The results of dozens of individual‐versus‐group performance studies indicate that groups not only tend to make better decisions than a person acting alone, but also that groups tend to inspire star performers to even higher levels of productivity. So, are two (or more) heads better than one? The answer depends on key factors, such as the nature of the task, the abilities of the group members, and the form of interaction. Since a manager often has a choice between deciding independently or including others in the decision making, he/she needs to understand the advantages and disadvantages of group decision making. 67 The purpose of this step is to decide the relative merits of each idea. Managers must identify the advantages and disadvantages of each alternative solution before making a final decision. Evaluating the alternatives can be done in numerous ways. Here are possibilities: Determine the pros and cons of each alternative. Perform a cost‐benefit analysis for each alternative. Weigh each factor that is important in the decision, ranking each alternative relative to its ability to meet each factor, and then multiply by a probability factor to provide a final value for each alternative. Regardless of the method used, a manager needs to evaluate each alternative in terms of its: Feasibility — Can it be done? Effectiveness — How well does it resolve the problem situation? Consequences — What will be its costs (financial and non-financial) to the organization? After a manager has analysed all the alternatives, he/she must decide on the best one. The best alternative is the one that produces the most advantages and the fewest serious disadvantages. Sometimes, the selection process can 68 be straightforward, such as the alternative with the most pros and fewest cons. Other times, the optimal solution is a combination of alternatives. Sometimes though, the best alternative may not be obvious. That is when a manager must decide which alternative is the most feasible and effective, coupled with which carries the lowest cost to the organization. (See the preceding section.) Probability estimates, where analysis of each alternative's chances of success takes place, often come into play at this point in the decision‐making process. In those cases, a manager simply selects the alternative with the highest probability of success. Managers are paid to make decisions, but they are also paid to get results from these decisions. Positive results must follow decisions. Everyone involved with the decision must know his or her role in ensuring a successful outcome. To make certain that employees understand their roles, managers must thoughtfully devise programmes, procedures, rules, or policies to help aid them in the problem‐solving process. Ongoing actions need to be monitored. An evaluation system should provide feedback on how well the decision is being implemented, what the results are, and what adjustments are necessary to get the results that were intended when the solution was chosen. 69 For a manager to evaluate his decision, he needs to gather information to determine its effectiveness. Was the original problem resolved? If not, is he closer to the desired situation than he was at the beginning of the decision‐ making process? If a manager's plan has not resolved the problem, he needs to figure out what went wrong. A manager may accomplish this by asking the following questions: Was the wrong alternative selected? If so, one of the other alternatives generated in the decision‐ making process may be a wiser choice. Was the correct alternative selected, but implemented improperly? If so, a manager should focus attention solely on the implementation step to ensure that the chosen alternative is implemented successfully. Was the original problem identified incorrectly? If so, the decision‐making process needs to begin again, starting with a revised identification step. Has the implemented alternative been given enough time to be successful? If not, a manager should give the process more time and re‐ evaluate later. 1.2.6 Competency framework and core requirements around controlled functions 70 A competency framework is a means by which organizations communicate which behaviours are required, valued, recognized, and rewarded with respect to specific occupational roles. It ensures that staff, in general, have a mutual understanding of the organization's values and expected excellent performance behaviours. Components of the framework include core values, core competencies and functional competencies. The definitions of these components are as follows: Core values are principles that influence people’s actions and the choices they make. They are ethical standards that are based on the standards of conduct for the international civil service and are to be upheld by all staff. Core competencies provide the foundation of the framework, describing behaviours to be displayed by all staff members. They are defined by occupational roles for a given job. Functional competencies are defined by duties and responsibilities assumed by staff members for a given job. Based on the job complexity and level of responsibility, and the seniority of the occupational role, an average of three to five functional competencies are assigned to a given job. 71 EXAMPLE FROM IAEA (International Atomic Energy Agency) Given the varied nature of its work, the Agency could adopt core and functional competencies; however, following a thorough analysis of all scientific and administrative fields of work, it was decided to restrict the number to four core competencies and eleven functional competencies. The results of this analysis revealed that competencies are shared across many positions and that a more standardized approach would ensure more effective and efficient human resources management The competency framework consists of three occupational roles for the core competencies and four occupational roles for the functional competencies. These roles refer to the primary purpose of, and the relationship between jobs. For the core competencies, the occupational roles are broadly defined as follows: The Individual Contributor — a staff member, normally without supervisory

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