Strategic Human Resource Issues

Any organization is only as good as its people! Thus, human resource issues can make or break successful strategy implementation. Thus, seven human resource issues are discussed further in this section, as follows: (1) linking performance and pay to strategy, (2) balancing work life with home life, (3) developing a diverse work force, (4) using caution in hiring a rival’s employ­ees, (5) creating a strategy-supportive culture, (6) using caution in monitoring employees’ social media, and (7) developing a corporate wellness program.

1. Linking Performance and Pay to Strategy

An organization’s compensation system needs to be aligned with strategic outcomes. Decisions on salary increases, promotions, merit pay, and bonuses need to support the long-term and annual objectives of the firm. A dual bonus system based on both annual and long-term objectives can be helpful in linking performance and pay to strategies. The percentage of a manager’s annual bonus attributable to short-term versus long-term results should vary by hierarchical level in the organization. It is important that bonuses not be based solely on short-term results, because such a system ignores long-term company strategies and objectives.

To better link performance and pay to strategies, many companies have recently instituted policies to allow their shareholders to vote on executive compensation policies. Back in 2007, Aflac was the first U.S. firm to voluntarily give shareholders an advisory vote on executive com­pensation. Apple did the same in 2008, as did H&R Block. Several companies that instituted say- on-pay policies more recently were Ingersoll-Rand, Verizon, Motorola, Occidental Petroleum, and Hewlett-Packard. Firms are also establishing profit sharing, gain sharing, and bonus systems. More than 30 percent of U.S. companies have profit-sharing plans, but critics emphasize that too many factors affect profits for this to be a good criterion. Taxes, pricing, or an acquisition would wipe out profits, for example. Also, firms try to minimize profits in a sense to reduce taxes.

For employee (rather than executive) bonuses and incentives, only 16 percent of U.S. com­panies are now using stock price, down from 29 percent in 2009.⁷ Instead, companies are using profit in order to more closely link employees’ incentives to spending and budget decisions. PepsiCo, for example, recently began using profit and cash flow instead of stock price to focus managers on profit and cash-flow targets. PepsiCo’s CFO, Hugh Johnston, remarked, “The change allows our employees to make decisions about spending and profit trade-offs themselves, rather than simply being handed a budget to follow; it’s something they can wrap their arms around and say, ‘Now I understand how I can impact PepsiCo’s stock price.’” For upper-level executives, stock price is still the major variable used for compensation incentives, but for mid- and lower-level managers and employees, stock price is dependent on too many extraneous vari­ables for it to be an effective compensation variable.

Gain sharing requires employees or departments to establish performance targets; if actual results exceed objectives, all members get bonuses. More than 26 percent of U.S. companies use some form of gain sharing; about 75 percent of gain-sharing plans have been adopted since 1980. Carrier, a subsidiary of United Technologies, has had excellent success with gain sharing in its six plants in Syracuse, New York; Firestone’s tire plant in Wilson, North Carolina, has experi­enced similar success with gain sharing.

Criteria such as sales, profit, production efficiency, quality, and safety could also serve as bases for an effective bonus system. If an organization meets certain understood, agreed-on profit objectives, every member of the enterprise should share in the harvest. A bonus system can be an effective tool for motivating individuals to support strategy-implementation efforts. BankAmerica, for example, recently overhauled its incentive system to link pay to sales of the bank’s most profitable products and services. Branch managers receive a base salary plus a bonus based both on the number of new customers and on sales of bank products. Every employee in each branch is also eligible for a bonus if the branch exceeds its goals. Thomas Peterson, a top BankAmerica executive, says, “We want to make people responsible for meeting their goals, so we pay incentives on sales, not on controlling costs or on being sure the parking lot is swept.”

A combination of reward strategy incentives, such as salary raises, stock options, fringe benefits, promotions, praise, recognition, criticism, fear, increased job autonomy, and awards, can be used to encourage managers and employees to push hard for successful strategic imple­mentation. The range of options for getting people, departments, and divisions to actively sup­port strategy-implementation activities in a particular organization is almost limitless. Merck, for example, recently gave each of its 37,000 employees a 10-year option to buy 100 shares of Merck stock at a set price of $127.

In an effort to cut costs and increase productivity, more and more Japanese companies are switching from seniority-based pay to performance-based approaches. Toyota has switched to a full merit system for 20,000 of its 70,000 white-collar workers. Fujitsu, Sony, Matsushita Electric Industrial, and Kao also have switched to merit pay systems. This switching is hurting morale at some Japanese companies, which have trained workers for decades to cooperate rather than to compete and to work in groups rather than individually.

Richard Brown, CEO of Electronic Data Systems (EDS), once said,

You have to start with an appraisal system that gives genuine feedback and differentiates performance. Some call it ranking people. That seems a little harsh. But you can’t have a manager checking a box that says you’re either stupendous, magnificent, very good, good, or average. Concise, constructive feedback is the fuel workers use to get better. A company that doesn’t differentiate performance risks losing its best people.⁸

2. Balance Work Life and Home Life

More women than men earn both undergraduate and graduate degrees in the United States, but a wage disparity still persists between genders at all education levels.⁹ Women, on average, make 25 percent less than men. The average age today for U.S. women to get married is 30 years old for those with a college degree, and 26 years old for those with only a high school degree. About 29 percent of both men and women in the United States today have a college degree, whereas in 1970, only 8 percent of women and 14 percent of men had college degrees. In March 2015, the U.S. Census Bureau and American Association of University Women revealed that among full-time, year-round workers, women are paid, on average, 78 percent as much as men. The pay gap discrepancy between genders has not moved much in a decade. Catherine Rampell at the Washington Post reports that among 342 professions, women earn more than men in only nine. (For more information, see the two charts given at http://jobs.aol.com/articles/2015/03/24/ charts-illustrate-gender-wage-gap/)

Work and family strategies now represent a competitive advantage for those firms that offer such benefits as elder care assistance, flexible scheduling, job sharing, adoption benefits, on­site summer camp, employee help lines, pet care, and even lawn service referrals. New corpo­rate titles such as Work and Life Coordinator and Director of Diversity are becoming common. Globally, it is widely acknowledged that the best countries for working women are Iceland, Norway, Sweden, Finland, and Denmark, all of which rate above the United States. According to the World Economic Forum’s 2014 report on the global gender gap overall, the United States, in fact, ranked number 20 overall.

Working Mother magazine annually published its listing of “The 100 Best Companies for Working Mothers” (www.workingmother.com). Three especially important variables used in the ranking were availability of flextime, advancement opportunities, and equitable distribution of benefits. Other important criteria are compressed weeks, telecommuting, job sharing, childcare facilities, maternity leave for both parents, mentoring, career development, and promotion for women. Working Mother’s top 10 best companies for working women in 2014 are provided in Table 7-14. Working Mother also conducts extensive research to determine the best U.S. firms for women of color.

A corporate objective to become more lean and mean must today include consideration for the fact that a good home life contributes immensely to a good work life. The work and family issue is no longer just a women’s issue. Some specific measures that firms are taking to address this issue are providing spouse relocation assistance as an employee benefit; supplying company resources for family recreational and educational use; establishing employee country clubs, such as those at IBM and Bethlehem Steel; and creating family and work interaction opportunities. A study by Joseph pleck of Wheaton College found that in companies that do not offer paternity leave for fathers as a benefit, most men take short, informal paternity leaves anyway by combin­ing vacation time and sick days.

Some organizations have developed family days, when family members are invited into the workplace, taken on plant or office tours, dined by management, and given a chance to see exactly what other family members do each day. Family days are inexpensive and increase the employee’s pride in working for the organization. Flexible working hours during the week are another human resource response to the need for individuals to balance work life and home life.

There is great room for improvement in removing the glass ceiling domestically, especially considering that women make up 47 percent of the U.S. labor force. Glass ceiling refers to the invisible barrier in many firms that bars women and minorities from top-level management posi­tions. The United States is a leader globally in promoting women and minorities into mid- and top-level managerial positions in business. However, only 5.2 percent (26/500) of Fortune 500 firms have a woman CEO. Academic Research Capsule 7-2 reveals that women CEOs more often than men lead firms to be more philanthropic (giving). Table 7-15 gives the 26 Fortune 500 Women CEOs in 2015. These women are excellent role models for women globally.

3. Develop a Diverse Workforce

Chief Executive Officer Rosalind Brewer, the first African American woman to lead a Walmart business unit, is turning Walmart’s SAM’s Club into a $100 billion business. A recent study by McKinsey & Co. revealed that Asian companies’ average return on equity improves from 15 to 22 percent when more and more women hold high-level positions.¹⁰ Wang Jin at McKinsey remarks, “Women tend to be stronger in terms of collaboration and people development, while men tend to be stronger in individual decision making. By having more women at the senior level, companies are helping to improve organizational health as well as financial performance.”¹¹ An organization can perhaps be most effective when its workforce mirrors the diversity of its customers. For global companies, this goal can be optimistic, but it is a worthwhile goal. The customer base in every country includes gay persons. Thus, retailers are increasingly using gay couples in advertisements. Tiffany recently promoted the company’s first same-sex couples in advertising, preceded by J. Crew. Gap, and Banana Republic using gay couples in advertising campaigns.

Six benefits of having a diverse workforce are as follows:

1. Women and minorities have different insights, opinions, and perspectives that should be considered.
2. A diverse workforce portrays a firm committed to nondiscrimination.
3. A workforce that mirrors a customer base can help attract customers, build customer loy­alty, and design/offer products/services that meet customer needs/wants.
4. A diverse workforce helps protect the firm against discrimination lawsuits.
5. Women and minorities represent a huge additional pool of qualified applicants.
6. A diverse workforce strengthens a firm’s social responsibility and ethical position.

The percentage of women on corporate boards in Australia increased from 8.3 in 2010 to more than 16 percent in 2016.¹² Malaysia and South Korea are also making excellent progress integrating women into upper levels of management and subsidizing companies that build child­care facilities and help women juggle work and family life. In contrast, women in India still are expected to care for their family and extended family; many women in India often have an abortion if they know their fetus is a girl. Overall, in Asia, women comprise only 6 percent of corporate board seats, compared to 17 percent in Europe and 15 percent in the United States. However, there are currently 24 countries globally with female presidents, chancellors, or prime ministers – the 22 pictured in Table 7-16, plus Switzerland (Simonetta Sommaruga) and Croatia (Kolinda Grabar-Kitarovic).

4. How Do Women vs. Men CEOs Perform?

It is widely acknowledged in the literature that increased presence of women executives and directors leads firms to make greater philan­thropic contributions. Marquis and Lee concluded that women exec­utives and directors seek to strengthen external relationships of the firm through corporate philanthropy. Recent research also indicates that firms need to be much more proactive in public relations efforts announcing a new female CEO, due to a “guilt by association” effect. Specifically, female CEOs, unlike their male counterparts, are subject to criticism simply by being among a small group for such top executive women. Thus, a firm should actively take steps to bring legitimacy to a female CEO by highlighting her qualifications and accomplishments, while minimizing gender-related stereotypes. Investors react more negatively to the appointment of female CEOs than to male counterparts, partly because of media reports, rather than any legitimate performance differences. Recent research also reveals that women (and people of color) are more likely than white men to be promoted CEO of weakly performing firms.

Source: Based on Marquis, Christopher, & Matthew Lee, “Who Is Governing Whom? executives, governance, and the Structure of generosity in Large U.S. Firms.” Strategic Management Journal, 34 (2013): 483-497. See also Dixon-Fowler, Heather, Alan Ellstrand, and Jonathan Johnson, “Strength in Numbers or Guilt by Association? Intragroup Effects of Female Chief Executive Announcements,” Strategic Management Journal, 34 (April 2013): 1488-1501; and Cook, Alison, and Christy Glass, “Above the Glass Ceiling: When Are Women and Racial/Ethnic Minorities Promoted to CEO?” Strategic Management Journal, 7 (July 2014): 1080-1089.

5. Use Caution in Hiring a Rival’s Employees

A recent article titled “Dos and Don’ts of Poaching Workers” in Investor’s Business Daily gives guidelines to consider before hiring a rival firm’s employees.¹³ The practice of hiring employees from rival firms has a long tradition, but increasingly in our lawsuit-happy environment, firms must consider whether that person(s) had access to the “secret sauce formula, customer list, programming algorithm, or any proprietary or confidential information” of the rival firm. If the person has that information and joins your firm, lawsuits could follow that hiring, especially if the person was under contract at the rival firm or had signed a “noncompete agreement.” The article says that to help safeguard the firm from this potential problem, a “well-written employee handbook” addressing the issue is necessary. the article talks about Hewlett-packard (Hp) recently hiring an IBM general manager, and IBM suing Hp over the hiring, and in that case lost, but this type of legal action is becoming more commonplace.

According to Wayne perrett, human resource manager for ComAp in Roscoe, Illinois, “a company does not want to become known as one that “steals” employees from competitors; that is bad for ethics and bad for business.” thus, it is not illegal to interview and hire employees from rival firms, and it has been done for centuries, but increasingly this is becoming a strategic issue to be managed, to avoid litigation.

6. Create a Strategy-Supportive Culture

All organizations have a unique culture. For example, at Facebook, Inc., employees are given unusual freedom to choose and change assignments. Even low-level employees are encouraged to question and criticize managers. Facebook employees are rated on a normal distribution curve (Bell curve), which creates a hectic, intense work environment, where past accomplishments mean little, compared to what you have done lately for the firm. managers are not revered at Facebook as bosses; rather, they are regarded as helpers.

Strategists should strive to preserve, emphasize, and build on aspects of an existing cul­ture that support proposed new strategies. aspects of an existing culture that are antagonistic to a proposed strategy should be identified and changed. Changing a firm’s culture to fit a new strategy is usually more effective than changing a strategy to fit an existing culture. As indicated in Table 7-17, numerous techniques are available to alter an organization’s culture, including recruitment, training, transfer, promotion, restructure of an organization’s design, role modeling, positive reinforcement, and mentoring.

Schein indicated that the following elements are most useful in linking culture to strategy:

1. Formal statements of organizational philosophy, charters, creeds, materials used for recruit­ment and selection, and socialization
2. Designing of physical spaces, facades, and buildings
3. Deliberate role modeling, teaching, and coaching by leaders
4. Explicit reward and status system and promotion criteria
5. Stories, legends, myths, and parables about key people and events
6. What leaders pay attention to, measure, and control
7. Leader reactions to critical incidents and organizational crises
8. How the organization is designed and structured
9. Organizational systems and procedures
10. Criteria used for recruitment, selection, promotion, leveling off, retirement, and “excom­munication” of people¹⁴

When Volkswagen AG recently acquired Porsche, there was concern that the autocratic style of 75-year-old Volkswagen Chairman Ferdinand Piech would be at odds with Porsche’s informal culture. Porsche had for a long time placed a premium on individual effort among its engineers and designers, often encouraging competition among groups to come up with new design ideas and innovations. Time will tell if Volkswagen and Porsche can meld their cultures into a competi­tive advantage.

In the personal and religious side of life, the impact of loss and change is easy to see.¹⁵ Memories of loss and change often haunt individuals and organizations for years. Ibsen wrote, “Rob the average man of his life illusion and you rob him of his happiness at the same stroke.”¹⁶ When attachments to a culture are severed in an organization’s attempt to change direction, employees and managers often experience deep feelings of grief. This phenomenon commonly occurs when external conditions dictate the need for a new strategy. Managers and employees often struggle to find meaning in a situation that changed many years before. Some people find comfort in memories; others find solace in the present. Weak linkages between strategic man­agement and organizational culture can jeopardize performance and success. Deal and Kennedy emphasized that making strategic changes in an organization always threatens a culture:

people form strong attachments to heroes, legends, the rituals of daily life, the hoopla of extravaganza and ceremonies, and all the symbols of the workplace. Change strips rela­tionships and leaves employees confused, insecure, and often angry. Unless something can be done to provide support for transitions from old to new, the force of a culture can neutralize and emasculate strategy changes.¹⁷

7. Use Caution in Monitoring Employees’ Social Media

Many companies monitor employees’ and prospective employees’ social media activities, and have the legal right to do so, but there are many pros and cons of this activity. proponents of com­panies monitoring employees’ social media activities emphasize that (1) a company’s reputation in the marketplace can easily be damaged by disgruntled employees venting on social media sites and (2) social media records can be subpoenaed, like email, and used as evidence against the company. proponents say companies have a responsibility to know the nature of employ­ees’ communication through social media as related to clients, patients, suppliers, distributors, coworkers, managers, technology, patents, procedures, policies, and much more. To ignore social media communication by employees, proponents say, is irresponsible and too risky for the firm. Using social media to research and screen job candidates, various companies report finding pro- vocative/inappropriate photos and information related to potential employees’ bias, stereotypes, prejudices, drinking, and using drugs that led to rejection of the candidate. Companies should never use social media to discriminate based on age, race, ethnic background, religion, sexuality, or handicapped issues.

However, arguments against the practice of companies monitoring employees’ social media activities say it is an invasion of privacy and too often becomes “a fishing expedition” sifting through tons of personal information irrelevant to a company or its business. positions on politi­cal issues, gun rights, or immigration are all examples topics where company researchers may “not like” individuals with different belief systems than their own. In a recent study, 77 percent of employers said they conduct Internet searches of prospective employees, and 35 percent have rejected job applicants because of information they found.¹⁸ Rejecting potential employees because of private behavior unrelated to work is unfair. In addition, whenever a company discov­ers through social media that an employee or potential employee is Muslim, disabled, gay, or over 40 years old, for example, and then denies a promotion or hires someone else, that “social media discovery information” could be the basis of a discrimination suit against the firm. For some jobs, such as law enforcement, due diligence may require firms to monitor social media activities to help assure their entire workforce is not involved in drugs, child pornography, gangs, and so on.

On balance, companies generally should monitor employee and potential employee’s social media activities whenever they have a reason to believe the person is engaged in illegal or unethi­cal conduct—but to systematically investigate every employee and job candidate’s social media activities is arguably counterproductive. The bottom line is that companies have the legal right to monitor employees’ conduct, but have the legal duty to do so only if there is sufficient reason for concern.

8. Develop a Corporate Wellness Program

Corporate wellness has become a major strategic issue in companies. If you owned a company and paid the health insurance of employees, would you desire to have a healthy workforce? Your likely answer is yes, because health insurance premiums are more costly for an unhealthy workforce.

Corporate wellness programs have proliferated in recent years due in part to the Affordable Care Act, which increased the maximum incentives and penalties employers may use to encourage employee well-being.¹⁹ Most companies therefore now have both “carrots,” such as giving employee discounts on insurance premiums or even extra cash, and “sticks,” such as imposing surcharges on premiums for those who do not make progress towards getting healthy. For example, the state of Maryland installed penalties up to $450 per person for 2017 on any employee who fails to undergo certain screenings or treatment plans. Similarly at CVS Health, employees pay an extra $600 if they do not comply with certain health policies. Some employers, however, face lawsuits for violating the Americans with Disabilities Act that forbids employers from requiring medical exams and making disability-related inquiries. at Caesars, employees may reduce their insurance premiums by $40 per paycheck if they participate in the firm’s well­ness program, and additionally can obtain a $250 annual bonus if they improve their healthi­ness over the year. Companies are increasingly instituting wellness programs to curtail growing health-care costs.

JetBlue has a corporate wellness program called LifeVest, where the firm gives $500 to employees who improve their body mass index. However, a recent report from the Bipartisan Policy Center’s CEO Council on Health and Innovation concluded that “results from studies examining the return on investment of wellness programs are mixed.” Despite mixed results, 74 percent of firms with wellness programs are increasing incentives “paid and charged” to employ­ees to be and stay healthy, up from 57 percent a few years ago.

About 2.1 billion people globally, or 29 percent of the world’s population, are obese, with most of those people living in developed countries.²⁰ From 1980 to 2013, the prevalence of obe­sity rose by 27.5 percent for adults and 47.1 percent for children. The percentage of a nation’s population that is obese, from the most obese countries, are the United States, China, India, Russia, Brazil, Mexico, Egypt, Germany, Pakistan, and Indonesia.²¹ Corporate wellness pro­grams are largely aimed at reducing workforce obesity.

Recent articles detail how companies such as Johnson & Johnson (J&J), Lowe’s Home- Improvement, the supermarket chain H-E-B, and Healthwise report impressive returns on invest­ment of comprehensive, well-run employee wellness programs, sometimes as high as six to one.²² A recent study by Fidelity Investments and the National Business Group on Health reports that nearly 90 percent of employers today offer some kind of wellness incentives or prizes to employees who “get healthier,” up from 59 percent in 2009. For example, JetBlue Airways offers employees money—$25 for teeth cleanings, $400 for completing an Ironman triathlon, and so forth. Furniture company KI has all its employees divided into four groups based on “healthi­ness” with the most healthy people paying $1,000 less on health insurance premiums than the least healthy employees.

Chevron and Biltmore provide exemplary wellness programs that think beyond diet and exercise and focus also on stress management by assisting employees with such issues as divorce, serious illness, death and grief recovery, child rearing, and care of aging parents. Biltmore’s two- day health fairs twice a year focus on physical, financial, and spiritual wellness. At Lowe’s head­quarters, an impressive spiral staircase in the lobby makes climbing the stairs more appealing than riding the elevator. Such practices as “providing abundant bicycle racks,” “conducting walk­ing meetings,” and “offering five-minute stress breaks” are becoming common at companies to promote a corporate wellness culture.

Whole Foods Market, headquartered in Austin, Texas, is another outstanding corporate wellness company with its employees receiving a 30 percent discount card on all products sold in their stores “if they maintain and document a healthy lifestyle.” In addition, Wegman’s Food Markets, head­quartered in Rochester, New York, has an excellent corporate wellness program. Scotts Miracle-Gro Company (based in Marysville, Ohio), IBM, and Microsoft are implementing wellness programs, requiring employees to get healthier or pay higher insurance premiums. Employees who do get healthier win bonuses, free trips, and pay lower premiums; nonconforming employees pay higher premiums and receive no “healthy” benefits. Wellness of employees has become a strategic issue for many firms. Most firms require a health examination as a part of an employment application, and healthiness is more and more becoming a hiring factor. Michael Porter, coauthor of Redefining Health Care, says, “We have this notion that you can gorge on hot dogs, be in a pie-eating contest, and drink every day, and society will take care of you. We can’t afford to let individuals drive up company costs because they’re not willing to address their own health problems.”

Seven key lifestyle habits listed in Table 7-18 may significantly improve health and longevity.

The Equal Employment Opportunity Commission (EEOC) is presently investigating Honeywell International because the firm recently asked employees to participate in a voluntary health screening of their cholesterol, body mass index, and other health measures as part of the firm’s corporate wellness program. The EEOC has a problem with the Honeywell provision that employees choosing not to sit for the medical screenings could face up to $4,000 in sur­charges and lost incentives in 2015. This is only the third EECO investigation of any company’s corporate wellness program, the other two being Flamgea Inc, owned by Nordic Group, and Orion Energy Systems, when employees were fired for not participating or their insurance can­celled for not participating in the firm’s corporate wellness program. The EEOC got involved in the Honeywell matter when two employees filed discrimination charges under the Americans with Disabilities Act, after being requested to participate in the firm’s health screenings. The Affordable Care Act specifically encourages firms to reward as well as penalize employees who do or do not meet specific health goals, such as lowering blood sugar, weight, or cholesterol.

Honeywell’s program applies to spouses of employees when those persons are covered too by the firm’s health insurance plans. Health insurance is expensive and companies desire a healthy workforce.

About 38 percent of companies now cover weight-loss bariatric surgery for employees, according to the Society for Human Resource Management (SHRM). Many companies now pro­mote weight-reduction programs under the banner of wellness programs. Some companies are promoting and even paying for newly approved weight-loss drugs, such as Belviq, Qsymia, and Contrave. The Equal Employment Opportunity Commission (EEOC) is set to release guidance to employers regarding dos and don’ts related to corporate wellness programs.

Source: David Fred, David Forest (2016), Strategic Management: A Competitive Advantage Approach, Concepts and Cases, Pearson (16th Edition).