Chapter 10 - Separating and Retaining Employees Chapter Ten: Separating and Retaining Employees . 1 Chapter 10 - Separating and Retaining Employees ROADMAP: THE LECTURE SEPARATING AND RETAINING EMPLOYEES Chapter Summary This chapter explores the dual challenge of separating and retaining employees. The chapter begins by distinguishing involuntary and voluntary turnover, describing how each affects the organization. Next, it explores the separation process, including ways to manage this process fairly. Finally, the chapter discusses measures the organization can take to encourage employees to stay. Learning Objectives After studying this chapter, the student should be able to: 1. Distinguish between involuntary and voluntary turnover and describe their effects on an organization. 2. Discuss how employees determine whether the organization treats them fairly. 3. Identify legal requirements for employee discipline. 4. Summarize ways in which organizations can fairly discipline employees. 5. Explain how job dissatisfaction affects employee behavior. 6. Describe how organizations contribute to employees' job satisfaction and retain key employees. 2 Chapter 10 - Separating and Retaining Employees I. Introduction 1. Research indicates that retaining employees helps retain customers and investors. 2. Organizations with low turnover and satisfied employees tend to perform better. II. Managing Voluntary and Involuntary Turnover 1. Employee turnover refers to employees leaving the organization. 2. Involuntary turnover occurs when the organization initiates the turnover. 3. Many organizations use the word terminated to refer only to a discharge related to a discipline problem, but some organizations call any involuntary turnover a termination. 4. When the employee initiates the turnover, it is voluntary turnover. 5. Table 10.1 explores the costs associated with both kinds of turnover. PPT Slide 7: 6. For a number of reasons, discharging employees can be very difficult. These reasons include: a. The decision has legal aspects that can affect the organization. b. There are issues related to personal safety. 7. Retaining top performers is not always easy either and recent trends have made this more difficult than ever. Factors affecting this include: a. The rash of layoffs and downsizing of the early and mid 1990s reduced employees' loyalty to their organizations. b. The tight labor markets of the 1990s created a workforce that is both willing and able to leave on a moment's notice. 3 Chapter 10 - Separating and Retaining Employees III. Employee Separation 1. Because of the critical financial and personal risks associated with employee dismissal, it is easy to see why organizations must develop a standardized, systematic approach to discipline and discharge. 2. These decisions should be left solely to the discretion of individual managers and supervisors. 3. Policies that can lead to employee separation should be based on principles of justice and law and should allow for various ways to intervene 4. The \"HR How To\" Box: Is \"The Apprentice\" a Good Model for Employee Separation? compares these guidelines with Donald Trump's firings on the popular TV show \"The Apprentice.\" A. Principles of Justice 1. Considering the sensitivity of a system that involves disciplining and possibly terminating employees, it is critical that the system be seen as fair. 2. Figure 10.1, Principles of Justice, summarizes these principles as outcome fairness, procedural justice, and interactional justice. Not only is such behavior ethical, but research has also linked the last two categories of justice with employee satisfaction and productivity. PPT Slide 11: 3. Outcome fairness refers to judgment that the consequences given to an employee are just. 4. Procedural justice is a judgment that fair methods were used to determine the consequences an employee receives. 5. Six principles that determine whether people perceive methods as fair include: a. The methods should be consistent from one person to another. b. The person using the methods should suppress any personal biases. 4 Chapter 10 - Separating and Retaining Employees c. The procedure should be based on accurate information. d. The procedure should be correctable. e. The procedure should take into account the concerns of all groups affected. f. The procedure should be consistent with prevailing ethical standards. 6. Interactional justice is a judgment that the organization carried out its actions in a way that took the employee's feelings into account. 7. Justice issues come into play in the use of noncompete agreements - contracts in which employees agree that in the future they will not take a job with a competitor of the employer. B. Legal Requirements 1. Wrongful discharge: Discipline practices must avoid wrongful discharge. The discharge may not violate an implied contract or violate public policy. 2. Discrimination: A benefit of a formal discipline policy is that it helps the organization comply with equal employment opportunity requirements. 3. Employees' Privacy: Employers have legitimate reasons for learning about some personal matters especially when behavior outside the workplace can affect productivity, workplace safety, and employee safety. 4. Privacy issues surface when employers wish to search or monitor employees on the job. 5. No matter how the organization gathers information leading to disciplinary actions, it also should consider privacy issues when deciding who will see the information. 6. Figure 10.2, Measures for Protecting Employees' Privacy, summarizes measures for protecting employees' privacy. PPT Slide 16: 7. Notification of Layoffs: Sometimes terminations are necessary not because of individual misdeeds, but because the organization determines it must close a facility. 5 Chapter 10 - Separating and Retaining Employees 8. An organization that plans a large-scale layoff may be subject to the Workers' Adjustment Retraining and Notification Act. This law requires that organizations with more than 100 employees give 60 days notice before any closings or layoffs that will affect at least 50 full-time employees. C. Progressive Discipline 1. Hot-stove rule - indicates that an organization's discipline practices should be like a hot-stove in that it should give warning and have consequences that are consistent, objective, and immediate. 2. Progressive discipline - a formal discipline process in which the consequences become more serious if the employee repeats the offense. 3. Figure 10.2, Progressive Discipline Responses, identifies the most common path for progressive discipline. PPT Slide 21: 4. Creating a formal discipline process is a primary responsibility of the human resource department. Table 10.2 identifies some common problems that may require disciplinary action. 5. Organizations must communicate rules and rule violation consequences in writing to every employee. To communicate this information to the employees, organizations can present them in an employee handbook, post them on the company's bulletin board, or post them on the company's intranet. 6. When an employee is suspended or terminated, the organization should designate a person to escort the employee from the building to protect the organization's people and property. D. Alternative Dispute Resolution 1. Alternative dispute resolution (ARD) refers to a variety of methods that are being utilized by organizations to resolve disputes in a timely, constructive, cost-efficient manner. 2. In general, a system for alternative dispute resolution proceeds through four stages: 6 Chapter 10 - Separating and Retaining Employees a. Open-door policy: based on the expectations that two people in conflict should first try to arrive at a settlement together, the organization has a policy of making managers available to hear complaints b. Peer review: if the people in conflict cannot reach an agreement, they take their conflict to a panel composed of representatives from the organization at the same levels as the people in the dispute. c. Mediation: if the peer review does not lead to a settlement, a neutral party from outside the organization hears the case and tries to help the people in conflict arrive at a settlement d. Arbitration: if mediation fails, a professional arbitrator from outside the organization hears the case and resolves it by making a decision 3. Figure 10.3, Typical Stages of Alternative Dispute Resolution, identifies the steps that can occur in an alternative dispute resolution. PPT Slide 23: 4. Experience shows that ADR can be highly effective in saving time and money. E. Employee Assistance Programs 1. Employee assistance program (EAP) is a referral service that employees can use to seek professional treatment for emotional problems or substance abuse. EAPs began in the 1950s and continue to evolve today. 2. EAPs vary widely, but most share some basic elements: the programs are usually identified in official documents published by the employer, supervisors are trained to use the referral service, employees are trained to use the system to refer themselves, and a regular evaluation of the program's costs and benefits is performed. F. Outplacement Counseling 1. Outplacement counseling - tries to help dismissed employees manage the transition from one job to another. 2. Outplacement counseling tries to help people realize that losing a job is not the end of the world and that other opportunities exist. 7 Chapter 10 - Separating and Retaining Employees IV. Job Withdrawal 1. Job withdrawal - a set of behaviors with which employees try to avoid the work situation physically, mentally, or emotionally. 2. Job withdrawal results when circumstances such as the nature of the job, supervisors and coworkers, pay levels, or the employee's own disposition cause the employee to become dissatisfied with the job. 3. Figure 10.4, Job Withdrawal Process, identifies the process of job withdrawal. PPT Slide 29: A. Job Dissatisfaction 1. Many aspects of people and organizations can cause job dissatisfaction. These factors fall into four categories: personal disposition, tasks and roles, supervisors and coworkers, and pay and benefits. 2. Personal Disposition: Several personal qualities have been found to be associated with job dissatisfaction including negative affectivity - describes pervasive low levels of satisfaction with all aspects of life and negative core self evaluation - bottom-line opinions individuals have of themselves and may be negative or positive. 3. Tasks and Roles: As a predictor of job dissatisfaction, nothing surpasses the nature of the task itself. Many aspects of a task have been linked to dissatisfaction such as the complexity of the task, the degree of physical strain and exertion required, and the value the employee places on the task. 4. A person's role consists of a set of behaviors that people expect of a person in that job. 5. Several role-related problems contribute to dissatisfaction: a. Role ambiguity: uncertainty about what the organization expects from the employee in terms of what to do or how to do it. b. Role conflict: an employee's recognition that demands of the job are incompatible or contradictory. 8 Chapter 10 - Separating and Retaining Employees c. Role overload: a state in which too many expectations or demands are placed on a person. 6. Supervisors and Coworkers: Negative behavior by people in the workplace can produce tremendous dissatisfaction. 7. Pay and Benefits: With regard to job satisfaction, the pay level is especially important. B. Behavior Change 1. A reasonable expectation is that an employee's first response to dissatisfaction would be to try to change the conditions that generate the dissatisfaction. 2. As the employee tries to bring about changes in policy or personnel, the efforts may involve confrontation and conflict with the employee's supervisor. 3. From the manager's point of view, the complaints, confrontations, and grievances may feel threatening. However, this is an opportunity for the manager to learn about and solve a potentially important problem. 4. Some employees may engage in whistle-blowing, taking their charges to the media in the hope that if the public learns about the situation, the organization will be forced to change. From the organization's point of view, whistle-blowing is harmful because of the negative publicity. 5. Another way employees may go outside the organization for help is to file a lawsuit. C. Physical Job Withdrawal 1. If behavior change has failed or seem impossible, a dissatisfied worker may physically withdraw from the job. Options for physically leaving a job range from: a. Arriving late b. Calling in sick c. Requesting a transfer d. Leaving the organization D. Psychological Withdrawal 1. Psychological withdrawal can take several forms. 9 Chapter 10 - Separating and Retaining Employees 2. If an employee is primarily dissatisfied with the job itself, the employee may display a very low level of job involvement. Job involvement is the degree to which people identify themselves with their jobs. When an employee is dissatisfied with the organization as a whole, the person's commitment may be low. Organizational commitment is the degree to which an employee identifies with the organization and is willing to put forth effort on its behalf. V. Job Satisfaction 1. Job satisfaction is a pleasant feeling resulting from the perception that one's job fulfills or allows for the fulfillment of one's important job values. This definition reflects several important aspects of job satisfaction: a. Job satisfaction is related to a person's values. b. Different employees have different views of which values are important. c. Job satisfaction is based on perception not an objective and complete measurement of the situation 2. Figure 10.5, Increasing Job Satisfaction, identifies ways in which organizations can contribute to job satisfaction. PPT Slide 35: 3. The \"Best Practices\" Box: Satisfying jobs at Corporate Ink Are PR-Worthy describes how the company Corporate Ink has structured its work in ways that directly involves employees in decision making, and has created an award-winning corporate culture of employee retention and satisfaction. A. Personal Disposition 1. Some personal qualities of the employee, such as negative affectivity and negative core self-evaluation, are associated with job dissatisfaction. 2. Employers also should recognize that dissatisfaction with other facets of life could spill over into the workplace. B. Tasks and Roles 10 Chapter 10 - Separating and Retaining Employees 1. Organizations can improve job satisfaction by making jobs more complex and meaningful. Some of the methods available for this approach to job design are job enrichment and job rotation. 2. Organizations can increase satisfaction by developing clear and appropriate roles. 3. Job Complexity: Not only can job design add to complexity, but also employees themselves sometimes take measures to make their work more interesting. 4. Meaningful Work: Through work designs and communications with employees, organizations can make work meaningful. 5. Clear and Appropriate Roles: Organizations can do much to avoid role-related sources of dissatisfaction. They can define roles and be realistic about the number of hours required to complete job requirements. 6. To help employees manage role conflicts, employers have turned to a number of family-friendly policies. These policies may include provisions for child care, elder care, flexible work schedules, job sharing, telecommuting, and extended parental leaves. 7. Organizations should pay attention to the fit between job titles and roles especially as more and mores Americans feel overworked. 8. Because role problems rank just behind job problems in creating job dissatisfaction, some interventions aim directly at role elements. One of these is the role analysis technique, a process of formally identifying expectations associated with a role. Figure 10.6, Steps in the Role Analysis Technique, identifies the steps involved in the process of role analysis. PPT Slide 37: C. Supervisors and Coworkers 1. The two primary sets of people in an organization who affect job satisfaction are coworkers and supervisors. A person may be satisfied with these people for one of three reasons: a. The people share the same values, attitudes, and philosophies. b. The coworkers and supervisor may provide social support. 11 Chapter 10 - Separating and Retaining Employees c. The coworkers or supervisor may help the person attain some valued outcome. D. Pay and Benefits 1. Two aspects of pay satisfaction can influence job satisfaction. One is satisfaction with pay structure - the way the organization assigns different pay levels to different levels and job categories. Another area of pay satisfaction concerns pay raises. E. Monitoring Job Satisfaction 1. Employers can better retain employees if they are aware of satisfaction levels, so they can makes changes if employees are dissatisfied. The usual way to measure job satisfaction is with some kind of survey. 2. A systematic, ongoing program of employee surveys should be part of the organization's human resource strategy. 3. The \"eHRM\" Box: Technology Makes Surveys Part of the Routine describes how technology is helpful organizations improve the way they conduct and use employee satisfaction surveys. 3. To obtain a survey instrument, an excellent place to begin is with one of the many established scales. The validity and reliability of many satisfaction scales have been tested, so it is possible to compare survey instruments. 4. A widely used measure of job satisfaction is the Job Descriptive Index (JDI). The JDI emphasizes specific areas of satisfaction - pay, the work itself, supervision, coworkers, and promotions. Figure 10.7 shows several items from the JDI scale. PPT Slide 42: 5. Some scales avoid language altogether, relying on pictures. Figure 10.8, Example of a Simplified, Nonverbal Measure of Job Satisfaction, provides a look at such a scale. 12 Chapter 10 - Separating and Retaining Employees PPT Slide 43: 6. Other scales exist for measuring more specific aspects of satisfaction. An example is the Pay Satisfaction Questionnaire (PSQ), which measures satisfaction with specific aspects of pay. 7. In spite of surveys and other efforts to retain employees, some employees inevitably will leave the organization. An exit interview is a meeting of the departing employee with the employee's supervisor and/or a human resource specialist.to discuss the employee's reasons for leaving. 13 Chapter 10 - Separating and Retaining Employees ROADMAP: CASE STUDY Thinking Ethically Can Fairness Prevent Dissatisfaction? Case Summary: Chief Financial Officers, as well as other managers in organizations, play a larger role that might otherwise be thought in shaping ethical corporate cultures. While formal training on ethics is important, it is not the only way to foster ethical behavior. This case highlights the need for leaders and managers to model ethical behavior. Questions: 1. For a company launching an effort to improve productivity, why is employee satisfaction important? What consequences could result from neglecting this issue? Employees should perceive that an effort to improve productivity is just and fair, and that the organization recognizes and rewards employee contributions. In order for an effort to succeed, employees must feel that they are being treated fairly and that they are not being exploited. If this issue is neglected, it could result in performance problems, disciplinary or behavioral problems, and turnover. 2. What measures of fairness could Sport Chalet's employees apply to the company's plans for improving productivity? From the evidence given, would you say the company treated these employees ethically? Employees were treated fairly, because the effort was communicated to them, the results were measure with objective assessments, and their contributions and their efforts were rewarded. 3. Imagine that you are an HR manager for a company that plans to conduct time and motion studies to improve productivity. Suggest how you might help the company launch the program in a way that treats employees ethically. What business advantages are associated with this concern for ethics? In order for the implementation of time and motion studies to be considered as ethical, employees should be notified that they are being observed. Additionally, employees should understand why they are being observed, what is being observed, and how the results will be analyzed and disseminated. The business advantages associated with this concern for ethics include employee morale and trust, and the potential for employee buy-in. Additionally, a concern for ethics also could help the company's reputation for being fair, just, and employee-friendly. 14 Chapter 10 - Separating and Retaining Employees ROADMAP: Chapter Vocabulary Alternative Dispute Resolution Arbitration Employee Assistance Program Exit Interview Hot-Stove Rule Interactional Justice Involuntary Turnover Job Involvement Job Satisfaction Job Withdrawal Mediation Open-Door Policy Organizational Commitment Outcome Fairness Outplacement Counseling Peer Review Procedural Justice Progressive Discipline Role Role Ambiguity Role Analysis Technique Role Conflict Role Overload Voluntary Turnover 15 Chapter 10 - Separating and Retaining Employees ROADMAP: Review and Discussion Questions 1. Give an example of voluntary turnover and an example of involuntary turnover. Why should organizations try to reduce both kinds of turnover? Voluntary turnover occurs when the employee initiates the turnover, often when the organization would prefer to keep them. An example of voluntary turnover would be when a worker leaves one organization to hire on at another company offering better wages. Involuntary turnover occurs when the organization requires employees to leave, often when they would prefer to stay. An example of involuntary turnover would be when an organization terminates an employee for repetitive work rule violations. Organizations should try to reduce both kinds of turnover because both are costly due to the need to recruit, hire, and train a replacement. Involuntary turnover also can result in lawsuits and even violence. 2. A member of a restaurant's serving staff is chronically late for work. From the organization's point of view, what fairness issues are involved in deciding how to handle this situation? In what ways might the employees' and other servers' ideas of fairness be different? The organization would need to be concerned that the type of disciplinary action taken against the employee is the same for all employees who transgress against organizational rules. Also, the organization must ensure that every employee is aware of the guidelines and consequences for breaking the rules. This could be accomplished through posting the information on the company bulletin board, in the organizational newsletter, or in employee handbooks. Every individual will have his or her own perception as to what constitutes fairness. For instance, the other employees may perceive this work rule infraction as legitimate because they know the employee has to tend to children each day right at the shift start time. Or they may be unhappy about the chronically late employee having several chances to modify the behavior because they know that another employee had been terminated after being late only once. 3. For the situation in Question 2, how would a formal discipline policy help the organization address issues of fairness? A formal discipline policy would inform every employee of expected and acceptable work behaviors. Additionally, it would clearly indicate the ensuing consequences for rule violations. The formal policy would apply equally across the board and affect each employee in the same way, so the employees would be able to see that it is fair and plays no favoritism between the employees. 4. The progressive discipline process described in this chapter is meant to be fair and understandable, but it tends to be slow. Try to think of two or three offenses that should result in immediate discharge, rather than follow all the steps of progressive discipline. Explain why you selected these offenses. If the dismissed employee sued, do you think the organization would be able to defend the action in court? 16 Chapter 10 - Separating and Retaining Employees The responses provided by the individual students to this question will vary. However, all responses provided to this question should demonstrate a clear understanding of the chapter material and its concepts. Suggested responses could include: arriving to work intoxicated, using illegal drugs while on the job, and threatening coworkers with a firearm. 5. A risk of disciplining employees is that some employees retaliate. To avoid this risk, what organizational policies might encourage low-performing employees to leave while encouraging high-performers to stay? (Consider the sources of employee satisfaction and dissatisfaction discussed in the chapter.) Organizational policies that could be put into effect would be ones that provide and support job complexity and meaningful work. Such policies should also identify acceptable performance levels and expected behaviors from every employee. Lowperformers would realize that they do not meet organizational expectations and are unable to compare or compete with the high-level performers. 6. List forms of behavior that can signal job withdrawal. Choose one of the behaviors you listed and describe how you would respond if an otherwise valuable employee whom you supervised engaged in this kind of behavior. Behaviors that can signal job withdrawal include behavior change, physical job withdrawal, or psychological withdrawal. The students will provide their individual responses contingent upon the behavior selected. All answers should demonstrate understanding of the chapter concepts and provide for an excellent class discussion. 7. What are the four factors that influence an employee's job dissatisfaction (or satisfaction)? Which of these do you think an employer can most easily change? Which would be the most expensive to change? The four factors that influence an employee's job dissatisfaction/satisfaction include personal disposition, tasks and roles, supervisors and coworkers, and pay and benefits. An employer could easily modify the tasks and roles of the organization. Modifying the pay and benefits structure could prove to be the most expensive. 8. The section on principles of justice used noncompete agreements as an example. How would you expect the use of noncompete agreements to affect voluntary turnover? How might the use of these agreements affect job withdrawal and job satisfaction? Besides requiring noncompete agreements, how could an organization reduce the likelihood of employees leaving to work for competitors? Would these other methods have a better effect on employee satisfaction? The use of noncompete agreements may serve to dissuade voluntary turnover within the organization. In the same light, the use of such instruments may serve to dissuade the best talent from working for the organization in the first place. The use of such agreements may increase an employee's job withdrawal and decrease their overall job satisfaction. An organization can reduce the likelihood of employees leaving to go to work for a competitor by maintaining a competitive pay scale and benefit package. Also, providing organizational support and positive feedback to the employees may increase their organizational commitment. 17 Chapter 10 - Separating and Retaining Employees 9. Consider your current job or a job you recently held. Overall, were you satisfied or dissatisfied with that job? How did your level of satisfaction or dissatisfaction affect your behavior on the job? Is your own experience consistent with this chapter's models of job withdrawal and job satisfaction? This question could be used as a brainstorming exercise for the class. The individual responses provided should demonstrate comprehension of the chapter material. 10. Suppose you are an HR professional who convinced your company's management to conduct a survey of employee satisfaction. Your budget was limited and you could not afford a test that went into great detail. Rather, you investigated overall job satisfaction and learned that it is low, especially among employees in three departments. You know that management is concerned about spending a lot for HR programs because sales are in a slump, but you want to address the issue of low job satisfaction. Suggest some ways you might begin to make a difference, even with a small budget. How will you convince management to try your ideas? While the responses given to this question will vary, all of them should indicate thoughtful and insightful ideas. They should reflect that the individual students have grasped the concepts within the chapter. The various responses should provide for an in-depth classroom discussion. 11. Why are exit interviews important? Should an organization care about the opinion of people who are leaving? How are those opinions relevant to employee separation and retention? Exit interviews are important because they provide feedback to the organization about their actions toward and treatment of the workers. Additionally, they can indicate problem areas. Organizations should care about the reasons why people are leaving them. This organizational feedback can identify problem areas and the appropriate corrective action can be taken to prevent the loss of other personnel. 18 Chapter 10 - Separating and Retaining Employees ROADMAP: BusinessWeek Case Shirking Working: The War on Hooky Case Summary This case study explores how the emergent trend of \"absence management.\" The case discusses the costs of employee absences, and companies are beginning to manage the problem of lost productivity and excessive labor costs due to employee absences. Questions: 1. This case presents examples from Wal-Mart, Delphi and an unnamed manufacturing company. Evaluate whether the company's actions in each example met the principles of justice described in this chapter. The principles of justice described in this chapter include procedural justice, outcome fairness, and interactional justice. If the actions described in this case are consistently applied, and employees have knowledge of the outcomes which are proportionate to behaviors, then there is outcome fairness. If the procedures are consistent, biases avoided, information is accurate, and there are ways to correct mistakes, then there is procedural justice. If decisions are explained, people are treated with respect, and there is consideration and empathy, then there is interactional justice. Students may argue different sides about Wal-Mart, Delphi and the unnamed company. 2. For each example, describe the one other action the company could take to reduce absences in a way that meets the principles of justice. Responses could include: Making sure that employees understand absence policies, and providing employees with an opportunity to demonstrate sufficient evidence that they absences were legitimate. 3. This case emphasizes methods for discouraging the behavior of absenteeism, rather than improving worker satisfaction in the hope that improved attendance will follow. If you were a manager, in what situations would you focus on detecting and punishing absenteeism, and when would you emphasize employee satisfaction? Why? Student responses could include: If there was sufficient evidence that a worker was shirking his or her duties, and was excessively absent, the manager might initiate some investigation. It might be preferable to focus on job satisfaction, promotion opportunities, effective supervision, and good pay. 19 Chapter 10 - Separating and Retaining Employees ROADMAP: End of Chapter Case Is Employee Privacy Going Up in Smoke? Case Summary: This case scenario examines the practices of Scott's Miracle-Gro, a company that takes proactive measures to investigate employee health. These practices include terminating employees whose lifestyles are deemed to be unhealthy due to smoking, chewing tobacco, or drink alcohol. Questions: 1. Does the no-smoking policy at Scott's Miracle-Gro Company meet the principles of justice described in this chapter? If not, what could the company do to reduce unfairness without significantly increasing costs? Responses will vary on students' interpretations of these principles of justice, but should include evidence that they were able to think through how this policy is or is not just. 2. What specific aspects of job satisfaction does Miracle-Gro's policy affect? How could the policy be modified to improve job satisfaction? Because shared values are a key component of job satisfaction, this policy would be affirming for employees who value good health and it could be alienating for those who smoke or do not value good health. The policy could be softened, or modified, to encourage employee health yet perhaps not be quite as punitive and final. Rather than terminating, for example, employees who smoke, the company might consider providing smoking cessation classes and workshops. 3. Suppose you work in the HR department of a company considering a no-smoking policy. You have been asked to recommend the responses that managers should take if one of their employees is found to have been smoking. What would you recommend? Responses should include: providing employees with information about the policy and the consequences for violating that policy; encouraging employees to consider whether or not the organization is the best fit with their own values and aspirations, and advising them of the progressive discipline process used to enforce the policy. 20 Chapter 10 - Separating and Retaining Employees ROADMAP: Video Case Video Case: SASFinding and Keeping the Best Employees (9:17) Jeff Chambers is vice president of human resources at SAS, the world's largest privately-owned software company. SAS has grown continuously since its start in 1976 and in 2006 had revenues of $1.9 billion, The firm's 400 offices worldwide serve about 43,000 customers in 111 countries.1 Delivering superior software to those customers and building relationships--the company's primary missioncan be accomplished only by talented, quality people, more than 10,000 of them. Part of Jeff's job is to find and keep such employees. Recruiting people who want to work at SAS isn't difficult; there are about 93,000 applicants for 500 jobs. The challenge is to screen applicants to find those who fit best. The company assesses future labor requirements, prepares job analyses to see what various jobs entail, and then tries to find employees within the firm to meet future needs, before searching outside the firm to find the best people. Spending more time in the hiring processinterviewing, testing, and evaluating prospectsmeans less time later trying to replace workers who were not a good fit in the firm. With skilled workers in great demand, employee retention is critical at SAS. The company's success in retaining workers can be measured by its low turnover rate, about 4 percent yearly, way below the software industry average of 18 percent. One way to keep employees is to promote from within, and that means an emphasis on training and development. In-house classes, online courses, internships, apprenticeships, management training, and mentoring are used to keep employees up to date and more qualified for promotion. At a company like SAS, performance evaluation is extremely important. The company works closely with each employee to make sure the person understands the goals of the firm and how she or he fits into those goals. 21 Chapter 10 - Separating and Retaining Employees The employee-focused philosophy behind the corporate culture at SAS is that if you treat employees as if they make a difference to the company, they will. SAS employees work in an environment designed to fosters and encourages the integration of the company's business objectives with their personal needs. 2 That means providing them with more than a satisfying job and a change to move up within the organization. It also means providing benefits that employees want and need. The SAS world headquarters in North Carolina lists amenities that could make employees working elsewhere envious: health care center, two on-site childcare centers, eldercare information and referral program, wellness center with gym and pool, playing fields, walking trails, and break stations on every floor stocked with fresh fruit or candy. The profit-sharing program puts 15 percent of their salary into accounts for all employees each year. Medical insurance carries over to retired workers as well. SAS tries to accommodate the needs of individual workers as much as possible. Someone who needs to take off early can. Employees can telecommute if they prefer. The company also has job sharing and flextime. The culture and benefits at SAS earn employee loyalty and outside recognition, too. For 10 years straight, Fortune has included SAS on its list of 100 best companies to work for in America, and Working Mother magazine has included it on a similar list 13 times.3 CEO Jim Goodnight says the investment SAS makes in its people pays off for the company. Retaining employees saves the company about $75 million per year, according to a Harvard study, and that $75 million covers the costs of the benefits SAS provides. Moreover, management believes that satisfied employees create satisfied customers. SAS puts great effort into relationships with its customers through service and quality products. The company tries to move fast when new technologies emerge; a new software release takes about two years, including lots of testing. \"When we ship software,\" says CEO Goodnight, \"it's almost error free.\" 4 The company's quality products and customer service result in customer retention rates in the 98 percent range. SAS spends 25 percent of revenues each year on research and development, twice the industry average, to keep improving products. Treating employees and customers with care helps distinguish SAS from competitors and keeps the company growing. Discussion Questions 1. Why does SAS place so much emphasis on recruiting and retaining top employees? 2. What are some of the benefits the company uses to attract and keep the best people? 22 Chapter 10 - Separating and Retaining Employees References 1 SAS: The Power to Know,\" SAS Annual report, 2006. 2 www.sas.com/corporate/worklife/index.html 3 www.sas.com/corporate/worklife/index.html 4 Michael Dempsey, \"Veteran SAS leader sets sights on performance management,\" Financial Times, March 23, 2995, p. 2. ROADMAP: IT'S A WRAP! Your students can now REVIEW, APPLY, and PRACTICE the topics that you covered in Chapter Ten with the following segments: REVIEW Chapter learning objectives Narrated lecture and iPOD content Test your knowledge: Styles of Handling Conflict APPLY Managers Hot Seat segment: \"Whistleblowing: Code Red or Red Ink?\" Video case on the \"Finding and Keeping the Best Employees at SAS\" Self-Assessment: Take a sample employee survey and answer the assessment \"What is your Preferred Conflict Handling Style\" Web Exercise: Cyberspace and Employee Satisfaction PRACTICE Chapter Quiz 23 Chapter 12 - Recognizing Employee Contributions with Pay Chapter Twelve: Recognizing Employee Contributions with Pay Human Resource Management 3rd edition by R.A. Noe, J.R. Hollenbeck, B. Gerhart, and P.M. Wright 38 Chapter 12 - Recognizing Employee Contributions with Pay ROADMAP: THE LECTURE RECOGNIZING EMPLOYEE CONTRIBUTIONS WITH PAY Chapter Summary This chapter explores the choices available to organizations with regard to incentive pay. First, the chapter describes the link between pay and employee performance. Next, it discusses ways organizations can provided a variety of pay incentives to individuals. This is followed by a description of pay as related to group and organizational performance. The chapter then explores the organization's processes that can support the use of incentive pay. Finally, the chapter discusses incentive pay for the organization's executives. Learning Objectives After studying this chapter, the student should be able to: 1. Discuss the connection between incentive pay and employee performance. 2. Describe how organizations recognize individual performance. 3. Identify ways to recognize group performance. 4. Explain how organizations link pay to their overall performance. 5. Describe how organizations combine incentive plans in a \"balanced scorecard.\" 6. Summarize processes that can contribute to the success of incentive programs. 7. Discuss issues related to performance-based pay for executives. I. Introduction 1. Organizations have wide discretion in setting performance-related pay, called incentive pay. 2. Organizations can tie incentive pay to individual performance, profits, seniority, or many other measures of success. 3. Organizations select incentives based on their costs, expected influence on performance, and fit with the organization's broader HR and company policies and goals. II. Incentive Pay 1. Incentive pay is pay specifically designed to energize, direct, or control employee's behavior. It is influential because the amount paid is linked to certain predefined behaviors or outcomes. 39 Chapter 12 - Recognizing Employee Contributions with Pay 2. For incentive pay to motivate employees to contribute to the organization's success, the pay plans must be well designed. 3. In designing incentive pay plans, organizations should consider whether the pay encourages the kinds of behavior that are most needed, whether employees believe they have the ability and resources to meet the performance standards, and whether they value the rewards and think the pay plan is fair. . 4. Complications with incentive pay include: (1) employees may focus only on the performance measures rewarded under the plan and ignore the measures that are not rewarded, (2) employees must believe they have the ability and resources to meet the performance standards, (3) employees must believe they can earn the rewards, and (4) employees must value the rewards offered and think the pay plan is fair. 5. A complete pay plan for motivating and compensating employees has many components, from pay to work design to developing managers so they can exercise positive leadership. 6. The many kinds of incentive pay fall into three broad categories: incentives linked to individual, group, or organizational performance. III. Pay for Individual Performance 1. Organizations may reward individual performance with incentives such as piecework rates, standard hour plans, merit pay, individual bonuses, and sales commissions. A. Piecework Rates 1. Some organizations pay production workers a piecework rate. This is a wage based on the amount the employee produces. This rate is often paid in addition to the employees' base pay. 2. A straight piecework plan is where the employer pays the same rate per piece no matter how much the worker produces. 3. A variation on straight piecework is differential piece rates - also called rising and falling differentials - in which the piece rate depends on the amount produced. 4. An advantage of piece rates is the direct link between how much work the employee does and the amount the employee earns. This type of pay is easy to understand and seems fair to many people, if they think the production standard is reasonable. 5. This type of incentive is most suited for very routine, standardized jobs with output that is easy to measure. It may not be helpful in an organization with complex jobs, employee empowerment, and team-based problem solving. Figure 12.1, How Incentives Sometimes \"Work\