hrm str & planning chapters 13,15 and 17

chapter 15

CHAPTER 15 : ETHICS, EMPLOYEE RIGHTS, AND EMPLOYER RESPONSIBILITIES Introduction: Ethical behavior, employee rights, and employer responsibilities are dynamic segments of the human resource management field. Important issues are constantly developing and new issues are emerging with startling frequency. Organizations that do not pay attention to this ethics-rights-responsibilities field are likely to face large lawsuits and forms of hostile actions from both the employees and the government. So let's take a look at some of these issues. STRATEGIC CHOICES: Many factors influence the strategic choices managers make about how they will carry out their responsibilities in recognizing and respecting employee rights. The main strategic factors that directly influence their decisions about how they will treat employees include: o management philosophy — to what extent does top management and other managers believe in protecting employee rights? All else being equal, management that values employee rights will go to great lengths to protect them. They will ensure that company policies and actions will respect these rights. They will develop and communicate a set of core values that manifest these beliefs. EXHIBIT 15.1 SHOWS A SET OF CORE VALUES FOR THE TREATMENT OF EMPLOYEES IN A HOSPITAL. Another factor is O tightness of the labor market — the second variable. If labor is plentiful and readily available, firms are less likely to respect individual rights. This is because management knows that disgruntled and unhappy employees who quit or are fired can easily be replaced when there is an abundant supply of labor. On the other hand, the tighter the labor market , the more management will have to respect the rights of employees. O legislation — to the extent that laws exist and are enforced, employee rights will be protected. O unions and employee power — the greater the power of employees to protect their rights through collective action (unions), the more likely employers will respect employee rights. Unions have played a very strong role in defining and protecting employee rights. O culture — the final strategic variable. Both the external culture and the organization's internal culture are key variables in terms of how the employer defines employee rights. Example of external culture --- certain economic and political policies of society may desire that everyone be employed, such as in a communist country. Example of internal culture --- a culture that values their employees and their worth to the organization will protect employee rights more than a culture that does not value their employees. Managers must consider the balance these factors create when developing their approach to employee rights. Now let's switch to and talk about ETHICS . Many of the problems facing organizations today arise from the decisions managers make concerning what may or may not be ethical behavior. The area between what is legal and patently illegal is the domain of ethical disputes. What is ethics?? It is a set of moral principles that guide the behavior of people as to what is right or wrong, good or bad. Ethics in a sense refers to knowing what's the right thing to do, not just what's the most profitable thing to do. Ethical standards come from parents, society, teachers, the environment. An organization generally wants to be perceived as ethical. In recent years, courses on business ethics are part of the curriculum. In-house ethics classes have been developed by large corporations. Ethics are closely related to one's values (one's ethical code comes from one's values and beliefs) and there is always a degree of subjective judgment involved. Many organizations are pro-actively attempting to ensure that their members act in an ethical manner. The best management can do is to be explicit about the behaviors that are desired and those that are not tolerated and to set good examples for the employees. Because the HR department is often involved in monitoring what is ethical and fair within the organization, HR managers must ensure that ethical standards are communicated and integrated into the culture. We are still talking about employee rights. The law has a large influence on employee rights. THE LAW AND EMPLOYEE RIGHTS — Many rights have been codified either in legislation or case law, so let's look at those aspects of the law that deal with rights. O Discrimination --- employees have the right to employment free from discrimination based on race, color, creed, religious belief, country of national origin, age, sex, or physical or mental handicap. This covers all aspects of employment from hiring to placement to training to promotion to pay. Anti-discrimination laws are employment laws that say all employment decisions should be based on factors that are job-related i.e., relate to a person's ability to do the job. O employment at will ---this is the right of an employer to fire an employee without giving a reason and the right of an employee to quit when he or she chooses. Both the employer and the employee can freely break the employment relationship. This principle assumes that an employee has a right to sever the employment relationship for a better job opportunity or for other personal reasons. Employers, likewise, are free to terminate the employment relationship at any time and without notice for any reason, no reason, or even a bad reason. In essence, employees are said to work "at the will" of the employer. This doctrine means that either the employer or the employee can break the employment relationship at any time, unless there is a written or implied contract. Five factors that temper the employment at will concept are: 1. Employment contract --here causes or reasons for termination are spelled out. This protects the employee from termination for other reasons. Courts have often ruled that implied contracts are formed if management uses the word "permanent" employee. That using the term permanent implies a contract. 2. Civil service protection --- employees working for government agencies are protected from discharge without justifiable cause through civil service rules and regulations. 3. Discrimination law --- employees cannot be discharged solely because of the race, color, sex, creed and so on as provided by law. 4. Unions --- union contracts specify causes and procedures for discharge in their collective bargaining agreements. 5. Discharges contrary to the public interest --- employees cannot be terminated if they refuse to engage in behavior that endangers the public or speak up about violations of the law in the organization (whistleblowing). EXHIBIT 15.3 IN THE TEXTBOOK SHOWS EMPLOYMNET AT WILL CLAUSE EXAMPLES TYPES OF RIGHTS---- Before we look at the seven types of employee rights, let's look at our own basic rights as individuals. BASIC HUMAN RIGHTS: 1. The right to have and express your own feelings and opinions 2. The right to refuse requests without having to feel guilty or selfish. 3. The right to consider your own needs. 4. The right to set you own priorities, make your own decisions. 5. The right to change. 6. The right to decide what to do with your own property, body, and time. 7. The right to make mistakes and be responsible for them. 8. The right to ask for what you want ( realizing that the other person has the right to say no). 9. The right to ask for information. 10. The tight to choose not to assert yourself. 11. The right to do anything as long as it does not violate the rights of someone else. 12. The right to be properly assertive, even if the other person feels hurt or mad as long as you do not violate the other person's basic human rights. 13. The right to be independent - to have certain needs and wants. 14. The right to be successful - to be good even though others might not have the same ability. 15. The right to be left alone - to spend some time by oneself. 16. The right to be treated with respect and dignity. 17. The right to get what you pay for. 18. The right to be listened to and taken seriously - to have one's point of view respected. 19. The right to initiate a discussion of a problem with the person involved to clarify it and negotiate a solution. 20. The right to have rights and to stand up for them. EMPLOYEE RIGHTS Employee rights policies must include seven basic areas. Now let's look at these seven areas: 1. Privacy --- the right to privacy can be regarded as a matter of personal freedom from unwarranted government or business intrusion into personal affairs. It is grounded in the Constitution. Employee rights frequently involve an employer's alleged invasion of an employee's right to privacy. Unfortunately, the difference between an employee's legal right to privacy and the moral or personal right to privacy is not always clear. Employee monitoring and drug testing are two of the more controversial issues with respect to privacy. Monitoring employees behavior without their knowledge may result in suits charging invasion of privacy. 2. Fair treatment — means freedom from arbitrary or capricious behavior on the part of management. Individual cannot be singled out for discipline when others also deserve it and there can not be overt favoritism on the part of management. 3. Safe and healthful workplace free from sexual harassment--- the OSHA act of 1970 gives employees the right to a safe and healthful workplace. The EEOC guidelines on sexual harassment state that unwelcome advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature constitute sexual harassment when submission to the conduct is tied to continuing employment or advancement. This also includes freedom from a hostile environment when sexual conduct has the purpose or effect of interfering with job performance or creating an intimidating, hostile, or offensive working environment. 4. Collective Bargaining — employees have the right to form or join unions to bargain collectively with their employers with regard to wages, hours, other terms of employment. 5. Communication and involvement in the organization --- employees have the right to be informed about all aspects of their job. They have the right to discuss aspects of their jobs and their employment such as benefit programs, the organization's mission, goals, how they will be evaluated etc. 6. Notice of plant closings and disciplinary actions --- The WARN (Worker Adjustment and Retraining Notification) Act of 1988 requires that firms notify employees of plant closings and layoffs. Employers must also give notice about new rules or regulations that will be enforced. 7. Due Process — the right to a fair hearing if charged with rule violation. This is the employees right to tell their side of the story and to have all facts considered in an impartial manner when charged with a rule violation. Management failure to adequately deal with any of these areas is likely to result in severe organizational problems. Many different types of organizations have bill of rights. Hospitals have a patients bill of rights. Health and Welfare Funds have a bill of rights. Pharmacies have a privacy bill of rights. Even a fast food restaurant like Burger King has a bill of rights displayed on their placemats. It reads: O You have the right to have things your way. O You have the right to hold the pickles and hold the lettuce. O You have the right to mix Coke and Sprite. O You have the right to have a WHOPPER sandwich with extra tomato, extra onion, and triple cheese. O You have the right to have that big meal sleepy feeling when you are finished. O You have the right to put a paper crown on your head and pretend you're the ruler of " some pretend land". O You have the right to have your chicken fire grilled or fried. O You have the right to dip your fries in ketchup, mayonnaise, BBQ sauce or mustard. O Or not O You have the right to laugh until soda explodes from your nose. O You have the right to stand up and fight for what you believe in. O You have the right to sit down and do nothing. O You have the right to eat a hot and juicy fire-grilled burger prepared just the way you like it. O You have the right to crumple this Bill of Rights into a ball (it's on a placemat) and shoot hoops with it. To this point we have discussed the rights of employees. Now let talk about EMPLOYER RESPONSIBILITIES--- that employers have responsibilities with respect to these rights. Also employers have responsibilities to the community at large as well as to employees. O Responsibilities to Stakeholders --- A "stakeholder" is any organizational constituency or group that has a vested interest in what an organization does or does not do. Examples of Organization Stakeholders are shown in EXHIBIT 15.4 IN THE TEXTBOOK Examples : owners want a return on their investment; customers want a quality product or service; government wants taxes and the organization to obey the laws etc. Organizations have multiple stakeholders and have different responsibilities toward each stakeholder. Every organization serves the interests of multiple stakeholders who all want different things from the organization. Consequently, the employer has different responsibilities toward each stakeholder. This can result in conflict for the organization with its stakeholders. Employers also have the O Responsibility to Know the Law --- "Ignorance of the law is no excuse" applies here. They need to stay abreast of the law and its changes and legal matters. Employers have the O Responsibility to Communicate with Employees--- Employers should communicate openly with employees. Different forms of communication can be used consisting of face-to-face or one-on-one, meetings, letters, memo, telephone, e-mail reports, etc. Employers have the O Responsibility to Treat Employees with Human Dignity--- Remember that employees are not just another factor of production like a machine or desk or factory. Rather they are human beings and deserve respect and consideration. Employers have the O Responsibility to Bargain Collectively --- the law requires that employers must bargain collectively with employees if a union if one exists. Employers have the O Responsibility to Provide Due Process — As we talked about earlier, the right to a fair treatment and a fair hearing on the part of the employee requires that the employer accepts the responsibility to provide due process.

chapter 13

In the last four chapters, we learned about strategies for maximizing human resource productivity by means of job design, training and development, performance appraisal systems, and strategic compensation systems. Now we want to start Part Four. PART FOUR: STRATEGIES FOR MAINTAINING HUMAN RESOURCES In this Part we want to examine ways of maintaining human resources in the organization. We begin in CHAPTER 13 BENEFIT PLANS by discussing various benefit programs available today for organizations. INTRO Employee benefits constitute an indirect form of compensation intended to improve the quality of the work lives and the personal lives of employees. Benefits represent approximately 40% of total payroll costs to employers. In return, employers generally expect employees to be supportive of the organization and to be productive. Since employees have come to expect an increasing number of benefits, the motivational value of these benefits depends on how the benefits program is designed and communicated. Once viewed as a gift from the employer, benefits are now considered rights to which all employees are entitled. Increasing costs and the passage of new legislation have caused major changes in benefit plans over the past years. STRATEGIC CHOICES: Keeping a strategic perspective, there are three strategic choices managers must make regarding benefits. 1. How much of the money that is used to cover employee benefits should be paid by the employer and how much should be paid by the employee??? 2. How comprehensive should the plan be? 3. How flexible should the plan be? Let's look at these choices in more detail. WHO PAYS FOR THE BENEFITS? Traditionally, the employer has been mainly responsible for paying most of the costs of a benefits program. However, this trend has been reversing. The trend is now toward having the employee pick up a greater percentage of the cost of benefits, particularly health care benefits. The United States health care system is the world's most expensive. But health care costs are just one of the components of a total benefits package. Second Choice HOW COMPREHENSIVE A LIST OF BENEFITS SHOULD BE OFFERED? — All employers must offer a certain range of benefits, as mandated by law. These are called "compulsory benefits" such as workers' compensation, unemployment insurance, etc. Beyond these compulsory benefits, employers have a wide choice of benefit packages and this is likely to grow. EXHIBIT 13.1 IN THE TEXTBOOK shows the result of a survey done of over 1000 Fortune 500 companies. Note that they offer a broad mix of benefits. All of the companies offer medical coverage but only 31% offer any type of resource and referral service. As employees become more family oriented the benefit mix will change. Employees will want more flex time, family benefits like child care or elder care, on-site babysitting services, more leisure time......The extent of benefit offerings is a strategic question for each employer The third strategic choice involves HOW FLEXIBLE SHOULD THE BENEFIT OFFERINGS BE? The firm must decide whether to offer a standard package to every employee or whether to allow the employee to choose the benefits he or she wants ---a cafeteria style benefits plan. It is far more common today, for employees to have a flexible benefits package. As you now may have realized, these are difficult questions to answer. But the one key underlying strategy that does prevail in benefit offerings is that of COMPETITIVENESS. Employers want to offer benefits packages that make them competitive in the marketplace ---- that allow them to compete successfully in the labor market for employees but not one that is so costly that labor costs are raised above those of their competition. Strategically speaking, the question becomes can benefits be used to help the organization gain a competitive advantage. --- to be used in attracting the best people and in maintaining them. By competitive advantage is meant being able to gain a competitive edge over your rivals --- being able to gain an advantage over your competitors. If they want to use differentiation (another strategy) to gain this competitive advantage, then they must know what is being offered by their rivals and design a benefits program that is better or more unique. COMPOSITION OF BENEFIT PLANS Many companies today offer a wide variety of benefits. Some benefits are required by law, while others have been offered for so long firms feel obligated to continue to offer them. Generally the larger the company, the more benefits that are offered. Let's look at the different types of benefits that may be offered. For purposes of learning , they have been classified into seven major categories. 1. REQUIRED OR MANDATORY SECURITY Federal and state governments require that employers provide certain minimum of protection or security for each employee. Examples are: EXHIBIT 13.3 IN THE TEXTBOOK A. Workers compensation --- This is based on the theory that the cost of work-related accidents and illnesses should be considered one of the costs of doing business and should ultimately be passed on to the consumer. This is a required benefit that protects the employee from costs due to injury on the job. The costs are paid entirely by the employer. Today, workers' compensation covers not only physical injuries, but injuries from stress-related causes, emotional consequences of physical injuries and job stress. Criticisms of Workers Compensation is that benefit plans can vary from state to state and firms have lobbied against having federal control over this benefit. The best way to lower costs for workers' compensation is to get involved with safety in the workplace and pursue strategies to help lower costs. B. Unemployment Compensation---This benefit pays employees for work time missed due to layoff or termination. Employees who have been working in employment covered by the Social Security Act and who are laid off may be eligible for up to 26 weeks of unemployment insurance benefits during their unemployment. During periods of high unemployment, Congress extends the period for collecting benefits up to another 26 weeks as long as the unemployed are actively seeking employment. Most employees are eligible unless they are fired for misconduct. The amount of compensation that workers are eligible to receive varies among states and is determined by their previous wage rate and previous period of employment. Funds for unemployment compensation are derived from a federal payroll tax based on the wages paid to each employee, up to an established maximum. C. Social Security — Passed in 1935, the Social Security Act provides an insurance plan designed to protect covered individuals against loss of earnings resulting from various causes. These causes may include retirement, disability, or in the case of dependents, the death of the worker supporting them. Social Security is funded jointly by the employee and employer through a tax on a set amount of wages. Another category of benefits includes VOLUNTARY SECURITY — Two major security benefit programs used by employers are severance pay and supplemental unemployment benefits. O Severance pay is pay given to the employee at termination. Its purpose is to provide funds to tide the employee over until he or she finds another job. The pay received is usually based on the employee's years of service, the salary level of the employee, their level in the organization or a combination of these factors. Organizations that are downsizing often use severance pay as a means of lessening the negative effects of unexpected layoff. "Golden parachutes" is a form of severance pay given to executives as a form of compensation if they are terminated during a hostile takeover. The second type of voluntary security benefit is O Supplemental Unemployment Benefits (SUB's) -- these are benefits paid by the employer to the employee who is temporarily laid off. It is a plan that enables an employee who is laid off to draw, in addition to state unemployment compensation, weekly benefits from the employer that are paid from a fund created for that purpose. Another category of benefits is 3. RETIREMENT Pensions are the most common form of retirement benefits. They are considered rewards for long service and are used primarily to retain a loyal workforce. ERISA (Employment Retirement Income Security Act) of 1974 was passed to correct many abuses in pension coverage and to set rules and regulations It is the major law regulating pensions. Funds for paying pension benefits are acquired in two ways: an "unfunded" plan pays pensions out of current income generated by the company. A" funded" plan pays benefits out of money set aside and invested specifically to pay pension benefits. Pension plan can also be "insured" — administered through an insurance company that guarantees payment of the benefits or "uninsured" --- administered by the employer. In "non-contributory" pensions, the contributions are made solely by the employer. The employer pays all of the funds for the pensions. In "contributory" plan, contributions to a pension plan are made jointly by employees and employers. Both fund the pension. Retirement plans come in two main types: a "defined contribution " plan establishes the basis on which an employer will contribute to the pension fund. Defined contribution plans fix the rate paid by the employee and allow the retirement benefits to vary. Examples may be profit sharing and ESOP's. The "defined benefits" plan is a pension plan in which the amount an employee is to receive upon retirement is specifically set forth. The amount used to set them is usually based on years of service, average earnings during a specific period of time, and age of retirement. In a PORTABLE pension plan, employees can move their pension benefits from one employer to another without losing benefits. This has become an increasingly important aspect of pensions because the average worker changes job more frequently than in the past. VESTING is the right to receive benefits from a retirement plan. A person becomes vested after working and contributing for a period of time. Vesting is a guarantee of accrued benefits to participants at retirement age, regardless of their employment status at that time. IRA's (Individual Retirement Accounts) are retirement funds funded only by the employee. An employee can contribute salary money up to $2000 a year and it is not subjected to taxes (tax shelter). Money can be set aside until age 70 ½ and can be withdrawn without penalty beginning at age 59 1/2. Funds drawn prior to that are subject to income tax and a 10% penalty. 401 (k) Plans --These plans work like IRA's but the employer deducts the money from salary and the money can be invested only in a limited set of employer-approved funds. These are popular with smaller employers who find these less costly than defined benefit plans. Keogh Plans — These are retirement plans for self-employed individuals. They are self-directed retirement plans used by self-employed individuals. They act much like an IRA in that a $2000 limit is observed and the individual directs the plan. Income and interest are sheltered from taxation until withdrawn. Early Retirement — Some companies offer early retirement packages whereby a person can retire at a lower age with fewer benefits. TIME-OFF RELATED BENEFITS Most companies offer time-off related benefits in the form of O Holiday pay --most employers pay for established holidays like New Years, Christmas, Thanksgiving, President's Day etc O Vacations — most employers offer paid vacation ranges from one week to six weeks depending on length of time with company O Leaves of absence --- Disability leaves, maternity leaves, jury duty leaves, leaves for military service, election leaves, and funeral leaves represent the most common type of leaves of absence. The Family and Medical Leave Act gives certain employees up to 12 weeks of leave during a 12 month period to care for a spouse, child, other family member, or the employee's own health problems. This act incorporates birth, adoption, elder care and foster care situations. HEALTH AND INSURANCE RELATED BENEFITS The benefits that receive the most attention from employers today because of high costs and employee concern are health care benefits. In the past, health insurance plans covered only medical, surgical, and hospital expenses. Today employers include prescription drugs as well as dental, optical and mental health care benefits. These benefits are a major expense for most firms. Rising healthcare costs have driven up the costs of premiums for health insurance. As healthcare costs increase, employers are trying to cut costs through cost containment methods of o HMO's (health maintenance organizations) — this is an organization of physicians and health care professionals that provide a wide range of services to subscribers and dependents on a prepaid basis. O Preferred Provider Organizations (PPO) — This is a group organized by a hospital or group of physicians that guarantees lower health care costs to the employer through lower service charges or agreed upon utilization controls e.g. a reduced number of diagnostic tests per employee. It operates much like an HMO but a larger group of physicians is usually involved and a looser organization with more choice. O Employee Co-payment--- Some organizations are requiring employees to pay a part of the annual monthly premium. O Employee Payment of Deductible — This requires employees to pay a fee or percentage of the cost for office visits or hospital procedures. O Self-Funded Insurance — These plans are funded by the employer, not an insurance company. The employer sets aside a certain amount of money to pay claims during the year. O Wellness Fitness Programs --- Many firms have tried to cut healthcare costs by focusing on preventive employee fitness. Examples are fitness rooms, jogging tracks no smoking policies, weight loss programs etc. Providing employees with information about paid procedures allows employees to shop for medical care. Also in the past, employers often restricted psychiatric and substance abuse benefits. Now most provide a flexible set of benefits with few restrictions. Some other techniques being used are managed care programs which direct employees to a specific doctor, hospital or treatment center that will offer the employee a reduced rate, Contracts with pharmacies or ordering drugs through discount mail-order drug plans has also become popular. ADDITIONAL ISSUES IN HEALTH CARE are o an aging population — older persons consume vast amounts of healthcare costs o AIDS --the cost of AIDS puts a heavy burden on healthcare costs o Drug testing has become a controversial issue. Many firms test applicants for drug use. o Expansion of Coverage --Many firms now offer dental, chiropractic, and optometric in addition to traditional health care. o Nonmedical Insurance Benefits --Long-term disability is offered by many employers. Legal insurance as well as auto insurance are offered by some firms. FINANCIAL, SOCIAL AND RECREATIONAL BENEFITS These benefits are referred to as "perks". O nonfinancial — the use of a company car, expense account, club membership etc. are common perks offered to executives. Financial benefits include O Thrift/Stock --here we have employee thrift, saving or stock purchase investment plans and ESOP. O Educational Benefits — many firms offer tuition reimbursements for employees. O Childcare benefits and elder care benefits --- People want babysitting services and as people are living longer, taking care of the aging parent becomes an issue for employees. O Cafeteria plans --These plans allow employees to pick and choose which benefits they want O Family friendly benefits — offers employees flexible scheduling where they can start and end work at their convenience. So this chapter does emphasize that benefits should be strategically managed, and not just administered.

chapter 17

PART FIVE: STRATEGIC SEPARATION CHAPTER 17: STRATEGIC RESTRUCTURING AND THE VIRTUAL ORGANIZATION INTRODUCTION: The focus of this course has been to provide a good understanding of how organizations can gain a sustainable competitive advantage through people. Its focus was that organizations need a flexible and skilled workforce to compete effectively --- whether it is going global, embracing technology, managing change, responding to the market, and containing costs, just to name a few. Strategic HRM must not only address these important concerns but also another issue of how to deal with the organization's human resources in making restructuring and downsizing decisions. Restructuring and downsizing has had a profound effect on many organizations during the past decade and continues to do so in the next decade. STRATEGIC CHOICES: Some strategic choices managers need to make are A. Managers must decide how to downsize. Permanently severing ties is one option, while retraining is another, and the choices are endless. B. Managers must decide when the downsizing should take place. Balancing employee good and company good is critical. Other strategic choices include: 1. Managers must decide which employees will be laid off. 2. The company must decide transition issues in downsizing. 3. Managers must decide when to stop downsizing. 4. Managers must meet the challenge of downsizing. Any organization restructuring involves a trade-off between the impact on the employees and the immediate benefits to the organization. It is the manager's responsibility to balance the impact against the benefits. RESTRUCTURING OPTIONS Broadly defined, restructuring is any major change in the way an organization operates. The goal is to reduce the number of employees serving the same function at the same level of efficiency. Restructuring usually involves 0 cutbacks ---attempts by an organization to react to temporary changes in the marketplace by reducing spending and controlling costs. O downsizing --- the process by which a firm seeks to reduce its overall size and scope permanently, usually as the result of changes in either the organization's strategy or the marketplace. It involves a permanent reduction in the size of the work force. O consolidations --actions to cut functions or activities that may be redundant or overlap within an organization to trim fat. Consolidation would be the most likely restructuring option used after a merger or acquisition between two companies. O bankruptcy --the only restructuring choice may be ~ Chapter 11 bankruptcy --a bankruptcy filing in which a firm seeks to reorganize its operations and continue operating or ~Chapter 7 bankruptcy --a bankruptcy filing in which a firm ceases to operate. These are all methods to eliminate some form of cost to the organization. However, they differ in their impact on the actual workers. Downsizing and consolidations more directly affect actual people and their jobs. Cutbacks make everyone do more with less. STRATEGIC VARIABLES An organization's decision to restructure results from an examination of several different strategic variables. Let's look at each one of them: One strategic variable is O COMPETITIVE STRATEGY --- often an organization will restructure as a result of a change in its competitive strategy. Michael Porter in his book "Competitive Strategy" defines it as "a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there". Porter identifies three generic types of strategies that an organization may pursue ~ cost leadership strategy that results in "trimming away the fat" and achieving efficiency in order to sell products that are less expensive than their competitors' products. This strategy is aimed at reducing inefficient layers of bureaucracy and reducing redundant functions within the organization. ~ differentiation strategy where the firm seeks to create a product or service that is unique within the industry. This strategy is most concerned about the need to acquire highly skilled, specialized employees. ~ focus strategy in which the firm seeks to concentrate on a narrow industry segment that matches its skills. The firm must consider its competitive strategy and how that will affect the structure of the organization as well as the personnel needed to achieve the strategy. The second strategic variable to examine is MANAGEMENT'S PHILOSOPHY CONCERNING EMPLOYEES AND TECHNOLOGY The philosophy of the firm's managers concerning its employees and technology may also influence restructuring. The management philosophy of layoffs must be considered here. Some organizations have a no-layoff policy, while other organizations see employees as being like any asset of production. The less valuable the skills of the employees, the easier they are to replace, hence the more likely the firm is to have a layoff policy. Management philosophy toward automation, that is, replacing people with machines and equipment, may also affect a firm's restructuring decision. Some firms believe high levels of automation make them more competitive. Another strategic variable to consider is O BUSINESS CYCLE STAGES Business cycle stages may also influence a firm's restructuring decisions. Each stage of the business cycle ~prosperity and recovery--- characterized by strong economic times and increasing sales ~recession --characterized by economic slowdowns, rising unemployment, lack of market demand for goods and services, and excess productive capacity ~depressions --- a severe recession characterized by prolonged economic slowdown, extremely high unemployment, severely declining market demand for products and services, and high levels of excess productive capacity have different effects on the organization. So the point of this variable is that restructuring is easier to implement in times of prosperity or recovery than in recessions or depressions. Another strategic variable is O COST RESTRUCTURE Cost restructuring is a process by which a firm seeks to change certain costs with the organization, usually with the goal of changing costs or reducing costs to a lower level. It involves an attempt to permanently get costs in line (lower them). Use of the LBO was a major cause of restructuring that began in the 1980's. Leveraged buy-out is where one firm buys out another with the use of debt instruments because of the potential the buying firm feels the acquired firm has. It is the takeover of a company usually using borrowed funds either in the form of bank loans or junk bonds (high-yield, low-grade bonds). LBO's are collateralized with the firm's assets and money to repay the loans is hoped to come out of operating income. These have caused many firms to undergo a cost restructuring to pay off the debt and interest. The firm needs to consider its cost structure and what its goals are with respect to certain costs. The strategic variables and choices facing an organization are often strong determinants of the type of restructuring that the organization undertakes. Managers should carefully examine these strategic variables and choices before embarking on a restructuring. THE IMPACT OF RESTRUCTURING ON HUMAN RESOURCES Once the organization has considered its strategic choices and decided to restructure, its managers now must make some strategic choices to determine the type of human resource restructuring it will use. Question surfaces --Should the firm use a no-layoff strategy??? NO-LAYOFF STRATEGIES Many firms view their employees as a valuable asset and feel that it is cheaper to keep people on, even in hard times, than to let them go and retrain new employees when business picks up. Having a no-layoff strategy creates good employee relations; however, it can make it difficult for a firm to be flexible in a changing environment. The more valuable the employee skills, the more a firm should not use permanent layoffs. "Work Force Reduction through Attrition" is the most common form of no-layoff restructuring. This involves stopping the growth in the total number of employees in the workforce thus reducing the total number of employees without layoffs. Some methods of reducing the workforce through attrition include: Hiring freezes ( where a firm forgoes all new planned hiring), non-replacement of job vacancies, and non-replacement of fired workers are all options. These options, however, can put a burden on existing employees. Further, firms can fall behind in the level of current skills possessed by their workers. Early retirement programs or providing cash bonuses to those who agree to leave are also options. Worker reassignment and retraining ( moving workers out of one job and into another job that may be more important to the organizations, often accompanied by the teaching of new skills) may be another option. This may involve moving people from staff positions to sales or manufacturing positions. Sometimes, this involves asking employees to move to new locations (voluntary transfers) Worker loan out programs which consists of lending workers from one organization to another such as to government or charitable organization for a specified period are rare, but a last option. LAYOFF STRATEGIES The question that now needs to be addressed is If the firm chooses to use layoffs, should they be temporary layoffs or permanent plant closings?????? Layoffs are among the most common strategies used in restructuring. A "layoff" is a restructuring strategy in which an organization seeks to temporarily reduce the size of workforce, usually through the release of employees from work for a specified time. Layoff strategies can include O indefinite layoffs — a layoff strategy in which the organization permanently releases an employee from the company after a fixed layoff period, such as 6 months or a year. Supplemental unemployment benefits are sometimes offered to compensate the employees while laid off. O reduced workweeks are another form of layoffs. This is a layoff strategy in which a firm lowers its payroll costs by reducing the number of hours worked every week by each employee. This enables the firm to keep valuable employees on for typically 20 to 30 hours per week. This has disadvantages in that workers cannot easily find second jobs to make up the difference. Even though it does allow the firm to reduce labor costs while retaining employees, the firm cannot usually predict the number of hours a worker will be needed, making it even harder for the worker to obtain that second job. O Reduced shifts involves cutting back the number of hours the organization operates. Organizations can drop a shift or cut back the hours of all shifts. This can also reduce labor costs while retaining workers. The type of production process must be considered. O Plant or Office Closings are temporary or permanent shutdowns of work units and may be due to a change in strategy. These can have negative effects on the remaining parts of the organization causing poor morale and are affected by the WARN Act. A final issue in using a layoff strategy is how organizations decide whom to lay off and whom it gets to keep. Two of the most common methods of deciding who gets laid off are ~employee seniority--- a layoff method in which employees are laid off according to the length of time each employee has worked with the firm and ~ employee ability layoff criterion --- a layoff method in which employees are laid off according to each employees skill level and productivity. If a union is present, unionized firms often use seniority to decide who gets laid off first. This method is somewhat more objective. Ability-based methods appeal to the ethic of rewarding good work. TERMINATION STRATEGIES The next question that need to be addressed in a restructuring strategic decision is: Should the organization cushion its terminations or use "harsh" terminations????? Employee terminations are actions initiated by an organization to permanently separate employees from the organization. Termination strategies seek to permanently sever the ties with certain employees. Terminations are initiated with purpose of permanently reducing the size of the work force, unlike firings. They can be the end result of strategies like plant closings or permanent layoffs, or used as the beginning of a restructuring strategy. Organizations that pursue termination strategies must consider a number of issues : All termination decisions involve EMPLOYEE PROTECTION AND COMPENSATION plans. These are organizational policies relating to the handling of employees during termination situations. Some firms have clearly defined plans, while other firms have no plans. Another issue is TENURE. Tenure is a measure of the time an employee has worked in an organization and the rights and benefits the person has accrued as a result. Tenured employees often have better rights and benefits at termination than newer employees. Usually the higher the tenure, the more costly it will be for the organization to terminate the position. Other issues include SEVERANCE PAY, GOLDEN PARACHUTES, and other costs of firing must be considered. o Severance Pay is paid to terminated employees usually based on their length of employment. They reduce the chances of legal action against the employer, but can be costly, especially if a large number of employees are to be terminated. Severance play immediately clears the employer of its obligations to former employees and may help to improve employee relations. Large sums of money are required immediately though if paid in a lump sum. o Golden parachutes are termination packages offered to executives. They are extremely costly, and are often written into an executive's contract. EMPLOYMENT-AT-WILL also influences termination decisions. These doctrines state that the employment relationship may be severed by either the employer or employee for any reason at any time. Courts are extremely sensitive to cases of wrongful discharge. If found guilty, a firm can be forced to pay large fines to the employee who brings a suit, even if an employment-at-will doctrine exists. OUTPLACEMENT POLICY is another issue to be addressed. Some firms offer no outplacement help, while others offer financial, psychological, and job-search support. These policies can be costly if not monitored, but they can ease the former employee's transition. TYPES OF TERMINATIONS There are three basic types of termination strategies: Each strategy seeks to permanently sever the ties with the former employee. 1. Leave 'em naked termination --- This is a termination strategy in which the firm releases employees from the organization without providing any protection or compensation benefits or outplacement services. This strategy involves little up-front expense and allows the firm to decide who it will keep and who will go. It exposes the organization to legal action (lawsuits by terminated employees with wrongful discharge claims) and may cause adverse reactions from remaining employees however. This strategy can be perceived as the action of a firm with only its own concerns in mind. 2. Early Retirement Termination --- This is a termination strategy in which an organization provides some form of inducement for employees to retire from the organization before they reach normal retirement age. Early retirement is designed to eliminate many of the older workers who are close to, but not yet eligible for, retirement. However, early retirement leaves the organization with the least ability to control who will leave and who will stay. These plans can also involve costs, such as the fact that the firm cannot pick and choose who will stay, but they also have benefits such as lower healthcare costs. 3. Forced Resignation Termination ---- This is a termination strategy in which employees are offered the option of either resigning or being terminated outright. This is usually an alternative to firing an employee. The organization is exposed to legal actions, and cash outlays are present: however, the firm chooses who stays. DOES DOWNSIZING WORK??????? Some evidence suggests that downsized firms do not perform better (financially) than other firms. Downsizing does not always result in higher productivity or profitability. Downsizing is a form of "corporate anorexia " in that it can make a company thinner, but not necessarily healthier. Downsizing often results in short-term costs savings in salary expense, but can also result in a long-term skill shortage, increased workload on remaining employees, and greater employee dissatisfaction and uncertainty. THE VIRTUAL ORGANIZATION, CONTINGENT WORKERS, AND OUTSOURCING To cope with the environmental and competitive pressures organizations are experiencing, they are experimenting with new forms of employment. One form is the VIRTUAL ORGANIZATION. The virtual organization refers to the increased use of information technology to allow employees to work in locations other than "the office" and communicate globally. It refers to the network of individuals , using information technology, who form a web of strategic partnerships. Workers may never have to leave their home because of computers, telephones, fax machines, video-conferencing and modems, which enable them to be just as productive as they would be at corporate headquarters. The virtual organization is typically characterized by information networks, outsourcing, webs of strategic partnerships and a flexible workforce. It also allows them flexible hours to accommodate family responsibilities. Its use has been increasing because of the possible cost savings that can be realized. Contingent workers and outsourcing are two components of the virtual organization that affect how a firm manages its human resources. O Contingent workers are any person who works for an organization, but not on a permanent or full-time basis. These include temporary, part-time, contract labor, and leased employees. Advantages are that it allows the organization to save money by reduced payroll and benefit costs and increased flexibility in operations. Disadvantages are increased training costs, failure to develop in-house skills, potential morale problems, difficulties in scheduling work, and lower levels of employee commitment. O Outsourcing refers to contracting with an outside party to perform a specific function, typically one that used to be performed in-house, in an effort to save money. Money is saved in reduced costs (payroll, benefit, or direct costs) but can result in a loss of skills, possible morale problems, low productivity, and lower quality. Investigating the use of a virtual organization, contingency workers, and outsourcing may allow the organization to better cut costs and meet the variable changes in demand for the firm's goods and services.