Word Count 250 words or more. Everything must be in own words. Please use the Bethel University Library. Please no PLARGRISM. Please have it in APA STYLE. There will two attachments one is the assignment and the other one is the reading. one of the refer

20181212010843unit_1_class_discussion_human_resources x20181212011324unit_1_reading_human_resources
 

Word Count 250 words or more. Everything must be in own words. Please use the Bethel University Library. Please no PLARGRISM. Please have it in APA STYLE. There will two attachments one is the assignment and the other one is the reading.

one of the references: Bernardin, H. & Russell, J. Bethel University. (2013). Human Resource Management, An Experimental Approach, Sixth Edition. Retrieved from: 

https://www.betheluniversityonline.net

Which aspects of human resource management appeal most to you as a possible career? Which aspects appeal the least?

H. JOHN BERNARDIN
Stewart Distinguished Professor,
Florida Atlantic University
JOYCE E. A. RUSSELL
Ralph J. Tyser Distinguished Teaching Fellow,
The University of Maryland
Human Resource Management
An Experiential Approach
Sixth Edition
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Chapter
1
Strategic Human Resource
Management in a
Changing Environment
According to graphologist Paul Sassi, the fluidity of President Obama’s signature is a sign
of high intelligence, while its illegibility shows he is protecting his privacy. “He doesn’t
want you to know him too well.” Another handwriting expert concluded: “The large
letters in Obama’s signature show that he is ambitious, self-confident, and views himself
as a leader. . . . The fluid letter forms reveal that he can form a coalition, be diplomatic,
and get along with both sides of the aisle.” She added: “He’s the type of guy who could tell
you to go to hell and you’d enjoy the trip.” 1 In her assessment of Mitt Romney, grapholo-
gist Sheila Kurtz concluded that he is inclined to think quickly but impulsively, to dream
big, but don’t even think about telling him what to do. Kurtz describes President Obama as
“unclogged with preconceptions and prejudices,” with an ability to consider new ideas and
probe beneath the surface of issues. She also claims his handwriting also reveals that he is
unlikely to act on “raw or coerced impulse.” 2
When one of your authors shared these assessments with undergraduate human
resources classes, about 20 percent of students thought the evaluations were “dead on
accurate,” another 30 percent described the profiles as “mostly accurate,” about 25 percent
OVERVIEW
O B J E C T I V E S
After reading this chapter, you should be able to
1. Describe the field of human resource management (HRM) and its potential
for creating and adding value within contemporary organizations.
2. Describe discrepancies between actual HRM practices and recommendations
for HRM practice based on scholarly research.
3. Describe the major activities of HRM.
4. Explain important trends relevant to HRM, including the increasing
globalization of the economy, changing technology, the role of regulations
and lawsuits, the changing demographics of the workforce, and the
growing body of research linking particular HRM practices to corporate
performance.
5. Emphasize the importance of measurement for effective and strategic HRM.
6. Understand what is meant by competitive advantage, and what the four
mechanisms are for offering and maintaining uniqueness.
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1 / Human Resource Management and the Environment
thought they were “completely inaccurate,” and about 25 percent had no opinion at all
on the accuracy of the profiles. Within the last group, however, about half of the students
expressed skepticism about assessing someone’s personality, intelligence, motivation, or
anything else important using the person’s handwriting. It is this group of students who
are “dead-on accurate.” Research clearly shows that handwriting is not a valid means of
assessing anything important (except your handwriting!).
The assessment of politicians is not the only application you will find of such invalid
assessment methods. Inc. magazine, one of the most popular magazines for U.S. small
businesses, ran a story extolling the benefits of using graphology to hire managers. 3 The
article reported that the use of graphology was on the increase and that the method was
very effective for selecting managers and salespersons. Sound research in human resource
management (HRM) has determined that companies would do just about as well picking
names out of a hat to make personnel decisions. 4
Skilled HRM specialists help organizations with all activities related to staffing and maintain-
ing an effective workforce. Major HRM responsibilities include work design and job analysis,
training and development, recruiting, compensation, team building, performance management
and appraisal, and worker health and safety issues as well as identifying and developing valid
methods for selecting staff.
Research by academics who study and teach HRM is devoted to identifying the most
effective and efficient methods for meeting these HRM responsibilities. A key theme of
this book is that the most effective HRM programs, policies, and practices are those
that are developed based on HRM research results. Another theme of this book is that
contemporary HRM practice often ignores the sound research about policy, practice, or
people that is available to help make good decisions. Instead, organizations are apt to adopt
an HRM practice merely because competitors are using it (this was a main theme of the
Inc. article about graphology).
One of your authors once had a conversation with a business owner who had hired his
145-person sales staff based on graphology reports (at $75 per report) and the answer to a
single question posed in an interview. When questioned about the validity of these meth-
ods, the business owner described one terrible salesman he had hired out of desperation in
a tight labor market despite a graphologist’s report that said the “small writing with little
slant indicated he may be too introverted for sales work.” This one example had stuck in
his mind as “proof” of graphology’s effectiveness. He lamented, “If only I had listened
to the handwriting expert. I wasted a bundle training the guy!” Those of us who teach
statistics refer to this type of “research” as a “man who” statistic in which a person enlists
a single case to support or refute a theory. For example, when you discuss the overwhelm-
ing evidence showing that smoking causes cancer, someone might offer the counterargu-
ment that “yea, but my aunt smoked three packs a day and lived to be 90.” An article in
the Washington Post reported that the Pilot Pen Company’s CEO Ronald Shaw was a big
believer in graphology and would use it for all hiring decisions because the graphologist’s
profile based on his own handwriting showed that he was “sincere and intelligent and had
a lot of integrity.” 5 While (apparently) flattery will get you somewhere (or at least a good
consulting gig), graphology will not get you accurate or valid assessments of the personal
characteristics related to job performance (even the job of president). Needless to say, this
is not the way to do research on a procedure.
There are good ways to do research and good ways to assess the effects of programs, pro-
cedures, and activities of HRM. Sound measurement, followed by data-driven decision
making, are keys to effective management. Remember the old adage: if it’s not measured,
it’s not managed. Management needs to collect and validate information. This information can
be a major asset and in many cases, “the raw material of new products and services, smarter
decisions, competitive advantage for companies, and greater growth and productivity.” 6 A 2011
study led by MIT professor Erik Brynjolfsson showed that companies that adopted “data-driven
decision making” for major managerial decisions achieved productivity that was 5 to 6 percent
higher than what could be explained by other factors, including how much the companies in-
vested in technology. Data-driven decision making was defined not only by collecting sound
data on critical variables, but also whether the results of the data collection were then used
to make crucial decisions. The major distinction made in the study was determining whether
Major HRM
responsibilities
Sound measurement
is critical to effective HR
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managerial decisions were based mainly on “data and analysis” versus the more traditional
“experience and intuition.” 7
Graphology has been the subject of sound, data-based research to determine whether
diagnostics that derive from a person’s handwriting actually predicts whether a person is
going to be a competent manager and great salesperson (it doesn’t). As we discuss in detail
in Chapter 6, there are many methods that do an excellent job predicting performance.
Data-driven (and effective) HRM means decision makers (HR specialists and line managers)
are aware of these valid methods and then use them to make decisions.
Many HRM systems and activities are not subjected to systematic measurement and
analysis. In fact, many organizations do not assess either the short- or long-term con-
sequences of their HRM programs or activities. Another key theme of the book is that
measurement and data-driven decision making are key components to organizational
effectiveness and competitive advantage. Good measurement and data-driven decisions,
allied with business strategies, will help organizations identify and improve all of their
HRM activities and resultant decisions.
Stanford University professor Jeffrey Pfeffer considers measurement to be one of the keys
to competitive advantage. His book Competitive Advantage Through People cites measurement
as one of the 16 HRM practices that contribute the most to competitive advantage. 8 Pfeffer’s
views were echoed and expanded in the popular text The Balanced Scorecard by Harvard
professor Robert Kaplan and consultant David Norton. 9 Kaplan and Norton stress that “if com-
panies are to survive and prosper in information age competition, they must use measure-
ment and management systems derived from their strategies and capabilities” (p. 21). Their
“balanced scorecard” emphasizes much more management attention to “leading indicators” of
performance that predict the “lagging” financial performance measures. The “balance” reflects
the need to measure short- and long-term objectives, financial and nonfinancial measures,
lagging and leading indicators, and internal and external performance perspectives.
In their book The Workforce Scorecard, Professors Mark Huselid, Brian Becker, and
Dick Beatty extend research on the “balanced scorecard” to a comprehensive management
and measurement system designed to maximize workforce potential. 10 These authors show
that the traditional financial performance measures such as return on equity, stock price,
and return on investment, the “lagging indicators,” can be predicted by the way companies
conduct their HR. HR practices are the “leading indicators” that predict subsequent finan-
cial performance measures. 11 Unfortunately, research indicates that only a small percent-
age of HRM programs or activities are subjected to critical, data-driven analysis. The good
news, however, is that the percentage is at least going up. Measurement and data-driven
decision making are essential for American organizations in the 21st century!
One study defined the vision of HRM for the 21st century. HRM activities must be
(1) responsive to a highly competitive marketplace and global business structures,
(2) closely linked to business strategic plans, (3) jointly conceived and implemented by line
and HR managers, and (4) focused on quality, customer service, productivity, employee
involvement, teamwork, and workforce flexibility. 12 In general, research shows that the
realization of this vision translates into greater organizational effectiveness.
Perhaps because of this body of research, the status of HRM is improving relative to
other potential sources of competitive advantage for an organization. Professor Pfeffer notes
that “traditional sources of success (e.g., speed to market, financial, technological) can still
provide competitive leverage, but to a lesser degree now than in the past, leaving organi-
zational culture and capabilities, derived from how people are managed, as comparatively
more vital.” 13 Research clearly indicates that certain HR practices can increase employ-
ees’ knowledge, skills, and abilities through more valid staffing and selection decisions,
serve to empower employees to leverage these superior characteristics for the benefit of
the organization, and to increase the motivation of these employees to do so. The results
of these practices are greater job satisfaction and organizational commitment, lower levels
of voluntary turnover among key personnel, and higher productivity. 14
You are likely to manage people at some point in your career. Research shows that the
extent to which you as a manager make data-driven, evidence-based HR decisions will
be a key to your effectiveness as a manager. 15 We believe that the knowledge and experi-
ences we provide here will prepare you to be an effective manager. We emphasize that the
The Balanced Scorecard
The Workforce Scorecard
Lagging and leading
indicators
The vision of HRM for the
21st century
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most effective HRM programs, policies, and practices are those that derive from strong
research and data-driven decisions that are carefully aligned with the organization’s strate-
gic mission and objectives. All HRM activities should be evaluated in this context, using
“leading indicator” performance measures.
Keep mission in mind
WHAT IS HUMAN RESOURCE
MANAGEMENT?
The human resources of an organization consist of all people who perform its activities.
In a sense, all decisions that affect the workforce concern the organization’s HRM func-
tion. Human resource management concerns the personnel policies and managerial prac-
tices and systems that influence the workforce. Regardless of the size—or existence—of a
formal HRM or personnel department (many small businesses do not have a formal HRM
department), the activities involved in HRM are pervasive throughout the organization.
Line managers, for example, will spend more than 50 percent of their time involved in
human resource activities such as hiring, evaluating, motivating, disciplining, and schedul-
ing employees.
The effectiveness with which line management performs HRM functions with the tools,
data, and processes provided by HRM specialists is the key to competitive advantage
through HRM. This principle generalizes from very small businesses to the very largest
global enterprises. Dr. James Spina, former head of executive development at the Tribune
Company, really put things in perspective about the role of HRM. He said, “The HRM
focus should always be maintaining and, ideally, expanding the customer base while main-
taining and, ideally, maximizing profit. HRM has a whole lot to do with this focus regard-
less of the size of the business, or the products or services you are trying to sell.”
Those individuals classified within an HRM functional unit provide important products
and services for the organization. These products and services may include the provision
of, or recommendation for, systems or processes that facilitate organizational restructur-
ing, job design, personnel planning, recruitment, hiring, evaluating, training, developing,
promoting, compensating, and terminating personnel. A major goal of this book is to
provide information and experiences that will improve the student’s future involve-
ment and effectiveness in HRM activities.
A good way to think of an HR department is to view the department as a business
within the company. The HR business has three product lines: (1) administrative services
and transactions, which are made up of areas such as staffing and compensation; (2) busi-
ness partner services, which assist in implementing business plans and meeting objectives;
and (3) strategic partner, which contributes to the firm’s strategy based on human capital
considerations and developing HR practices to foster competitive advantage. 16 The most
common and traditional product line for HR is the first one: administrative services. How-
ever, the most effective (but less common) HR departments contribute significantly to the
other two lines as well.
While HR is capable of creating and sustaining competitive advantage, some would ar-
gue that HR, as it is practiced, is often more a weakness than a strength. One survey found
that only 40 percent of employees thought their companies were doing a good job retaining
high-quality workers, and only 41 percent thought performance evaluations were fair. A
mere 58 percent of respondents reported their job training as favorable. A majority said
they had few opportunities for advancement and they had little idea about how to advance
in the first place. Only about half of those surveyed below the managerial level believed
their companies took a genuine interest in their well-being. 17
Line managers and HRM
HRM and Corporate
Performance
A growing body of research shows that progressive HRM practices can have a significant
effect on corporate performance. Studies now document the relationship between specific
HR practices and critical outcome measures such as corporate financial performance, pro-
ductivity, product and service quality, and cost control. 18 Many of the methods characterizing
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these so-called high-performance work systems or practices (HPWP) have been researched
and developed by the HRM academic community. Figure 1-1 presents a summary of this
research.
HPWP are particular HR practices or characteristics designed to enhance employees’
competencies and productivity so that employees can be a reliable source of competitive
advantage. They have been called “coherent practices that enhance the skills of the work-
force, participation in decision making, and motivation to put forth discretionary effort.”
Research shows that “firm competitiveness can be enhanced by high-performance work
systems.” A summary of this research found that one standard deviation of improved
assessment on an HPWP measurement tool increased sales per employee in excess of
$15,000, an 8 percent gain in labor productivity. 19 A more recent review concluded that
“research in applied psychology and strategic human resource management clearly indi-
cates that investing in human capital can yield positive individual- as well as organization-
level performance outcomes.” 20
Recall the critical remarks earlier about graphology, or handwriting analysis. Validated
selection and promotion systems are related to higher productivity and reduced costs (see
Figure 1-1 ). The term validated means that the practice has actually been shown to
(statistically) predict (or correlate with) something important. If you’re using a method
to select managers or sales personnel, a “validated” method is a practice that research has
shown to actually predict managerial or sales success. In the field of HRM, there are highly
valid methods and procedures for predicting future employee performance based on the
assessed personal characteristics of job candidates.
Better training and development programs and team-based work configurations im-
prove performance and job satisfaction and decrease employee turnover. Particular incen-
tive and compensation systems also translate into higher productivity and performance.
The fair treatment of employees results in higher job satisfaction, which in turn facilitates
higher performance, lower employee turnover, reduced costs, and a lower likelihood of
successful union organizing.
Greater demands are now being made on HRM practitioners to respond to contempo-
rary trends in the business environment. Today, the most effective HRM functions are
conceptualized in a business capacity, constantly focusing on the strategy of the organiza-
tion and the core competencies of the organization. HRM specialists must show how they
can make a difference for the company’s bottom line and, if necessary, serve as “business
problem solvers.” Costs and efficiencies are necessary criteria for evaluating recommenda-
tions from research in HRM.
Many corporate strategy specialists maintain that the key to sustained competitive ad-
vantage is building and sustaining core competencies within the organization and main-
taining flexibility in order to react quickly to the changing global marketplace and the
advances in technology. One primary role of HRM practitioners should be to facilitate
these processes.
High-performance work
systems
Validation
Focus on core competencies
■ Large number of highly qualified applicants for each strategic position.
■ The use of validated selection and promotion models/procedures.
■ Extensive training and development of new employees.
■ The use of formal performance appraisal and management.
■ The use of multisource (360 degree) performance appraisal and feedback.
■ Linkage of merit increases to formal appraisal processes.
■ Above-market compensation for key positions.
■ High percentage of entire workforce included in incentive systems.
■ High differential in pay between high and low performers.
■ High percentage of workforce working in self-managed, project-based work teams.
■ Low percentage of employees covered by union contract.
■ High percentage of managerial jobs filled from within.

Figure 1-1
Characteristics of
High-Performance Work
Practices (HPWP)
Source: Reprinted by permission of Harvard Business School Press. From The HR Scorecard, by B. Becker and M. Ulrich.
Boston, MA, 2001. Copyright © 2001 by the Harvard Business School Publishing Corporation’ all rights reserved.
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While HRM executives and managers are more educated and professional than in the days
when they were simply in charge of personnel, the level of knowledge in practicing HRM
is another story. Many companies hire MBAs for HRM jobs even from programs where not
even a single HRM course may be required for the MBA. The 190,000-member Society
for Human Resource Management (SHRM, see www.SHRM.org ), which established the
Human Resource Certification Institute, formally recognizes human resource profession-
als who have demonstrated particular expertise in HR. As of 2011, over 108,000 certified
HR professionals in more than 70 countries have received and maintained HR credentials
through this respected institution.
HRM practitioners need to pay more attention to academic research. There is a great
deal of carefully crafted academic research that is highly relevant to HRM practice. This
research should help HR practitioners and line managers doing HR work to make more
data-driven decisions. Figure 1-2 presents a few examples of discrepancies between the
current state of HR practice and undisputed academic findings and recommendations. One
study showed the extent of this “knowledge gap.” 21 HR professionals were given a 35-item
test that assessed the extent of their HR knowledge (the same test you may have completed
as part of Critical Thinking Application 1-A). The test was based on findings from aca-
demic research, which would likely be covered in any basic HR course like this one. Items
were developed where there was little or no argument on the correct answer within the
academic community. The average grade for the nearly 1,000 HR professionals was “D.”
On numerous items, over 50 percent of the HR professionals got the answer wrong! More
recent research indicates that a “C” grade may be more appropriate for HR practitioners
today but it’s still fair to say that the “knowledge gap” persists. 22
Throughout the book, we intend to emphasize the most glaring discrepancies between the
way HRM is actually being practiced and what academic research has to say about particu-
lar practices. The failure on the part of HRM practitioners to be aware of and consider these
research findings can ultimately have a profound effect on an organization’s “bottom line.”
SHRM
knowledge gap
DISCREPANCIES BETWEEN ACADEMIC
RESEARCH AND HRM PRACTICE
Academic Research Findings HRM Practice
RECRUITMENT
Quantitative analysis of recruitment sources using yield Less than 15% calculate yield ratios. Less than 28% know how.
ratios can facilitate efficiencies in recruitment.
STAFFING
Realistic job previews can reduce turnover. Less than 20% of companies use RJPs in high-turnover jobs.
Weighted application blanks reduce turnover. Less than 35% know what a WAB is; less than 5% use WABs.
Structured and behavioral interviews are more valid. 40% of companies use structured interviews. Less than 50% use
behavioral interviews.
Use actuarial model of prediction with multiple valid measures. Less than 5% use actuarial model.
Graphology is invalid and should not be used. Use is on the increase in the United States.
PERFORMANCE MANAGEMENT AND APPRAISAL
Do not use traits on rating forms. More than 60% still use traits.
Train raters (for accuracy, observation bias). Less than 30% train raters.
Make appraisal process important element of manager’s job. Less than 35% of managers are evaluated on their performance
appraisal practices.
COMPENSATION
Merit-based systems should not be tied into a base salary. More than 75% tie merit pay into base pay.
Gain sharing is an effective PFP system. Less than 5% of companies use it where they could.
Figure 1-2 Sample of Discrepancies between Academic Research Findings and HRM Practices
Source: H. J. Bernardin (2011), “A Survey of Human Resource Practices: Discrepancies Between Research and HRM Practice.” Unpublished Manuscript.
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Although line management plays a critical role in the successful implementation and exe-
cution of HRM programs, these programs are typically developed, purchased, and adopted
because of recommendations by HRM specialists. For the small business with no formal
HR department, the person in charge of HR issues needs to be the HR expert.
Many HR activities such as payroll, recruitment, and preemployment screening are
now routinely outsourced to organizations that specialize in these areas. 23 The number of
consulting organizations specializing in HR activities has increased substantially in the last
10 years. There are now web-based HR products and services for almost every major
functional area of HR. An organization’s HR specialist must have the necessary knowl-
edge and skills to be able to either develop unique HR products or services or to identify
the best and most cost-effective of these HR products and services for a particular situation.
HRM professionals should possess up-to-date knowledge about the relative effective-
ness of the various programs and activities related to HR planning, training and devel-
opment, compensation, performance management, selection, information systems, equal
employment opportunity/diversity, labor relations, recruitment, and health and safety is-
sues. HRM professionals also should be capable of conducting their own research to evalu-
ate their programs and program alternatives. Unfortunately, evidence suggests that HR
professionals adopt many programs based either on effective marketing from the plethora
of vendors selling HR materials and programs or simply on what other companies are do-
ing. While some consideration may be given to the leading-indicator research described in
Figure 1-1 , greater weight is often given to slick marketing programs and simply doing what
others are doing. When “bottom-line” questions arise later on—as they inevitably do—HR
departments are caught off guard because costly and relatively ineffective programs have
been adopted. A careful study of programs with evaluative criteria linked to strategic goals
might reveal negligible or no impact. Again, if you don’t measure it, you can’t manage it.
Meta-analyses are now available to help HR managers make more informed decisions about
methods for such critical HR practices as staffing, recruiting, performance appraisal, and com-
pensation. A meta-analysis is a statistical technique that statistically combines research
findings across studies in order to reveal relationships among variables. There are now over
500 HR-related meta-analyses published in good, peer-reviewed journals. 24 (Many of the
correct answers from the study we cited earlier to illustrate the “knowledge gap” were de-
rived from a meta-analytic study and finding.) These studies are cited throughout the book
and often used to make “bottom-line” recommendations for an HR practice or method.
Many HR professionals are generally not well trained to ask the right questions, under-
stand scientific research, or conduct the appropriate study of a given HR program, practice,
or activity. One of your authors had a conversation with a VP of HR of a Fortune 500 company.
He had a Big-Ten MBA (but had taken no classes in HR) and was convinced that one
particular test was the best way to hire retail sales personnel. The basis for his position
was conversations with other poorly informed HRM MBAs who were using this same test
and “it seemed to work.” This is no way to evaluate a selection method. Another HR vice
president for a retailer adopted an expensive computerized testing program that the pub-
lisher claimed would reduce employee turnover by 50 percent. The VP did not request to
review the research that supported this claim and later admitted that although he ultimately
made the decision to adopt the test, he was unqualified to assess the test’s usefulness since
he could not even ask fundamental measurement questions that should be the focus of any
evaluation of such a product or service. In addition, although the retailer had been using
the test for over 2 years, it apparently never occurred to him to evaluate the extent to which
the test actually did reduce turnover in his own organization. The New London, Connecti-
cut, police department used an intelligence (also known as a cognitive or general mental
ability) test known as the Wonderlic to screen for officers but eliminated candidates if
their scores were too high. 25 The department’s argument was that more intelligent officers
would get bored on the job and thus quit. The department had no evidence to support this
theory; only the intuitive appeal of the argument. This is the kind of theory that should be
tested first either within an organization or by reviewing relevant scholarly research and by
considering the overall implications of such a policy. 26
One of the great values of academic research is the objective evaluation of activities
or programs using well-controlled experimental designs, which allow for unambiguous
What is meta-analysis?
Research should drive
HRM practice
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assessments of effects. For example, Buros Mental Measurements Yearbook is a reference
source that publishes evaluations of tests written by qualified academics who have no vested
interest in the tests themselves. Over 2,000 tests have been reviewed and the reviews can be
read and downloaded from the Buros website for $15 per test ( http://buros.unl.edu/buros/
jsp/search.jsp ). Many HRM professionals who adopt tests do not know that this very useful
text (and website) even exists.
Buros Mental
Measurements Yearbook
ORGANIZATIONAL DESIGN
Human resource planning based on strategy
Job analysis/work analysis
Job design
Information systems
Downsizing/restructuring
STAFFING
Recruiting/interviewing/hiring
Affirmative action/diversity/EEO compliance
Promotion/transfer/separation
Outplacement services
Employee selection/ promotion methods
PERFORMANCE MANAGEMENT AND APPRAISAL
Management appraisal/management by objectives/strategy execution
Productivity/enhancement programs
Customer-focused performance appraisal
Multirater systems (360°, 180°)
Rater training programs
EMPLOYEE TRAINING AND ORGANIZATIONAL DEVELOPMENT
Induction/orientation/ new employee socialization
Management/supervisory development
Global Leadership development
Career planning/development
Employee assistance/counseling programs
Attitude surveys
Training delivery options
Diversity programs
REWARD SYSTEMS, BENEFITS, AND COMPLIANCE
Compensation program design and management
Compliance with Fair Labor Standards Act (and other compensation laws)
Employee benefits management
Health/medical services
Pension/profit-sharing plans
Unemployment compensation management
Complaint/disciplinary procedures
Employer/employee relations
Labor relations/collective bargaining
Safety programs
Compliance with Occupational Safety and Health Act

Figure 1-3 presents a listing of some of the most commonly performed activities by HRM
professionals. These HRM activities fall under five major domains : (1) Organizational
Design, (2) Staffing, (3) Performance Management and Appraisal, (4) Employee Training
and Organizational Development, and (5) Reward Systems, Benefits, and Compliance.
THE DOMAINS OF HUMAN
RESOURCE MANAGEMENT
Figure 1-3
Major Activities of Human
Resource Management
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Although most of the particular activities subsumed under these five domains are con-
ceptually independent, in practice they are not (and should not be). While we list EEO
compliance as part of the Staffing domain, the legal compliance issues could obviously
be listed in the “Compliance” domain. Many organizations pursue the various activities
within a particular domain as if these activities would have no implications for any of
the other domains. For example, the New London Police Department conceded that
their leaders (e.g., their captains, even the chief of police) were all selected from
within the organization but hadn’t considered the fact that not hiring more intelligent
officers at entry level might have a negative effect on the pool of candidates for mana-
gerial positions.
Jack Welch is one of the most highly regarded former CEOs and the author of several
best sellers on management. He has been a strong advocate of a performance appraisal
system known as forced ranking (or forced distribution). 27 With this approach, managers
are “forced” to put a fixed percentage of their employees into a small number of categories
such as “superior” or “needing improvement.” Probably because of Mr. Welch’s advocacy,
this method of performance appraisal became very popular in the 1990s with, it was esti-
mated, one in five of the largest U.S. companies adopting the method, including Microsoft,
Ford, Cisco, Capital One, and even the notorious (and bankrupt) Enron Corporation. One
unanticipated effect of the method was a plethora of lawsuits related to the method and a
decrease in employee morale and teamwork. 28
Many organizations have recently reduced or eliminated health care benefits and pen-
sion programs without due consideration of the impact of these revisions on staffing and
employee retention. In addition to considering the implications, and potential conse-
quences, of any particular HR domain activity on other HR domains, all domain activities
must be weighed in the context of the new global environment, current and anticipated tax
incentives, and contemporary HR laws, regulations, and legal interpretations. This very
tangled web is discussed shortly.
Acquiring human resource capability should begin with organizational design and anal-
ysis. Organizational design involves the arrangement of work tasks based on the interac-
tion of people, technology, and the tasks to be performed in the context of the mission,
goals, objectives, and strategic plan of the organization. HRM activities such as human
resource planning, job and work analysis, organizational restructuring, job design, team
building, computerization, and technological interfaces also fall under this domain.
Organizational and work design issues are almost always the first ones that should
be addressed whenever significant change is necessary because of new strategies and/or
objectives, changing economic conditions, new or improved technologies, new opportuni-
ties, potential advantages or disadvantages, or serious internal problems. Design issues and
activities usually (and should) drive other HR domains such as selection, training, perfor-
mance management, and compensation. The recent economic downturn has provided an
opportunity for a serious evaluation of an organization’s strategy, its objectives, and its
competitive position. There are clearly effective and ineffective approaches and activities
within this organizational design.
Corporate downsizing, outsourcing/offshoring, and reengineering efforts often begin
with human resource planning in the context of personnel needs, new technology or equip-
ment, a strategic plan, and an analysis of how the work is performed, how jobs and work
units relate to one another, and, of course, cost analysis. These decisions can be critical for
the long-term survival of a struggling company. Research shows that layoffs designed to
derive a short-term “cost savings” may foster an increase in market value in the short run
but that investors often lose all of this value plus considerably more. 29 The major activities
that define the organization design domain, such as planning, work analysis, downsizing,
and restructuring, are covered in Chapters 4 and 5.
Work analysis is a major component of the organization design domain. The identifi-
cation of the critical knowledge, skills, and abilities necessary to achieve organizational
objectives may be the most important of these activities. Effective staffing programs help
recruit and retain the personnel who possess these characteristics.
After the organization is structured and work and jobs are clearly defined in terms of
performance objectives and the necessary knowledge, skills, and abilities for achieving
Organizational design
activities usually first
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them, positions must then be staffed. Recruitment, employee orientation, selection, pro-
motion, and termination are among the functions that fit into the HR staffing domain.
Of the HR activities within this domain, selection and termination are probably the two
most likely affected by the legal environment. The laws, regulations, and litigation are
discussed in Chapter 3. Chapter 6 covers the critical area of selection. Termination is dis-
cussed in Chapters 7 and 12.
The performance management domain includes assessments of individual, unit, or
other aggregated levels of performance to measure and improve work performance. Chap-
ter 7 deals with these subjects, which, like staffing and selection, are also the focus of nu-
merous lawsuits. A lawsuit can occur if the organization maintains that an employee was
terminated, not promoted, or not given a merit raise because of performance, and the em-
ployee believes that the negative personnel action was because of his or her gender, race,
religion, age, disability, or some other personal characteristic. An employee also can claim
an unlawful discharge based on an alleged contract or implied contract violation and even
make a claim for preemptive retaliation. Obviously, merit-based or incentive pay systems
require accurate measures of employee performance.
Employee training and organizational development programs involve the organi-
zational investments in establishing, fostering, and maintaining employee skills based
on organizational and employee needs. Activities include specialized training for jobs or
management functions, career development, and self-directed learning. Chapters 8 and 9
cover these vital areas.
Reward systems, benefits, and compliance have to do with any type of reward or
benefit that may be available to employees. Cash compensation, fringe benefits, merit pay,
profit sharing, health care, parental leave programs, vacation and sick leave, and pension
programs are among the critical areas within this domain. These activities are regulated
by a myriad of compliance requirements at the federal, state, and municipal levels. Recent
years have seen a dramatic increase in the number and size of class action lawsuits brought
under the federal Fair Labor Standards Act (FLSA) with charges of unpaid work time and
overtime wages. These HR activities and the major laws and regulations are covered in
Chapters 10 and 11.
This domain also concerns managing employment relationships, labor relations law
and compliance, and procedures designed to maintain good working relationships between
employees and employers. This may include the negotiation of collective bargaining agree-
ments, which require employers to negotiate with unionized workers over the conditions
of employment. These areas and the major relevant laws and regulations are covered in
Chapters 12 and 13.
Finally, employee health and safety issues are also subsumed under this domain and
include compliance with laws and regulations, especially the federal Occupational Safety
and Health Act ( OSHA ), which is concerned with the work environment and the effects
of health and safety policy and practice on workers and the “bottom line.” Our focus is on
health and safety policy as a leading indicator of HR effectiveness. This area is explored
in Chapter 14.
As we have said, there is an increasing realization (and evidence!) that the manner in which
organizations conduct their HR activities can help create and sustain organizational effec-
tiveness and a competitive advantage. The contemporary trends and challenges in the busi-
ness environment necessitate that even greater attention be given to the human resources
of an organization. Let us examine these trends next and relate each to particular HRM
activities. Figure 1-4 presents a summary of major trends.
The most significant trend is the increasing globalization of the economy and a grow-
ing competitive work environment with a premium on product and service quality and
low overhead. One of the most important factors affecting globalization and the growth of
transnational corporations is the goal of reducing the cost of production since labor costs
TRENDS ENHANCING THE
IMPORTANCE OF HRM
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are quite significant for U.S. companies. But as we discuss in Chapter 2, market-seeking
behavior is now as important a motivator of globalization as the search for low-cost
productivity.
Another major trend is the unpredictable but inevitable power of technology to transform
HRM. There is a need to be more flexible today because of the incredible pace of change in
markets and technology. HRM can facilitate this flexibility. The growth and proliferation
of lawsuits related to HR practice and changes in workforce characteristics also have had
a big impact on HRM. So is the fact that many in the workforce are ill-equipped with the
necessary knowledge, skills and abilities, and job requirements to do their jobs well.
TREND 1: THE INCREASED GLOBALIZATION OF THE ECONOMY
Opportunity for global workforce and labor cost reduction
Increasing global competition for U.S. products and services
Opportunity for expansion that presents global challenges for HR
TREND 2: TECHNOLOGICAL CHANGES, CHALLENGES, AND OPPORTUNITIES
Great opportunities presented by web-based systems
New threats: privacy, confidentiality, intellectual property
TREND 3: INCREASE IN LITIGATION AND REGULATION RELATED TO HRM
Federal, state, and municipal legislation and lawsuits on the increase
Wrongful discharge; negligent hiring, retention, referral
TREND 4: CHANGING CHARACTERISTICS OF THE WORKFORCE
Growing workforce diversity, which complicates HRM
Labor shortages for key competencies/aging workforce/Millennials rising

Figure 1-4
Major Trends Affecting
HRM
Trend 1: The Increased
Globalization of the
Economy
In his bestseller The World Is Flat: A Brief History of the Twenty-First Century , Thomas
Friedman described the next phase of globalization. 30 An Indian software executive told
him how the world’s economic playing field is being leveled. So-called barriers to entry
are being destroyed. A company (or even an individual) can compete (or collaborate) from
almost anywhere in the world. Over 1,000,000 American tax returns were prepared in India
in 2011. Says Jerry Rao, Indian entrepreneur, “Any activity where we can digitize and de-
compose the value chain, and move the work around, will get moved around. Some people
will say, ‘Yes, but you can’t serve me a steak.’ True, but I can take the reservation for your
table sitting anywhere in the world.” Rao’s recent projects include a partnership with an
Israeli company that can transmit MRI and CAT scans through the Internet so Americans
can get a second opinion very quickly (and relatively cheaply). There is no question that
the increasing globalization of most of the world’s economies will affect HRM. It is pre-
dicted that most of the largest U.S. companies will soon employ more workers in countries
other than the United States, and that the growth for most major corporations will derive
from offshore operations. With technological advances, one of the strongest trends is the
development of a worldwide labor market for U.S. companies. In their quest for greater
efficiencies and reduced costs, American companies can now look globally to get work
done. While this opportunity stands to decrease the cost of labor, the process of HRM
can be more complicated. Of course, U.S. workers will resist this trend through union and
political activity.
The rise in oil prices and the cost of transportation have recently caused some “reverse
globalization” in the form of some jobs returning to the United States, especially in 2011.
In 2000 when oil was $20 a barrel, it cost $3,000 to ship one container of furniture from
Shanghai to New York. In 2012, the estimated cost of the same container is $8,800. The
long-suffering furniture manufacturing business in North Carolina is making a comeback.
DESA, a company that makes heaters to keep football players warm, is moving all of its
production back to Kentucky from China. Carrier Battery is coming back to Ohio. “Cheap
labor in China doesn’t help you when you gotta pay so much to bring the goods over,” says
economist Jeff Rubin.
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Nevertheless, most U.S. companies still see great potential for labor cost reductions
by looking overseas and a hesitance to hire U.S. workers unless it is absolutely necessary.
Despite high profits in recent years, American companies have been very reluctant to hire ad-
ditional workers in the United States. In 2012, with unemployment between 8 and 9 percent,
the belief was that skilled American workers were getting more expensive while capital
equipment was getting less expensive. This combination, along with tax advantages for
equipment, has encouraged companies to spend money on machines and technology rather
than people. “I want to have as few people touching our products as possible,” said Dan
Mishek, a managing director of Vista Technologies in Minnesota. “Everything should be as
automated as it can be. We just can’t afford to compete with countries like China on labor
costs, especially when workers are getting even more expensive.” 31
But outsourcing can bring new problems along with the cheap labor. It’s been over
15 years since some of the biggest companies in the world, because of political and con-
sumer pressure, began their efforts to eliminate the “sweatshop” labor conditions that
were pervasive across Asia. Yet, worker abuse is well documented in many Chinese fac-
tories that supply U.S. companies. Chinese companies providing goods and services for
Walmart, Disney, and Dell have been accused of routinely shortchanging their employees
on wages, withholding health benefits, and exposing their workers to dangerous machinery
and harmful chemicals like lead and mercury. Walmart, the world’s biggest retailer, has a
multibillion sourcing portfolio that supplies the goods it sells in stores mostly from China.
According to the Institute for Global Labour & Human Rights, two nongovernmental or-
ganizations recently documented incidents of abuse and labor violations, including child
labor, at 15 factories that produce or supply goods for Walmart. “At Wal-Mart, Christmas
ornaments are cheap, and so are the lives of the young workers in China who make them,”
the National Labor Committee report said. 32
Globalization creates greater competition and fosters more concern over productivity
and cost control. One important reason for the recent increased interest in HRM is the per-
ceived connection between HRM expertise and productivity. Most of corporate America
now knows that competing in an increasingly global environment requires constant vigi-
lance over costs and productivity and customer satisfaction. A smaller but growing per-
centage of managers recognize the importance of human resources in dealing with many
of these issues. Indeed, a great deal of the most recent corporate downsizing can be linked
to technological improvement and corresponding estimates of productivity improvements
with HR interacting with the technological changes. But with the rising costs of labor in
the United States, many companies are continuing to look for technology to replace work-
ers whose jobs are relatively routine. Says Harvard economist Claudia Goldin, “If you’re
doing something that can be written down in a programmatic, algorithmic manner, you’re
going to be substituted for quickly.” 33 Bank of America, American Express, Coca-Cola,
and General Electric are among the many large U.S. companies that have successfully fol-
lowed a formula of cutting personnel costs while investing in automated equipment, more
efficient facilities, and other technologies.
U.S. exports now generate about one in six American jobs, an increase of over 20 per-
cent in just 10 years. McDonald’s opened its first non-U.S. restaurant in Canada in 1967.
By 2011 its total sales outside of the United States contributed to over 50 percent of the
operating income of the firm. Two-thirds of McDonald’s new restaurants are now opened
outside the United States each year. While McDonald’s has moved more quickly than most
U.S. firms, many other U.S. firms are now expanding rapidly in both new countries and
new markets. The majority of new restaurants opened by Burger King and KFC are now
in international markets. The majority of new stores opened by Walmart are now opened
outside the United States.
Another response to increasing global competition is restructuring/downsizing, as men-
tioned earlier. Coca-Cola, Ford, Sears, AT&T, CBS, DuPont, GM, Kodak, Xerox, and
IBM are among the many corporate behemoths that have reduced their workforces by more
than 10 percent in the last decade. Many HRM specialists are experts in organizational re-
structuring and change procedures. They have expertise in downsizing and outsourcing op-
tions that can reduce labor costs. They may also conduct outplacement counseling for those
who are displaced or assist in developing new staffing plans as a result of the restructuring.
Labor cost reductions
More concern over
productivity
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As described in more detail in later chapters, HRM specialists are also asked to help in
legal defenses against allegations of discrimination related to corporate downsizing. Law-
suits related to downsizing are quite common. In an attempt to compete more effectively
against Geico and Progressive, Allstate Insurance converted all of its 15,200-member
sales force to independent contractors. To continue as contractors, the agents had to sign a
waiver that they would not sue Allstate for discrimination. The result was an age discrimi-
nation lawsuit brought by terminated employees and the government which was settled for
$4.5 million in 2009. Labor law can impose constraints on organizations trying to cut costs
through changes in labor policies.
The second trend is the rate of change in technology. More organizations are now evaluat-
ing their human resources and labor costs in the context of available technologies based
on the theory that products and services can be delivered more effectively (and efficiently)
through an optimal combination of people, software, and equipment, thus increasing pro-
ductivity. Instead of speaking to a customer service representative at Bank of America
(BOA) to discuss your account, you now routinely interact with an automated system
via the Internet or an automated teller machine (ATM) or through an 800 number. The
program is designed to handle almost any problem about which you might inquire. With
the automated system, BOA was able to shed customer service representatives and reduce
labor costs. As more people use their automated services and ATMs, there is less need for
supervision. Customers, as a result, pay less in service charges. As these automated sys-
tems have evolved, some customers are satisfied with the automated service, even though
they are not dealing with an actual person. HRM specialists participate in the development
and execution of user testing programs to assess the design of the automated interface.
Today, with the assistance of HR, more companies are evaluating the role of orga-
nizational structure, technology, and human resources with the goal of providing more
and higher-quality products and services to the customer at a lower price. This pricing
reduction is at least partially achieved by controlling the cost of labor while not losing the
focus on meeting customer definitions of quality. Of course, the ultimate goal of for-profit
organizations is to maximize profit margins while sustaining (or improving) perceived
customer value. HR has a great deal to offer in this endeavor.
While the potential is there, HR specialists are often ignored. Technological advances
and offshoring are, of course, related. One survey found that only 35 percent of respondents
reported that HR was involved in the offshoring process from an early stage, although HR
does typically play a major role in restructuring the organization’s workforce as a result
of offshoring. Says Jennifer Schramm, manager of workplace trends and forecasting at the
Society of Human Resource Management (SHRM.org), “with human capital increasingly
seen as the main factor in competitive advantage at both national and organizational levels,
increasing productivity through effective human resource management will be crucial. In
this sense, HR’s role in boosting productivity through human capital and workplace cul-
ture, even as the scope of the workplace extends across the globe and spans very different
cultures, will continue to grow.” 34
Technology is revolutionizing many HRM activities as electronic HRM (e-HRM) and
automated human resource management systems have allowed HR to focus on the more
strategic aspects of HR while making HR services more efficient. Virtually all organiza-
tions now use some of the many software packages to aid all HR domains. Most HR activi-
ties and outcome data are tracked electronically, such as recruitment, hiring data, turnover,
performance appraisals, and training. Managers from different departments, states, or even
countries now readily access the HR system and update employment files. Software pack-
ages are easily customized to fit a specific organization’s HR activities. Employees from
around the world now work together in virtual teams. Organizations can post job openings
online and get a pool of qualified candidates in minutes. Some of these candidates can
be tested and interviewed the same day (or hour) they apply. Of course, employees can
now access personal information about their health care benefits or their 401k retirement
investments. There is no question that e-HRM has increased HR efficiency for many HR
activities.
35 percent HR involvement
in offshoring
Trend 2: Technological
Changes, Challenges,
and Opportunities
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Technology is also helping HR do things more effectively. Take the performance man-
agement and appraisal domain. Process tracing software is now available and used by
many technology-oriented companies in order to track the interactions and contributions
of individual workers. For example, Microsoft uses data from this software to identify pro-
gramming “sparkplugs” (those who originate an idea), the “super-connectors” (those who
build on an idea), and the “bottlenecks” (those who hold things up). They then use these
results to reward contributions and to plan future assignments. IBM uses similar software
to identify employees to be “fast-tracked” into managerial and other leadership roles based
on their contributions to group projects.
The advent of new technology has created a variety of concerns for management.
Employee privacy and intellectual property rights are increasingly cited as major concerns.
With computer attacks occurring worldwide, ensuring confidentiality of employee data is
a growing concern, and the liability of an organization in the event of security breaches is
still unclear. 35
Protecting intellectual property is vital for all organizations, especially emerging tech-
nology and research and development organizations. As a result, organizations are devel-
oping electronic communication policies that clearly outline permitted electronic activities,
uses of employer systems, and monitoring of employees’ files such as e-mail. Many com-
panies have banned cellular cameras and instant messaging because of the increased risk
of intellectual property theft.
Although still rare, the following scenario is already here for some companies: A man-
ager or supervisor gets authorization to hire someone. The manager goes into a “node”
on the Internet and completes a job analysis for the new position that establishes critical
information regarding the job, including the necessary knowledge, ability, skills, and other
critical characteristics. The job description is then used to conduct a “key word” computer
search of a potential applicant pool in order to match the requirement of the job with
the standardized résumés in the database. Out pops a number of potential candidates for the
job. The manager then immediately sends out the job vacancy announcement to all of the
potential candidates in the database through electronic mail. Interested candidates respond
back via e-mail. The manager then selects the “short list” of candidates to compete for the
job based on a quantitative analysis of the résumés.
The same job analysis information could also be used to construct or retrieve job-related
tests or questions for an employment interview. The manager might even have a web cam-
era and could conduct the testing and “face-to-face” interviewing of the candidates as soon
as the contact is made (assuming the candidate also has access to a camera-based com-
puter). This process of going from describing the job to actually interviewing candidates
could take less than a day. HR is playing a key role in getting these systems up and running.
Virtually all of the most successful high-tech companies today rely more and more on
the Internet for fast, convenient, and efficient recruiting of their core personnel. The trend
line for other sectors of the U.S. economy is strong in this same direction. Even the CIA
and the FBI do recruiting on the Internet (try www.odci.gov/cia if you’d like to be a spy).
Technology and privacy
21st century staffing
Trend 3: Increase
in Litigation and
Regulation Related
to HRM
Another important trend affecting the status of HRM is the increase in the number of regula-
tions and lawsuits related to personnel decisions. As predicted by one sarcastic statistician,
by the year 2013, there will be more lawyers in this country than people. While this is obvi-
ously a joke, there is no question that the proliferation and creativity of lawyers have helped
to foster our highly litigious society. There is no sign of this activity letting up in the near
term. In fact, federal lawsuits charging violations of labor laws have increased faster (up over
125 percent since 1991) than any other area of civil rights legislation. Jury awards have got-
ten much bigger in recent years. In 2010, 32 percent of judgments against companies related
to HR were $1 million or more. In 1994, the percentage of such awards was only 7 percent.
In general, HRM-related laws and regulations reflect societal responses to economic,
social, technical, or political issues. For example, the Civil Rights Act of 1964, which
prohibits job discrimination on the basis of race, sex, color, religion, or national origin,
was passed primarily in response to the great differences in economic outcomes for blacks
Civil Rights Act
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compared to whites. The 2008 Genetic Information Nondiscrimination Act was designed
to address concerns that job seekers or workers could be denied employment opportuni-
ties due to a predisposition for a genetic disorder. A recent amendment to the Americans
with Disabilities Act (ADA) is probably responsible for the increase in ADA lawsuits
since 2010.
Other examples that have increased regulatory activity are new state laws regarding
corporate acquisitions and mergers, laws protecting Americans with disabilities and gays
and lesbians from employment discrimination, regulations regarding family leave benefits,
and mandated sick leave.
Organizations are bound by a plethora of federal, state, and local laws, regulations,
executive orders, and rules that have an impact on virtually every type of personnel deci-
sion. There are health and safety regulations, laws regarding employee pensions and other
compensation programs, plant closures, mergers and acquisitions, new immigration laws,
and a growing number of equal opportunity laws and guidelines. Today’s HRM profes-
sionals and line managers must be familiar with the ADEA, OFCCP, OSHA, EEOC, ADA,
WARN, FLSA, GINA, NLRA, and ERISA—among many other acronyms. Organizations
must also monitor the fate of the Patient Protection and Affordable Care Act ( PPACA ),
a federal statute signed into law by President Barack Obama on March 23, 2010. The
constitutionality of the law has been challenged and may have already been decided by the
Supreme Court.
Each of these laws represents a major regulatory effort. There is also some indication
that regulation will increase in the years ahead in the form of new EEO legislation related
to fair pay, union organizing, and sexual orientation protection.
While illegal immigration has been recognized as a serious national problem, Congress
has been unable to amend the 1986 Immigration Reform and Control Act or to pass new
legislation. However, the states have been very busy proposing or enacting hundreds of
bills addressing illegal workers. According to the National Conference of State Legislatures,
between 2009 and 2011, there were 222 laws enacted and 131 resolutions in 48 states. 36
It appears that, due to some of these laws, businesses in various states can lose their licenses
to do business if they are found to have intentionally or knowingly hired an “unauthorized
alien” as a worker.
Organizations spend considerable time and expense in order to comply with labor laws
and regulations and/or to defend against allegations regarding violations. Line managers
who do not understand the implications of their actions in the context of these laws can cost
a company dearly. Line managers may also be personally liable. Employers and managers
now face huge fines, the possible loss of business licenses, and even criminal prosecution
because of violations of new laws related to employing illegal immigrants.
Sometimes companies learn the hard way about the complexities of labor laws. Novartis
Pharmaceuticals lost a sex discrimination case in 2010 and a jury awarded the plaintiffs
$253 million. Drivers in FedEx’s Ground division claimed to have been improperly clas-
sified as independent contractors (the case was settled). IBM also settled a lawsuit brought
on behalf of 32,000 technical and support workers for $65 million who claimed they were
entitled to overtime pay in violation of the Fair Labor Standards Act. 37 In fact, class
action lawsuits brought under the Fair Labor Standards Act for overtime-related issues
have increased significantly in recent years. 38 Citigroup/Salomon Smith Barney settled a
similar suit for $98 million. Abercrombie and Fitch recently settled a race discrimination
lawsuit for $40 million and now conducts its staffing under strict court-imposed scrutiny.
Texaco and Coca-Cola settled similar lawsuits for over $165 million each. Baker and
McKenzie, the largest law firm in the United States, was assessed $3.5 million in punitive
damages for sexual harassment committed by one partner at the firm. The EEOC settled
a similar suit with Honda of America for $6 million. Westinghouse Electric Corporation
agreed to a $35 million settlement in an age discrimination suit involving 4,000 employ-
ees affected by the company’s reorganization. Ford recently agreed to a $10.6 million
settlement in an age discrimination case. Morgan Stanley settled a sex discrimination case
for $54 million. Wal-Mart Stores, Inc. remained mired in a numerous sex discrimination
lawsuits over pay and promotions as this book went to press.
Genetic Information
Nondiscrimination Act
Illegal immigration
Examples of HR lawsuits
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Several trends regarding the future of the American workforce underscore the challenges to
and the importance of the human resource function. Compared to 10 years ago, American
workers are more ethnically diverse, more educated, more cynical toward work and orga-
nizations, getting older, and, for a growing number, becoming less prepared to handle the
challenges of work today. The composition of the workforce is changing drastically, and
these changes are affecting HRM policies and practices.
Increasing diversity creates the need for more diverse HRM systems and practices
and increases the probability of litigation. It is estimated that by 2016 the U.S. workforce
will be 80 percent white, 12 percent African American, 5 percent Asian, and 3 percent
from other groups (including multiple racial groups). 39 Hispanics, African Americans, and
Asians are also projected to increase at a higher proportional rate than white non-Hispanics.
A greater proportion of women and minorities have entered the workforce since 2005 and
have moved into previously white male–dominated positions, including managers, law-
yers, accountants, medical doctors, and professors. Nearly 90 percent of the job growth
in the first part of the 21st century came from women, immigrants, African Americans,
and people of Hispanic or Asian origin. In addition, there are more dual-career couples
in the labor force. The “typical” U.S. worker in the past was a male—often white—who
was a member of a single-earner household. Fewer than 20 percent of today’s employees
fit this description. In May 2008, an estimated 11.6 percent of the U.S. population was
foreign born. Asians and Hispanics are the fastest growing groups in the labor force and
this is projected to continue to 2016. About half of the youngest 100 million Americans are
immigrants. 40
Two other trends will surely make HR more challenging in the years ahead: the rate of
“Baby-Boomer” retirements and a growing rate of Generation Yers (or Millennials) entering
the workforce. It is estimated that by 2014 there will be almost 63 million Millennials (people
born between 1977 and 1994) in the workforce, while the number of Baby Boomers in the
workplace will decline to less than 48 million. Some Baby Boomers believe that the Face-
book Generation (yet another name for Millennials) are less industrious, less hard working,
and less virtuous than the older generations. 41 Don Tapscott, author of Grown Up Digital:
How the Net Generation Is Changing Your World, says that younger workers prefer to work
in teams. 42 Managers (and even professors) have been known to complain about Millennials
frequently checking Facebook and Twitter or working with their ear buds in. Millennials are
more likely than Baby Boomers to believe that taking breaks for fun at work makes people
more, not less, productive. Such a theory is generally not accepted by older bosses and
co-workers. 43
By 2030, Americans 65 and older will make up about 20 percent of the total popu-
lation of the country. This will involve very large government entitlement costs in the
form of Social Security, Medicare, and Medicaid contributions. However, there is some
indication that enough Baby Boomers have remained in the workforce to make up for any
shortfall of workers and to a limited extent reduced a portion of the staggering projected
government unfunded obligations. Unfortunately, this trend has probably aggravated a
generational conflict. Because of the larger numbers of workers who are over the age of
40, age discrimination litigation has increased; moreover, a recent Supreme Court age
discrimination ruling (to be discussed in Chapter 3) changed the burden of proof needed to
prove age discrimination and may have already increased the amount of litigation. Also,
the workforce under the age of 40 is expected to acquire more family responsibilities. The
Generation Xers, the “sandwich generation,” those workers born between the Boomer gen-
eration and Generation Y, are to be expected to juggle both child care and especially elder
care demands as the Boomers live longer. Currently, many Boomers are juggling many of
these responsibilities. All of these issues will be of concern to HRM practitioners and line
managers in the years to come.
As a result of these changes in workforce composition, many organizations are imple-
menting programs on diversity, flexible work arrangements, more responsive training pro-
grams, child and elder care arrangements, and career development strategies so that work
and nonwork responsibilities can be more easily integrated. Building and sustaining a
quality workforce from this diversity is a great challenge for HR.
Increasing diversity
The Millennials
Trend 4: Changing
Characteristics
of the Workforce
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While increasing diversity translates into a greater probability of EEO legal actions,
many experts also argue that the diversity of the workforce should approximate the popu-
lation demographics so that an organization can be more responsive to the needs of the
population. As a result, today, most large U.S. companies include increasing the diversity
of their workforce as one of their strategic objectives. As we discuss in later chapters, the
diversity goals of corporations can have an impact on individuals who do not meet the
diversity criteria (e.g., older workers and job applicants).
Millennials are not only more racially and ethnically diverse than Boomers or Xers, they
are also more comfortable working in a diverse environment. Although there isn’t strong
research on this subject to date, it is thus likely that the Millennial generation might help
run things a little more smoothly as organizations get more and more diverse. Figure 1-5
presents a descriptive summary of the 75-million-strong Millennials.
Diversity and legal
implications
Summary of Trend
Effects
All of these trends are having a profound effect on the way HR is conducted. The changing
demographics and cultural diversity of the workforce, the increased number of lawsuits and
regulations, and the growing demands on American workers in the context of a paramount
DEMOGRAPHICS
■ Born between 1977 and 1994
■ Kids of the Baby Boomers
■ Largest generation (75 million) after the Boomers
■ 38 percent of Millennials identify themselves as “nonwhite”
■ Well educated
CHARACTERISTICS
■ Techno savvy
■ Connected 24/7
■ Independent
■ Self-reliant
■ Global/civic minded
■ Green
■ Diverse
■ Entrepreneurial
■ Life-style centered
■ Less religious
DEFINING LIFE EXPERIENCES/ EVENTS
■ Most “hovered over” generation
■ 9/11
■ Wars in Iraq, Afghanistan
■ Corporate scandal and greed
■ Emerging nations (China, India, South Korea)
■ Immigration issues/growing diversity
AT WORK
■ Adaptable/comfortable with change
■ Impatient/demanding/efficient
■ More interested in corporate social performance and responsibility
■ Want to produce something that makes a difference
■ Thrive on flexibility and space to explore
■ Require an explanation
■ Like feedback/guidance

Figure 1-5
Who Are the Millennials?
(aka: GenY, GenWHY,
Nexers, Boomlets, Netizens,
GenNext)
Source: Adapted from Zemke, R., Rainess, C., and Filipezak, B. (2000). Generations at Work. (New York: AMACOM).
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need to improve U.S. productivity and establish a competitive edge all create a situation that
will challenge HRM professionals and line management. Yet through better coordination
with organizational planning and strategy, human resources can be used to create and sus-
tain an organization’s advantage in an increasingly competitive and challenging economy.
Being innovative and responsive to changing business environments requires great flex-
ibility. The trend toward the “elastic” company is clearly affecting the HR function, too.
As more companies focus on their core competencies—essentially, what they do best and
what is the essence of their business—they outsource other work, use temporary or leased
employees or independent contractors to perform services or work on specific projects
even at the professional level, and replace personnel with new technology. These so-called
modular companies such as Apple, Nike, and Dell Computers have been very successful
because they have reliable vendors and suppliers and, most important, hot products. HR
consultants have been instrumental in helping companies discover their core competencies
and then developing optimal and efficient work designs and HR strategies. HR depart-
ments themselves are clearly not exempt from this trend toward outsourcing. The result has
been a proliferation of consulting firms that compete for HR-related projects and programs
previously performed within the company. Consulting is now a thriving business for HRM.
Outsourcing trends, along with a myriad of Internet, software, and consulting options,
have reduced the size of many HR departments and have the potential for making them
more efficient and more effective. How lean can you get in HR? Nucor, a steel company with
6,000 employees, has an HR staff of four at its headquarters. Most of the HR work is farmed
out to HR consultants. Some experts argue that the most efficient and perhaps most effective
HRM departments select the best and least costly outside contractors for HRM products and
services, make certain that these products or services are being used properly, and then evalu-
ate and adapt these products and services to ensure they are working effectively and efficiently.
This trend toward outsourcing some of the personnel function supports the thesis of
many experts that the HRM functions must be very lean in structure so that companies can
react quickly to the changing world. Many HRM departments now assess the need for any
expense, personnel included, in the context of the primary functions of the organization
and its competitive strategy. So, if companies can maintain a leaner and more cost-effective
structure by outsourcing, where will that leave the HR department in the future? One
survey found that 91 percent of companies have taken steps to outsource one or more HR
function. 44 Most employers indicated that they plan to expand HR outsourcing to include
training and development, payroll, recruiting, health care, and global mobility.
Keith Hammonds, executive editor of Fast Company, predicts that companies will “farm
out pretty much everything HR does. The happy rhetoric from the HR world says this is all
for the best: Outsourcing the administrative minutiae, after all, would allow human resources
professionals to focus on more important stuff that’s central to the business. You know, being
strategic partners.” 45 Hammonds argues that most HR people are not equipped to take on this
more important, strategic responsibility because they don’t know enough about the business.
There is no question that intense and growing competition has placed greater pressure
on organizations to be more adaptive and to carefully examine all of their costs. Edward
Lawler, a prominent management author and consultant, states, “All staff departments are
being asked to justify their cost structures on a competitive basis . . . head-count compari-
sons are being made by corporations to check the ratio of employees to members of the HR
department.” 46 In Human Resources Business Process Outsourcing, Lawler and colleagues
illustrate how outsourcing can be a very effective and efficient approach to HR and give
HR managers new opportunities to make a more important contribution to a company’s
bottom-line and overall strategy. They present a template for analyzing an HR depart-
ment’s value, value added, and cost-to-serve.
Whether an organization is facing increasing international competition or simply more
intense pressure to improve the bottom line, HR has a great opportunity to help meet the
firm’s challenges as a business partner. Lawler sees the most pressing need in the area of
corporate strategy. “The HR function must become a partner in developing an organiza-
tion’s strategic plan, for human resources are a key consideration in determining strategies
that are both practical and feasible.” 47 This HR partnership must evolve out of the major
activities of the HR function. A key to this partnership is good, strategic measurement.
HR Outsourcing
91 percent of companies
have outsourced one HR
activity
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STEPS
1. Identify critical and carefully defined outcome measures related to strategic objectives.
2. Translate the measures into specific actions and accountabilities.
3. Develop and communicate detailed descriptions of what is expected. Determine how (or if)
improvements can be facilitated.
4. Identify high and low performing employees. Establish differentiated incentive systems.
5. Develop supporting HR management and measurement systems of selection, formal
performance appraisal, promotion, development, and termination practices.
6. Specify the roles of leadership, the workforce, and HR in strategy execution.
CHALLENGES
Perspective challenge—Does management fully understand how workforce behaviors affect strategy
execution?
Metrics challenge—Has the organization identified and collected the right measures of success?
Execution challenge—Does management have access to the data and the motivation to use the data in
decision making?

Figure 1-6
Steps and Challenges for
Developing a Workforce
Scorecard
Source: Adapted from M. A. Huselid, B. E. Becker, and R. W. Beatty, The Workforce Scorecard: Managing Human
Capital to Execute Strategy (Boston: Harvard Business School Press, 2005).
In their book The Workforce Scorecard: Managing Human Capital to Execute Strategy,
Professors Mark Huselid, Brian Becker, and Dick Beatty argue that of all the controllable
factors that can affect organizational performance, a workforce that can execute strategy
is the most critical and underperforming asset in most organizations. 48 Measurement
is front and center in their prescription for a more effective workforce.
They outline three challenges that organizations must take on to maximize workforce po-
tential in order to meet strategic objectives: (1) view the workforce in terms of contribution
rather than cost; (2) use measurement as a tool for differentiating contributions to strategic
impact; and (3) hold line and HR management responsible for getting the workforce to
execute strategy.
Their measurement strategy calls for the development of a “workforce scorecard” that
evolves from six general steps an organization needs to take. Figure 1-6 summarizes this
process: (1) identify critical and carefully defined outcome measures that really matter;
(2) translate the measures into specific actions and accountabilities; (3) give employees
detailed descriptions of what is expected and how improvements can be facilitated;
(4) identify high and low performing employees and establish differentiated incentive
systems; (5) develop supporting HR management and measurement systems; and (6) specify
the roles of leadership, the workforce, and HR in strategy execution.
Huselid, Becker, and Beatty propose three challenges for successful workforce measure-
ment and management (see Figure 1-6 ). The “perspective” challenge asks whether manage-
ment fully understands how workforce behaviors affect strategy execution. The “metrics”
challenge asks whether they have identified and collected the right measures of success.
Finally, the “execution” challenge asks whether managers have the access, capability, and
motivation to use the measurement data to communicate strategy and monitor progress.
Human resource activities, practices, and research typically focus on a relatively small
number of criteria or outcome measures. These measures can be fine-tuned on the quality
of their measurement and the extent to which they are related to customer satisfaction and
then long-term profitability and growth. Much of the research in HRM and many of the
criteria used to assess management practices focus on employee satisfaction. Figure 1-7
presents a simple model that illustrates why there is (and should be) such a focus. Through-
out the book, many studies are referenced that establish some relationship between an
HR practice or HR policy or employee characteristics (e.g., employee job satisfaction)
and one or more “bottom-line” criteria such as corporate profit or customer satisfaction.
Three challenges
Perspective challenge
Metrics challenge
Execution challenge
Employee satisfaction and
corporate performance
THE IMPORTANCE OF HRM MEASUREMENT
IN STRATEGY EXECUTION
The Workforce Scorecard
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For example, in an excellent study of the relationship between employee attitudes and
corporate performance measures in almost 8,000 business units and 36 companies, strong
and reliable correlations were found between unit-level employee job satisfaction and
job engagement and critical business-unit outcomes, including profit. “Engagement” in
this study had to do with, among other things, the level of employee satisfaction regard-
ing working conditions, recognition and encouragement for good work, opportunities to
perform well, and commitment to quality. The authors estimated that those business units
in the top quartile on the job engagement scale had, on average, from $80,000 to $120,000
higher monthly revenues or sales.49
Can HRM practices facilitate higher engagement? Absolutely! It is clear that changes in
HRM practices that serve to increase employee satisfaction and engagement can increase
critical business-unit outcomes. Many HR experts now say that the emphasis in corporate
America is no longer on “happy” workers who will stay with the company forever. Rather,
the new mantra is to retain employees who are “productive” and “engaged.” Pay and bo-
nuses are thus more driven by performance measures instead of seniority. “It’s an, ‘If you
give, you’ll get’ model,” says David Ulrich, professor at the University of Michigan busi-
ness school. “That’s kind of the productive contract.” 50
Of course, many experts maintain that these simple “this for that” arrangements may
have contributed to the most recent U.S. economic woes. Countrywide Financial rewarded
its brokers for closing mortgages with questionable borrowers and its CEO Angelo Mozillo
got over $10 million in bonuses in one year as a direct result of these bad mortgages.
Borrowers began to default on the mortgages in droves in that same year, the stock of the
company collapsed, and Countrywide was saved by Bank of America with considerable
financial help from the federal government. Over 11,000 employees lost their jobs. Unfor-
tunately, Countrywide is but one of many examples of companies rewarding employees
for behaviors and outcomes that may be beneficial to these employees and their bosses in
the short term but toxic for the company in the not too distant future. Corporate bankrupt-
cies have been at record levels since 2008. Some of the most costly (e.g., Lehman Broth-
ers, Washington Mutual) can clearly be linked to deeply flawed “pay for performance”
systems.
We should also be interested in how the various measurement criteria relate to one
another. One recent meta-analysis has established a strong relationship between em-
ployee job satisfaction and customer satisfaction. 51 Employees with higher levels of job
satisfaction were more likely to deliver superior customer service. Obviously, managers will
want to know how more satisfied employees can be found or developed. Your authors know
one CEO who was highly critical of HR academic research because it focused so much
attention on variables like “job satisfaction” and employee “engagement.” He referred
to these variables as “softies” and argued that they were not relevant to “bottom-line”
financial variables. In fact, an abundant literature now exists that documents such “soft-
ies” as indeed being strong predictors of bottom-line accounting and financial measures
of organizational performance. One key to effective HR policy and practice is measuring
these “softies” and understanding how they do relate to critical bottom-line measures like
The costs of bad
reward systems
Employees attitudes,
performance, and turnover
Effective
Management
Practices
Employee
Satisfaction
Customer
Satisfaction
Long-Term
Profitability
&
Growth
Drives Drives
(2)
(1)
Drives
Innovation
Execution

Figure 1-7
The Chain of Relationships
Linking Management
Practices to Employee
Satisfaction, Customer
Satisfaction, and Long-Term
Profitability and Growth
Source: Cascio W. (2005). “From Business Partner to Driving Business Success: The Next Step in the Evolution of HR
Management,” Human Resource Management 44, p. 162. Reprinted with permission of John Wiley & Sons.
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performance, costs, profit, and customer satisfaction. Of course, taking action to improve
on these metrics is essential.
Organizations should certainly strive to satisfy their employees with good pay, good
supervision, and good, stimulating work. But the model presented in Figure 1-7 also helps
keep measures of employee job satisfaction and engagement in perspective. Employee
satisfaction is related to customer satisfaction. So is cost. Customers are particularly im-
pressed with low cost. Walmart does so well not because its employees are especially
happy but because its products are on average 14 percent cheaper than its competitors’.
Your authors would be a lot happier if our university salaries were doubled! You’d prob-
ably be unhappy if your tuition was raised.
The key is linking measurement and the resultant data to strategic goals. “Thinking
strategically means understanding whether the measurement system you are considering
will provide you with the kinds of information that will help you manage the HR function
strategically.” 52 This linkage creates the connection between leading indicators and lagging
indicators. Let us turn to illustrations of recent HRM activities directed at these criteria.
Frito-Lay had a problem with job vacancies in key positions, which it believed had
a direct effect on sales. A training and development program was instituted through its
HRM division to cross-train workers for several jobs in an effort to reduce downtime from
employee vacancies and provide more opportunities for employees to move up. The down-
time could be operationally defined in terms of dollars, and the training program saved the
company $250,000 in the first year.
AMC Theaters developed a battery of applicant tests to identify individuals most likely
to perform more effectively and to stay with the company longer. The reduction in turn-
over saved the company over a half million dollars in 5 years. Owens-Corning Fiberglas
trained all of its managers in statistical quality analysis as a part of its total quality man-
agement program. Trainees were made accountable for improving the quality at Owens-
Corning and the program worked. Reduction of rejected materials saved over a million
dollars. John Hancock Insurance installed a new managerial pay-for-performance system
in order to increase regional sales and decrease employee turnover. J. Walter Thompson
developed a new incentive system to promote creative advertising ideas from its consumer
research and accounting units. RJR Nabisco replaced a fixed-rate commission with a new
compensation system for its advertisers, which linked ad agency compensation to the
success of the campaign. Concerned about the quality of one managerial level, Office
Depot developed a managerial assessment center to select its district managers. It then
determined the extent to which the quality of management improved as a function of the
new screening method.
Turnover is a serious problem for many service industries and especially fast-food.
Many consultants just write it off as part of the business. David Brandon, CEO of Domi-
no’s Pizza, did a study inside Domino’s, the results of which surprised his top management
team. 53 He found that the most important factor related to the success (or failure) of any
individual store was not marketing, or packaging, or neighborhood demographics. It was
the quality of the store manager. Store managers had a great deal to do with employee
turnover, and turnover had a great deal to do with store profit. Domino’s calculated that
it costs the company $2,500 each time an hourly employee quits and $20,000 each time a
store manager quits. Mr. Brandon focused on reducing the 158 percent turnover rate among
all employees. Domino’s implemented a new and more valid test for selecting managers
and hourly personnel, installed new computerized systems for tracking and monitoring
employee performance and output, and developed a much more focused pay-for-performance
system for all managers. As of 2011, the program was a great success by all counts.
Turnover continues to be low compared to its competitors, store profit was up, and the
stock price was doing well. Brandon clearly showed how important HRM is to the bottom
line. Attracting and keeping good employees, measuring and monitoring performance,
and rewarding strategically important outcomes are all keys. Obviously, all of this has to
translate into good (and cheap) pizza. Long-term profitability and growth are driven by
customer satisfaction, and that’s mainly a function of the quality and cost of the products
and services. Research clearly shows that HRM practice and employee satisfaction are in
the “chain of relationships.”
Linking measurement
to strategic goals
Customer satisfaction
and profitability
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In the past, HRM interventions were rarely linked to financial measures or cost figures
in order to show a reliable financial benefit. This inability to link such HRM practices to
the “big picture” might explain why personnel departments in the past have had so little
clout. While marketing departments were reporting the bottom-line impact of a new mar-
keting strategy in terms of market share or sales volume, personnel could only show that
absenteeism or turnover was reduced by some percentage, rarely assessing the relationship
between these reductions and a specific financial benefit. Stanford professor Jeffrey
Pfeffer summed it up: “In a world in which financial results are measured, a failure to mea-
sure human resource policy and practice implementation dooms this to second-class status,
oversight neglect, and potential failure. The feedback from the measurements is essential to
refine and further develop implementation ideas as well as to learn how well the practices
are actually achieving their intended results.” 54
Developing clear criteria linked to strategic goals is critical for managerial success and
should be a major driver of HR policy. Some experts argue that HR specialists should
“quarterback” the development and administration of a “management by measurement”
system, ensuring that all functional business units are subscribing to the guidelines for
sound, strategic measurement. Allowing business units to develop and administer “leading-
indicator” measures can result in the measurement of criteria more closely linked to
making that unit (and particular managers) look good rather than the strategic goals of the
unit. By contrast HR can help with sound measurement. A terrific example of this type
of measurement system is the “Productivity Measurement and Enhancement System” or
(ProMES). 55 The purpose of ProMES is to measure performance at a unit level closely
aligned with organizational objectives. The performance measurement system is devel-
oped by employees and management, and quantitative feedback measures are used to help
personnel improve performance. ProMES is a great example of a measurement system
where the data drive HR actions.
But what is sound measurement? One HR executive laid the groundwork with this defi-
nition: “The most effective employees are those who provide the highest possible quantity
and quality of a product or service at the lowest cost and in the most timely fashion, with a
maximum of positive impact on co-workers, organizational units, and the client/customer
population.” This statement of effectiveness also applies to particular HR programs, prod-
ucts, and services and all functional business units. In evaluating an outsourced recruiting
effort, an HR VP provided the following criterion for evaluation: “Give me a large pool
of highly qualified candidates, give me this list as quickly as possible, and don’t charge
me much when you’re doing it.” The details of the measurement system (e.g., the quantity
and quality of products/services) must be linked to strategic goals. These measurement
details are critical. As stated earlier, many problems at companies in the last few years can
be attributed to faulty incentive systems that met short-term goals and created long-term
disasters. So, the measurement system must be compatible with the long-range strategic
objectives of an organization.
The most effective organizations get down to specifics about all important criteria,
and these are directly linked to key objectives or desired outcomes for the organization.
This prescription applies to HR as for any other business function. Wayne Keegan, VP of
HR for toymaker ERTL in Dyersville, Iowa, clearly represented the bottom line for HR:
“HR managers should strive to quantify all facets of HR to determine what works and what
doesn’t.” 56
What works and doesn’t work should focus on the “big picture.” The most effec-
tive organizations are driven by measurement strategies perhaps conceptualized by HR
specialists and applied to HR functions but, more important, applied throughout the
workforce. HR can (and should) help senior management develop and focus on key
workforce measures that derive from organizational strategy. The most effective or-
ganizations develop a set of “top tier” measurement tools that reflect and integrate the
company’s strategic goals. As Mark Huselid and his colleagues put it, “There should be
no gap between what is measured and what is managed.” Linking workforce success at
the individual and unit level to the most critical business outcomes is a key to competi-
tive advantage. Linking these outcomes to long-term measures of success is the key to
long-term advantage and survival.
Management by
measurement
Most effective employees
Quantify all aspects of HR
Develop key workforce
measures
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Customer Value and
Corporate Social
Responsibility (CSR)
Competitive advantage occurs if customers perceive that they receive more value from
their transaction with an organization than from its competitors. Ensuring that customers
receive value from transacting with a business requires that all employees be focused on
understanding customer needs and expectations. This can occur if customer data are used
in the designing of products or service processes and customer value is used as the major
criterion of interest. Some companies conduct value chain analysis that is designed to as-
sess the amount of added value produced by each position, program, activity, and unit in
the organization. The value chain analysis can be used to refocus the organization on its
core competencies and the requirements of the customer base.
Customers not only perceive but also actually realize value from Walmart in the form
of price. The products and services are available in convenient stores, and average prices
are about 14 percent lower than its competitors’. While there are many reasons Walmart
can price goods lower than competitors (e.g., economies of scale, price control pressures
on suppliers, technology on products bought and sold, cheaper imports), low labor cost
is certainly one factor. Sales clerks earn less at Walmart compared to most other workers
doing essentially the same work for competitors. Walmart also uses proprietary analytical
software that is instrumental for controlling labor costs. Walmart compiles and uses its
historical store data to make very accurate predictions regarding specific employee needs
for its stores by the hour and day. This labor scheduling software facilitates an efficient use
of personnel and sharply reduces the need for overtime scheduling. Health care benefits are
also estimated to be 15 percent less than coverage for workers within the same industry.
Walmart’s strategy to be a price leader and its obsession with cost control have the po-
tential for trouble. The company has been mired in various labor-related lawsuits in recent
years, all of which may be related to controlling costs. Walmart paid a huge fine in 2005
for contracting with a company that employed illegal aliens, has been sued numerous times
for violating labor laws, including firing people for union organizing efforts, and has been
found guilty of violating the Fair Labor Standards Act regarding overtime. While it is
the largest employer in the United States, the proportional rate of complaints related to its
HR practices is high.
Value to Abercrombie and Fitch is related to creating and sustaining an image for its
young customers. A&F went for an all-American look and it certainly worked. It is the
largest teen retailer in the United States with over 600 stores and over a billion dollars in
revenues. Its clothes are certainly not cheaper than competitors.’ A&F is clearly promoting
image as a part of its definition of value. But just like Walmart’s cost control/price strategy,
A&F’s “image” strategy created big trouble for the company. In a discrimination lawsuit
settled for $40 million, A&F was accused of favoring white job applicants and employees.
A&F agreed to change some of its marketing strategy as a part of the settlement.
Competitive advantage refers to the ability of an organization to formulate strategies that
place it in a favorable position relative to other companies in the industry. Two major
principles describe the extent to which a business has a competitive advantage. These two
principles are perceived customer value and uniqueness.
COMPETITIVE ADVANTAGE 57
Customer Value
The notion of customer value is more complicated than it may seem. Many customers
seek out products and services partially due to the reputation of the organization selling
the product or service rather than due to the price of the product or service. One of the
reasons companies (and politicians) wrap themselves around the Olympics every 4 years is
that they believe that the basic sense of American pride and excellence that goes with the
Olympics tends to rub off onto the company. Research in marketing shows that perceptions
of product quality are positively affected by affiliation with the Olympics and Olympic
heroes. Thus, at least the theory is that customer value is affected by this connection.
Likewise, the reputation of a company’s environmental policies affects the decision
making of a growing number of consumers. Concerns about global warming, the price of
gasoline and energy, and air pollution have prompted many companies to offer incentives C
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to employees to encourage them to buy fuel-efficient vehicles that emit less carbon diox-
ide. As the companies go “Green,” they report improvements in employee retention and
increases in job applications, especially among Millenials. These are two HR metrics that
have been linked to subsequent improvements in the bottom line.
Most companies with a connection to manufacturing facilities abroad are very con-
cerned about pitiful labor conditions and child labor issues at these international facilities.
When Kathy Lee Gifford was accused of exploiting child labor in Honduran clothing
plants, some consumers avoided her line of clothing. Nike was accused by the chairman
of the Made in the USA Foundation of using child labor in Indonesia to make its athletic
shoes. Nike’s business was affected to the extent that consumers consider these allegations
when they buy sneakers. Jesse Jackson launched a boycott against Mitsubishi to “encour-
age” the company to put more women and minorities in executive positions.
American companies spend millions and hire thousands of foreign plant auditors to
inspect offshore plants, and there is no doubt that worker conditions have improved since
the 1990s. But many bad factories remain and Asian suppliers regularly outsource to other
suppliers, who may in turn outsource to yet another operation, creating a supply chain that
is difficult to follow.
Some companies obviously believe that their reputation for corporate social and envi-
ronmental responsibility figures into the complicated calculation of value. There is evi-
dence that companies are under increasing pressure to behave in a socially responsible
manner. While there are a variety of definitions of corporate social/environmental perfor-
mance (CSP), there is debate over the extent to which (or whether) a positive image of CSP
is related to corporate financial performance. Research seems to suggest that “corporate
virtue in the form of social responsibility and, to a lesser extent, environmental re-
sponsibility is likely to pay off.” 58 Perhaps Walmart already knew this. Have you noticed
the many ads on TV informing the public about its many good deeds and how nice it is to
its employees and its environment?
CSP has spawned socially responsible investing, or SRI, which enables investors to buy
into companies with favorable CSP reputations. Mutual funds such as Calvert World Val-
ues, AXA Enterprise Global, and Henderson GlobalCare Growth invest only in companies
that pass CSP muster. It is estimated that one out of every eight dollars invested by profes-
sional money managers is invested based on corporate CSP. 59 So, who are these socially
responsible companies that dominate SRI? Among the well-known companies most likely
to be part of an SRI mutual fund are Canon, Toyota, and Sony (Japan), Nokia (Finland),
SAP (Germany), and in the United States, Cisco Systems, Coca-Cola, Johnson & Johnson,
Microsoft, and Procter and Gamble.
There is a related and growing “corporate sustainability movement.” “Sustainability”
has to do with a company’s ability to make a profit while not sacrificing the resources of
its people, the community, and the planet. Many executives now claim that sustainability
can improve the company’s financial performance. A survey of executives indicated that
the greatest benefits of sustainability programs are improving public opinion, improving
customer relations, and attracting and retaining talent. Over 75 percent of the participating
executives anticipated more investment in environmental programs. 60
Many college students are now involved in tracking the manufacturing process for their
school paraphernalia. The United Students Against Sweatshops ( http://usas.org/ ) is an
organization of students from over 200 universities affiliated with the Worker’s Rights
Consortium (WRC). The WRC conducts investigations of manufacturing plants, issues
reports, and initiates boycotts against certain university products such as hats or T-shirts if
plants do not meet its standards for wages and safety. This movement is growing and has
already had some major successes.
Many consumers use “Newman’s Own” products (from the late actor Paul Newman)
not only because they like the products but because all profits are donated to “educational
and charitable purposes.” (Go to newmansown.com.) Sure, Newman’s Sockarooni spa-
ghetti sauce is tasty. But does the taste account for all of the customer value when the sauce
typically costs more than other sauces? Customer value can be complicated. Jesse Jackson
and Burger King were well aware of this when Burger King agreed to special financing
Companies go “Green”
CSP and investment
Corporate “Sustainability”
The Worker’s Rights
Consortium
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and support for minority-owned franchises. Most people do not live and die for a Whopper.
Consumers’ knowledge regarding Burger King’s policy toward minorities could affect
their fast-food decisions.
So, an organization’s CSR and CSP reputation regarding its corporate ethics, environmental
positions, profamily policies, or affirmative action/diversity practices can go into the “customer
value” assessment. For years, Dow Chemical in Midland, Michigan, had a negative reputation
on college campuses because of its production of napalm, a chemical agent used in the Vietnam
War. Dow had a terrible time recruiting chemists and other vital professionals because of this
one product. Dow launched a public relations campaign to enhance its reputation. It focused
its advertising on the many agricultural products that it produced and marketed. The result was
a profound improvement in Dow’s ability to recruit on college campuses. Obviously, Dow’s
ability to recruit and retain the best chemists was vital to its competitiveness.
While consumers undoubtedly place greater weight on the quality of the product or
service, there is no question that “customer value” can also include intangible variables
such as corporate responsibility, environmental impacts, diversity policies, and being on
the right side of political issues. Activist consumer groups, by calling attention to corporate
greed, may foster more social responsibility by simply affecting the complicated variable
of the customer value equation. There is also evidence that Gen Y Americans are more
sensitive to CSR and CSP issues, especially environmental concerns, and that this Mil-
lennial generation is more likely to buy from (and invest in) companies with strong CSP
reputations and more inclined to work for such companies.
One hot issue related to the complicated equation of “customer value” is the way a
company treats its employees. The reputation of a company regarding how it treats its
employees can also affect the size of the pool of candidates for any job within the orga-
nization. Organizations work hard to make the list of the “most admired” companies for
which to work because it does help attract more qualified workers. Apple, the most ad-
mired company on Fortune magazine’s list in 2011, received over 500 applicants for each
key position it filled in 2010. Recall that the ratio of the number of qualified applicants to
the number of key positions is a “high-performance work practice” and is thus related to
corporate financial success (see again Figure 1-1 ).
At SAS, a North Carolina computer software company with over 10,000 employees, it
all started with free M&Ms every Wednesday. The SAS HR strategy is clearly designed
to attract the best programmers and to keep the SAS workforce happy. The strategy has
worked. SAS sold over a billion dollars of analytical software to retailers like Victoria’s
Secret and the U.S. military in 1 year. SAS has never had a losing year and has never laid
off a single employee! Says Jim Goodnight, the founder of the company, “If employees are
happy, they make the customers happy. If they make the customers happy, they make me
happy.” SAS is always ranked high in Fortune magazine’s list of best companies to work
for (it ranked 1st in 2011 and 3rd in 2012). SAS offers a myriad of benefits you don’t find
at many companies. It has a Work/Life Center made up of social workers who help SAS
employees solve life’s problems like elder care and college selection for SAS kids. They’ll
even have someone pick up and deliver your dry cleaning! Says Jeff Chambers, director
of HR, “We do all these things because it makes good business sense,” saving staff time.
SAS claims a turnover rate differential of 5 percent at SAS versus 20 percent at competi-
tors (true even in the heat of the 90s’ dot-com craze!). That savings in turnover at SAS is
estimated at $60–70 million annually. While some companies treat employees as costs or
necessities, Jim Goodnight regards his SAS employees as the best investments he ever
made. “Ninety-five percent of my assets drive out the front gate every evening. It’s my job
to bring them back.” Google has adopted this HR philosophy with low turnover rates as
one consequence.
There is hard and growing evidence that treating employees well will translate into bet-
ter financial performance. One study found that positive employee relations served as an
“intangible and enduring asset and . . . a source of sustained competitive advantage at the
firm level.” 61 The study found that companies that made the “100 Best Companies to Work
for in America” list had much more positive employee attitudes toward work and a signifi-
cant financial performance advantage over competitors. The advantage is self-sustaining.
Once companies make the list, the quality and quantity of their applicants for key positions
Customer value indicated
“intangibles”
“Most admired” companies
SAS: 5 percent
turnover rate
The “Best Companies”
and corporate performance
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go up and thus the quality of their new hires improves! Among the companies that have
been on the list for years are Google, Boston Consulting Group, Whole Foods, Publix
Super Markets, Cisco Systems, JM Family Enterprises, J.M. Smucker, Nordstrom, and
Ernst and Young. Perceived customer value is the principal source of competitive advan-
tage. While it mainly derives from the actual product or service, it derives indirectly from
an organization’s reputation.
Maintaining
Uniqueness
The second principle of competitive advantage derives from offering a product or service
that your competitor cannot easily imitate or copy. For example, if you open a restaurant
and serve hamburgers, and a competitor moves in next to you and also serves hamburgers
that taste, cost, and are prepared just like yours, unless you quickly offer something unique
in your restaurant, you may lose a large part of your business to your competitor. Your res-
taurant needs to have something that is unique to continue to attract customers. Competi-
tive advantage comes to a business when it adds value to customers through some form of
uniqueness. One of your authors works in Boca Raton, Florida, one of the great resort areas
of the world (and a golfer’s paradise). This location enables his university to attract (and
retain) top faculty from around the world—clearly a competitive (and unique) advantage.
■ FINANCIAL OR ECONOMIC CAPABILITY DERIVES FROM AN ADVANTAGE RELATED TO COSTS
WHEN A BUSINESS IS ABLE TO PRODUCE OR PROVIDE A GOOD OR SERVICE MORE CHEAPLY
THAN COMPETITORS
EXAMPLES: WAL-MART, University of Phoenix
■ STRATEGIC OR PRODUCT CAPABILITY
A BUSINESS OFFERS A PRODUCT OR SERVICE THAT DIFFERENTIATES IT FROM OTHER
PRODUCTS OR SERVICES.
EXAMPLES: McDONALD’S, APPLE, GOOGLE, ROCKSTAR GAMES
■ TECHNOLOGICAL OR OPERATIONAL CAPABILITY
A DISTINCTIVE WAY OF BUILDING OR DELIVERING A PRODUCT OR SERVICE
EXAMPLES: GOOGLE, E-BAY, AIRFRAME–BOEING, NORTHROP GRUMMAN
■ ORGANIZATIONAL CAPABILITY
ABILITY TO MANAGE ORGANIZATIONAL SYSTEMS AND PEOPLE THAT MATCHES CUSTOMER
AND STRATEGIC NEEDS
EXAMPLES: GOOGLE, SAS, WHOLE FOODS, JM FAMILY ENTERPRISES, PUBLIX SUPER MARKETS

Figure 1-8
The Four Mechanisms for
Offering and Maintaining
Uniqueness
Sources of Uniqueness The key to any business’s sustained competitive advantage is to ensure that uniqueness
lasts over time. Three traditional mechanisms exist to offer customers uniqueness. A fourth
is often a necessary condition to take advantage of one (or more) of the other three. The
four mechanisms for offering uniqueness are described next and summarized in Figure 1-8 .
First, financial or economic capability derives from an advantage related to costs; when
a business is able to produce or provide a good or service more cheaply than competitors.
If in your hamburger restaurant, you have received a financial gift from family or friends
to build the restaurant, without repayment of the gift, you may be able to charge less for
your product than a competitor who borrowed money from a bank or financial institu-
tion. Your cheaper-priced hamburger would then become a source of uniqueness that cus-
tomers value. Toyota and Honda still do not have anywhere near the retired employees’
“legacy” costs that Ford and GM still have (even after GM’s bankruptcy). Like BMW and
Mercedes, they also have a huge advantage in relative employee health care costs.
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The question of what is unique about a product or service is almost always asked and
answered in the context of the usually overriding “cost” question. Walmart’s source of
uniqueness is rather simple: It has what we want and it’s cheaper! For most people and
for almost any product or service, the assessment of the product or service is done in the
context of price or cost, at both a relative and an absolute level.
The second source of uniqueness comes from having strategic or product capability .
That is, a business needs to offer a product or service that differentiates it from other
products or services. The iPod is a clear example. One early reviewer of the iPod took a
look at the $400 initial price tag and suggested that the name might be an acronym for
“Idiots Price Our Devices”! But despite its pricey introduction, the iPod overwhelmed the
other MP3 players and acquired what pop star Moby referred to as an “insidious revolu-
tionary quality . . . it becomes a part of your life so quickly that you can’t remember what
it was like beforehand.” Apple has had the same success with the iPhone. Now that’s
uniqueness! In the hamburger wars, fast-food restaurants have attempted to offer unique
products and services to attract customers. Salad bars, taco bars, kiddie meals, and $30
breakfasts with giant mice named Mickey and Minnie are all examples of restaurants at-
tempting to make their product unique and appealing to customers. The possession of a
patent for a critical drug is an advantage for a pharmaceutical company.
A third source of uniqueness for a business is a technological or operational capability .
That is, a business can have a distinctive way of building or delivering its product or service.
In the hamburger restaurant, the different methods of preparing the hamburgers may distin-
guish restaurants from each other (broiled versus flame-grilled). Customers may prefer one
technological (cooking) process over another, and thus continue to patronize one restaurant.
In more complex businesses, technological capability may include research and develop-
ment, engineering, computer systems and/or software, and manufacturing facilities. Micro-
soft has thrived in this area by getting consumers to purchase and get comfortable with one
of its products so they are more attracted to future products related to their technological
capability. Google is a great example of unique technological and operational capability.
A fourth source of uniqueness aiding a company in seeking competitive advantage is
organizational capability . Organizational capability represents the business’s ability to
manage organizational systems and people in order to match customer and strategic needs.
In a complex, dynamic, uncertain, and turbulent environment (e.g., changing customers,
technology, suppliers, relevant laws and regulations), organizational capability derives
from the organization’s flexibility, adaptiveness, and responsiveness. In a restaurant, or-
ganizational capability may be derived from having employees who ensure that when
customers enter the restaurant, their customer requirements, their needs, are better met than
when the customers go to a competitor’s restaurant. That is, employees will want to ensure
that customers are served promptly and pleasantly, and that the food is well prepared.
The implications for human resource management should be clear. HR systems need
to be put in place that maximize organizational capability and exploit all other po-
tential sources of uniqueness. Organizations with serious problems on the organizational
capability side of the ledger can fail to exploit other potential sources of competitive ad-
vantage. The cultural problems after the merger of Chrysler and Daimler-Benz are a good
illustration of this interaction. Despite a solid financial situation and unique technological
advantages, the company never gained synergy as DaimlerChrysler and eventually split up.
With increased globalization and the need for strategic alliances, organizational capa-
bility is a key to sustained competitive advantage as companies expand their businesses
around the world. Take McDonald’s as one example of a successful global expansion
with a need for strategic alliances. McDonald’s has restaurants in over 115 countries, and
expansion to some areas of the world poses special challenges. Its marketing determined
that it could sell the Big Macs in Saudi Arabia. Here’s the line-up for the Saudi Big Mac:
two all beef patties from Spain, the special sauce from the United States, lettuce from
Holland, cheese from New Zealand, pickles from the United States, onions and sesame
seeds from Mexico, the bun from Saudi wheat, sugar and oil from Brazil, and the packag-
ing from Germany. Organizational capability enables McDonald’s to pull this integration
off, and the result is a highly popular and profitable product. Globalization will neces-
sitate more of these challenging arrangements. HR will have a lot to do with success
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through enhanced organizational capability, as HR systems help determine how smart
people are recruited, hired, trained, motivated, treated, evaluated, paid, and integrated
into the organization.
Research shows that organizational capability influenced by particular HR activi-
ties is a reliable predictor of corporate financial performance. 62 HR activities and pro-
cesses such as those characterizing “leading-indicator” high-performance work practices
illustrate organizational capability as a source of competitive advantage. The ability to
attract and retain individuals with the skills to establish and maintain potential sources of
uniqueness should be a key metric in any “management by measurement” system.
SUMMARY
Human resource management is to some extent concerned with any organizational deci-
sion that has an impact on the workforce or the potential workforce. The trends described
in Chapter 1 underscore the importance of HR to meet the challenges of the 21st century.
While there is typically a human resource or personnel department in medium-sized to
large corporations, line management is still primarily responsible for the application of
HRM policies and practices. There are critical competencies for general management and
HRM professionals. An organization needs both competent personnel trained in HRM
and motivated managers who recognize the importance of HRM activities and will ap-
ply the best procedures in the recommended manner. HR managers are more likely to
convince line managers of the value of HR programs by focusing on “leading-indicator”
measurements, which can be linked to the lagging financial indicators that are more clearly
understood by management. Sometimes, personnel/HR functions are perceived by line
managers to be out of step with the real bottom-line outcome measures for the organiza-
tion. Therefore, the most effective human resource departments are those in which HRM
policy and activities are established and measured in the context of the mission and strate-
gic objectives of the organization. HRM should assist management in the difficult task of
integrating and coordinating the interests of the various organizational constituencies, with
the ultimate aim being to enhance the organization’s competitive position by focusing on
meeting or exceeding customer requirements and expanding the customer base.
Competitive advantage is the key to success for most businesses. To attain competitive
advantage, businesses need to add (and sustain) value for customers and offer unique-
ness. Four capabilities provide a business’s uniqueness: financial, strategic or product,
technological or operational, and organizational. To sustain competitive advantage, orga-
nizational capability should be emphasized, ideally in the context of the other sources of
uniqueness. Organizational capability derives from a business’s HRM practices.
The view of HRM outlined in this chapter provides a foundation for integrating HRM
activities into the organization’s mission and goals. HRM professionals should be actively
involved in building more competitive organizations through the HRM domains. One
necessary competency for both line managers and HRM professionals is an understand-
ing of the growing impact of globalization on HR policy and practice. This critical area is
explored in the next chapter.
Organizational capability
and corporate performance
Line management is
responsible for application
of HRM policy
HRM policy and strategic
objectives
Discussion Questions
1. Describe the changing status of HRM. What factors have led to these changes?
2. How do productivity concerns influence organizational policies and procedures
regarding HRM activities?
3. Describe the major HRM activities conducted in an organization. Provide an
example of each from an organization with which you are familiar.
4. What impact should the composition of the workforce have on HRM practices
or activities? What future trends do you see that will influence HRM activities?
Why is the growing cultural diversity of the workforce a management
challenge?
30
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5. Why is the support of line management critical to the effective functioning of
HRM practices in an organization? Provide some suggestions to ensure that this
support is maintained.
6. Why does the number of qualified applicants for each strategic position relate to
corporate effectiveness? How can HRM enhance this applicant pool?
7. What are the sources of uniqueness that can aid a company seeking competitive
advantage?
8. Explain how Ford and GM still have a competitive disadvantage related to
financial capability. How does Walmart have an advantage?
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Chapter
2
The Role of Globalization
in HR Policy and Practice *

In Chapter 1, we described the importance of aligning human resource (HR) programs with
the business strategy. This means that as organizations change, HR policies and programs
must adapt as well. One of the major challenges facing businesses today is the increasing
globalization of the world economy and competition.
Thomas Friedman’s critically acclaimed book on globalization, The World Is Flat:
A Brief History of the Twenty-First Century , describes the next phase of globalization. 1
Technological and political forces have facilitated a global, web-based “playing field” that
allows for multiple types of collaboration regardless of geography, distance, and even lan-
guage. Since 1980, worldwide imports and exports, foreign direct investment, and national
levels of gross domestic product (GDP) have increased dramatically, 2 particularly follow-
ing the fall of communism in the late 1980s in all but a few countries (e.g., China, Vietnam,
North Korea, Laos, and Cuba). As discussed in Chapter 1, significant growth in global
technology, infrastructure, and communication has helped to facilitate such growth. Other
factors contributing to increases over the past two decades include the opening of global
economies to foreign investment in Russia, China, and India, along with other emerging
markets in Asia, the Middle East, and South America and notable changes in the composi-
tion and location of the skilled global labor force.
OVERVIEW
O B J E C T I V E S
After reading this chapter, you should be able to
1. Describe the different ways companies may engage in international
commerce.
2. Explain the different international business strategies.
3. Explain how international human resource management (IHRM) differs
from traditional, domestic HRM.
4. Understand the different IHRM strategies.
5. Describe the trends relating to international job assignments.
6. Understand the issues and trends relating to the development of globally
competent business leaders.
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*Contributed by Stephanie J. Thomason and Christine M. Hagan.
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1 / Human Resource Management and the Environment
Explosive growth has occurred in foreign direct investment (FDI). FDI involves the control
of the productive assets of a company through its ownership by a foreign company or for-
eign individuals. One expert indicates that about 63,000 companies worldwide have FDIs. 3
The largest flows of FDI occur between the developed nations of Western Europe, North
America, and Japan, yet over the past two decades, the growth of FDI flows in developing
and transition (formerly communist) economies has been extraordinary. 4 India and China
provide good examples of countries that have become increasingly attractive to invest-
ment. Each country is home to over 1 billion people and each has opened its doors to FDI.
In India, inward FDI increased from $79 million in 1980 to $34 billion in 2009, while in
China, inward FDI increased from $57 million in 1980 to $95 billion in 2009. 5
Rapid growth is sometimes unsustainable growth, however, as evidenced by the stock
market collapse of the late 1990s and the real estate collapse and resultant global financial
crisis of 2008. The financial crisis, often referred to as the Great Recession, has affected
trade and investment in virtually all regions of the world. 6 As a result, FDI inflows declined
in both developed and developing countries in 2008 and 2009. 7 Yet the cyclical nature and
resiliency of our global economy suggest that a recovery is likely, as evidenced by annual
increases in 2010 of numerous financial markets. 8
Changes in the composition and location of the skilled global labor force has led to the
creation of offshore professional and operations centers, regardless of where the final work
product is ultimately marketed. Many U.S. and European software manufacturers now
have facilities in India to take advantage of the high concentration of computer skills in
that country and the low cost of labor. Traditionally, business facilities were strategically
located in order to be close to suppliers or customers and/or within trade alliance borders.
Today, however, the use of private satellite links, e-mail, fax machines, and the World
Wide Web has made workers from all over the world very accessible. Even customer ser-
vice facilities are being located overseas, particularly when there is a sufficient supply of
productive workers who are willing to work for relatively low pay.
Changes in technology, infrastructure, and communication have fueled increases in
global recruitment and staffing. Technology now even allows a great deal of service work
to move offshore where labor costs are less than in the United States. Workers can (and do)
telecommute across continents. As a consumer, you may be unaware that your X-rays may
be read by someone in India, that your software is repaired by specialists in Ireland, that
your airline reservations were booked with a customer service representative in Jamaica,
or that your insurance claims were processed in the Philippines.
Why are so many organizations today under pressure to expand their business interests
beyond their national boundaries? Major reasons include access to additional resources
(including skilled workers), lower costs, economies of scale, favorable regulations and tax
systems, direct access to new and growing markets, and the ability to customize products
to local tastes and styles. In addition, the rise of regional trade alliances (such as NAFTA
and the European Union) is another important reason organizations have increasingly
internationalized. Later in this chapter, we will describe some of the problems associated
with the rise of regional trade alliances, such as the “banana wars” and Mexico’s “screw-
driver factories.”
Multinational organizations headquartered in the United States have an increasing and
substantial global presence. As examples, Starbucks purchases a large share of worldwide
coffee production, McDonald’s controls a major share of worldwide beef and chicken
production, Wal-Mart is the world’s largest retailer, and Home Depot is the largest single
purchaser of wood and wood products. 9 Of Coca-Cola’s 92,000 employees worldwide,
over 87 percent are non-U.S. personnel. 10 Coke has six largely autonomous regional groups
(North America, Latin America, Europe, Africa, Asia, and the Pacific) and sells its prod-
ucts in over 200 countries. 11 In addition, it has established a global service staff of 500
people who are trained to go anywhere in the world to offer advice and expertise concern-
ing operational and customer service problems. These team members are paid U.S. wages,
even though many of them are not from the United States. 12
Global expansion presents great challenges for HRM, however. When McDonald’s en-
tered into a joint venture with the Moscow city council, the company placed a help-wanted
ad and received about 27,000 Russian applicants for its 605 positions. It sent six Russian
Foreign Direct
Investment
Offshore centers
Global recruitment
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managers to its Hamburger University outside Chicago, Illinois, for 6 months of training
and another 30 managers for several months of training in Canada and Europe. 13 It also
needed to overcome significant problems obtaining high-quality supplies, most of which
were perishable. Ultimately, McDonald’s opened a $40 million food-processing center
about 45 minutes from its first Moscow restaurant. 14
The majority of Fortune 500 companies are now multinational in that some portion
of their business (and profits) is derived from overseas operations. 15 Many of the larg-
est, most prestigious U.S. companies, including IBM, Exxon, GE, and Microsoft, derive
more than half of their revenues from overseas business. Furthermore, more firms from
an increasing number of developing countries are multinational. The number of devel-
oping country multinational firms in the Fortune 500 list rose from 29 in 1998 to 45
in 2005. 16
With the immense market potential overseas, particularly in Asia, this figure is likely
to get even higher for many U.S. corporations. It is estimated that by 2020, the six largest
world economies will be the United States plus five Asian economies: China, Japan, India,
Indonesia, and a united Korea. Along with this success will come great demand for products
and services for the new middle classes in these countries. In 2000, about one-third of the
sales of Fortune 500 companies came from outside the United States. 17
Of course, global expansion is not reserved for U.S. companies. Many organizations
headquartered in Europe and Asia have expanded their global reach over the last decade
or so. In fact, chances are better than ever that you may work for a foreign corporation in
your own community. Consider that nearly 80 percent of all Honda and Acura vehicles
sold in America are built in one of Honda’s six manufacturing facilities in the United
States. Today, Honda employs over 25,000 people in all 50 U.S. states. 18 Furthermore,
more than 100,000 workers are employed in authorized Honda automobile, motorcycle,
or power-equipment dealerships in the United States. 19 In the last 10 years, more than
200 German businesses established direct investments in North and South Carolina alone.
Most Mercedes and BMW cars driven in the United States are now assembled in the
United States. Nokia, the cell phone giant with headquarters in Finland, employs 123,000
workers worldwide, over 80 percent of whom are outside of Finland. 20 The Roche Group,
the Swiss pharmaceutical giant, has 88 percent of its workforce outside Switzerland. 21
Today, an estimated 4.9 million U.S. citizens work in U.S. affiliations of foreign-owned
corporations. 22
In addition, your company is now more likely than ever before to have some type of
business partnership with a foreign corporation. Earlier we mentioned that McDonald’s
opened its first restaurant in Russia through a joint venture with the Moscow city council.
Businessland, one of the largest U.S. dealers of personal computers, moved into Japan
with the help of Japan’s four largest electronics firms. There are estimates that over 80
percent of U.S. businesses could successfully market their products or services overseas
provided that they have the required knowledge of foreign markets. 23 Since U.S. markets
are regarded as mature or “soft” in many product lines, international markets appear to of-
fer potential for substantial growth. Today, over 95 percent of the world’s population lives
outside of the United States. 24 That’s a lot of Coke, Big Macs, and Starbucks’ coffees!
Furthermore, many Americans choose to live overseas. According to the Association of
Americans Resident Overseas (2011), 5.08 million Americans (excluding military) are
living in 160+ countries around the world. While many are retired, those who choose to
work overseas are subject to double taxation and certain pension-related disadvantages. 25
Companies employing workers abroad often provide benefits to offset these disadvan-
tages. Even if you don’t ever work for a foreign-owned firm, or for a U.S. firm with sig-
nificant foreign investments, experts tell us that all organizations today are affected by the
global economy. Even small businesses are using foreign-made materials or equipment,
are competing with foreign firms, and are selling their products and services in foreign
markets. 26
As we discussed in Chapter 1, this inevitable globalization of the world’s business
presents challenges and opportunities for human resources professionals. The purpose of
this chapter is to describe and discuss the implications of this increasing globalization for
HR activities.
Business partnership
80 percent of Honda
and Acuras are built
in the U.S.
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HOW DO COMPANIES ENGAGE
IN INTERNATIONAL COMMERCE?
Organizations conduct international business in a variety of ways. Each of these forms
of international commerce has implications for human resource strategies and tactics. An
effective HR professional recognizes the range of choices that each of these international
business forms (or combinations of these forms) offers. In this section, we will review the
different ways firms may internationalize. Then we will describe some of the ways that HR
practices may facilitate and advance these business goals.
When a firm simply wants to sell its products and services in foreign marketplaces, it
may choose to export . Most companies that export do so in order to increase sales and rev-
enues. For some companies, particularly companies with high research and development
costs, exporting is necessary to spread these costs over a larger sales volume. Companies
may also export to relieve excess capacity. Some companies export as a form of diversifi-
cation because they are concerned that their domestic markets may be maturing. Finally,
some companies export because they believe that they lack the necessary knowledge to
directly do business effectively on foreign shores. In this case, exporting may be the first
step toward a more aggressive international strategy. Baskin-Robbins followed this ap-
proach with its entry into Russia. In 1990, it began shipping ice cream to that country
from its company-owned plants in Texas and Canada. Over the next 5 years, the company
opened 74 retail outlets with Russian partners, carefully observing the likes and dislikes of
local consumers. Finally, in 1995, Baskin-Robbins opened its first, full-service ice cream
plant in Moscow. 27 Companies that choose to export may directly sell their products in a
foreign market, or they may do business through third parties that specialize in facilitating
importing and exporting, called intermediaries .
There is little risk in exporting: relatively low investment is involved and a decision to
withdraw from a market can be made and executed very quickly. Exporting, however, has
several disadvantages, including the high cost of transportation and the difficulty of finding
good distributors. Tariffs and quotas are also major problems when goods or services enter
a country that is part of a regional pact or a free-trade area. For example, products created
within the European Union (EU) move from country to country within the Union tariff-
free. The same products and services imported from countries outside the Union typically
pay tariffs upon entry. This increases the cost of the product and often places “outside”
organizations at a competitive disadvantage. The banana trade provides an interesting
example. During the 1990s, when Caribbean bananas were exported to EU countries, they
were subject to tariffs and quotas. However, bananas grown in Martinique and Guadeloupe
were not subject to these tariffs because those particular islands were still provinces of
France and, therefore, enjoyed insider status within the EU. 28 The wars were officially
ended by treaty in 2001. 29
Similarly, extensive rules were required in order to regulate so-called screwdriver
plants in Mexico. Capitalizing on Mexico’s membership in the North American Free Trade
Agreement (NAFTA), companies in other parts of the world were shipping virtually fin-
ished goods to plants in Mexico where, typically, a screwdriver was the only tool needed
to complete the assembly. Then, the exporting country would assert that the product had
been “manufactured” in Mexico and, therefore, would qualify for favorable tariff treatment
within NAFTA. Since most of these goods ended up in the United States and Canada, these
NAFTA members were particularly worried about the loss of tariff revenues and the loss
of jobs to non-NAFTA countries whose goods might qualify for treatment as though they
had been created within the NAFTA region. As a result, NAFTA contains complex rules of
origin that specify how much and what type of assembly qualifies an item as having actu-
ally been produced within the NAFTA area. For example, NAFTA’s rules of origin specify
that for U.S. imports of Mexican peanuts or peanut products to qualify, 100 percent of the
peanuts must be Mexican-grown. The same applies for U.S. exports of peanuts to Mexico
(i.e., 100 percent of the U.S. peanuts must be U.S.-grown). 30 Similarly, to protect textile in-
dustry jobs, clothing and other textile products must use North American–produced fibers
in order to benefit from NAFTA’s preferential tariff treatment.
NAFTA
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Another means of entering a foreign market is licensing . In this approach, one firm,
called the licensor, leases the right to use its intellectual property to another firm, called
the licensee, in exchange for a fee. Intellectual property typically includes patents, formu-
las, patterns, copyrights, trademarks, brand names, methods, and procedures. Licensors
are usually required to provide technical information and assistance, and the licensee is
obliged to use the rights responsibly and effectively and to pay the agreed-upon fees.
Heineken, for example, is exclusively licensed to manufacture and sell Pepsi-Cola in the
Netherlands. To implement this agreement, Pepsi either provides Heineken with its for-
mula or agrees to supply the cola syrup. Heineken then adds carbonated water, packages
it in appropriate containers, and sells it in the Netherlands. Under the conditions of the
license agreement, Pepsi cannot enter into a similar agreement with another firm to sell
Pepsi in the Netherlands, and Heineken cannot alter the product, nor can it begin duplicat-
ing other Pepsi products (such as Lays Potato Chips) without a separate agreement.
Franchising is a special form of licensing used frequently by companies as a means
of expansion nationally and/or internationally. 31 A franchise agreement allows an in-
dependent organization, called the franchisee, to operate a business under the name of
another, called a franchisor, in return for a fee. Franchising typically allows the fran-
chisor more control over the franchisee and provides for more ongoing support from
the franchisor to the franchisee than is the case in the typical licensing agreement. For
instance, a franchisor may provide ongoing services such as advertising, training, quality
assurance programs, and reservation systems (for airline or hotel operations). Fast-food
chains such as McDonald’s, Dairy Queen, Domino’s Pizza, and KFC have franchised
restaurants worldwide.
On the plus side, licensees (and franchisees) receive access to a business that has an
established product and operating system plus a good reputation. Licensors (and franchi-
sors) get the opportunity to expand internationally with very limited knowledge about
local markets. In addition, over time, each party to the agreement learns valuable informa-
tion from the other: franchisees learn how to operate a successful business; franchisors
learn quickly about the marketplace. On the negative side, both parties typically share
the revenues, while neither party has full decision-making authority. Disputes about the
terms and conditions of the agreement can become a problem. Of course, in some areas
of the world, patents and copyrights are not protected, so a particular company could find
its intellectual property duplicated and sold everywhere. This has been particularly prob-
lematic in the computer software and the music industries in Asia and Eastern Europe. In
addition, licensors (and franchisors) must make certain that the required technical skills
are available to support the quality of the product or service. McDonald’s, for example,
spent considerable resources teaching Russian farmers how to grow potatoes that would
meet its standards.
Some firms may choose to use a specialized strategy to participate in international
business without making direct, long-term investments. Nike engages in contract manu-
facturing when it outsources the creation of its athletic footwear to numerous factories
in southeast Asia. This permits Nike to focus its efforts on product design and marketing,
rather than production. Contract manufacturing typically means that the organization gives
up a major amount of control over the processes, and this may lead to quality problems
or other surprises. Nike has suffered considerable negative publicity about the working
conditions employed by its contractors in the factories manufacturing its products. (See
Appendix A, Critical Thinking Application 2-A.)
Another specialized international business strategy involves management contracts .
In this form of business, one company sells its management (and sometimes technical)
expertise to a company in another area of the world. BAA of Britain, for example, operates
the Indianapolis Airport under a 10-year management contract and provides retail services
management at the Air Mall in the Pittsburgh Airport. 32 Similarly, major airlines such as
Delta, Air France, and KLM often sell their management expertise to small state-owned
airlines headquartered in developing countries. 33 Other benefits may become available
to organizations that seek managerial partners. For instance, when Sheraton Corporation
signs a contract to manage a hotel facility overseas, it usually includes access to and use of
its international reservation system. 34
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All of the preceding approaches enable an organization to internationalize its busi-
ness interests without actually investing in foreign factories or facilities. Of course,
some firms prefer to enter international markets through actual ownership of business.
We mentioned earlier that when an organization directly owns part of or an entire busi-
ness in a foreign market, this form of commerce is called foreign direct investment
(FDI) . FDI is either considered a greenfield investment, in which a firm chooses to be
the sole investor, or the result of a merger, alliance, or acquisition of another already
existing firm. Often, FDI follows a period in which an organization seeks to learn about
and understand a particular market or region using one of the lower-risk entry alterna-
tives, such as exporting, licensing, franchising, or contracting. Although FDI involves
much greater risk, it also means increased managerial and operational control, and it
ultimately may mean greater profitability if the venture is successful. One common ap-
proach to FDI is to identify an appropriate organization with which to “partner.” Such
an alliance allows an organization to make direct investment very gradually while shar-
ing its risk with a knowledgeable, experienced other party. Sometimes, partners enter
into joint ventures , which involve creating a new, separate company that is owned
jointly by the venture partners. Joint venture partners can be privately owned compa-
nies, government agencies, or government-owned companies. For instance, Suzuki Mo-
tors Corporation of Japan teamed with the government of India to produce an efficient,
small-engine car specifically for the Indian marketplace. 35 Sometimes, organizations
enter into joint ventures as defensive moves. Caterpillar (U.S.) and Mitsubishi (Japan)
created a joint venture to improve each of their competitive positions against joint ri-
val Komatsu (Japan). 36 General Mills (United States) and Nestlé (Switzerland) created
Cereal Partners Worldwide (CPW) to combat Kellogg’s 50 percent market share of
the global cereal industry and, in particular, Kellogg’s considerable domination of the
European cereal marketplace. 37
The major disadvantage to joint ventures is the potential for conflict between the part-
ners. This potential is increased considerably when each partner owns 50 percent of the
venture. Common areas of conflict include future investments and the sharing of future
profits. Joint ventures with local governments also create challenges, particularly when
the government’s motives and priorities are considerably different from those of its busi-
ness partner. This situation occurs most often in industries considered to be culturally
sensitive or important to national security such as broadcasting, infrastructure projects, and
defense. 38
When companies agree to partner with one another, but do not set up a separate entity,
they have formed a strategic alliance . Such alliances can be set up between an organiza-
tion and its suppliers, its customers, and its competitors. Strategic alliances share most of
the same advantages as joint ventures and some experts regard joint ventures as a form of
strategic alliance. Strategic alliances permit organizations to share risk and expenses, par-
ticularly related to research and new product development. They also enable each partner
to tap into (and, ultimately, benefit from) the strengths of the other. Disadvantages tend to
center on the possibility that each is helping to create a future competitor. Thus, organiza-
tions are advised to protect their core competencies from the other, which may mean that
trust and communication become problematic. 39
Of course, some organizations prefer the high risk of sole ownership of operations in
foreign countries in order to ensure that they have full decision-making authority and op-
erational control. In such cases, organizations would rather not audit the practices of fran-
chisees or manage the compromises that shared alliances tend to create. Such businesses
may take the form of start-up operations (that is, built from scratch), or they may be carried
out through acquisition. Acquisitions involve the purchase of an already up-and-running
business with an existing group of suppliers and customers. As a result, growth in foreign
markets through acquisitions tends to allow a firm to enter and compete in a new market
more quickly than it would if it created a start-up operation. General Electric’s 1990 acqui-
sition of Tungsram, a lighting company in Hungary, is an example of this. The acquisition
occurred just as communist rule was being eliminated in Eastern Europe. General Electric
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wanted to learn how to do business in this part of the world. Tungsram was willing to be
acquired in order to access Western capitalism and management practices. Some assert
that GE’s acquisition was a defensive response to the earlier acquisition of Westinghouse’s
lamp division (GE’s traditional rival in its domestic market) by Philips Electronics of the
Netherlands. As GE’s then–lighting chief, John Opie, indicated, “Suddenly we have bigger,
stronger competition. They’re invading our market, but we’re not in theirs. So, we’re im-
mediately put on the defensive.” 40
Within a year of acquiring Tungsram, GE Lighting also acquired Thorn EMI in Great
Britain and created a joint venture with Hitachi that would allow entry into the Asian
market. As a result of these efforts, GE Lighting’s business focus quickly shifted. In 1988,
GE Lighting got less than 10 percent of its sales from outside the United States; within
5 years, more than 40 percent of GE Lighting’s sales were coming from abroad. In this
case, the speed of GE Lighting’s internationalization was facilitated by its use of an acqui-
sition strategy.
Exporting Work Earlier we mentioned the recent trend toward businesses creating offshore professional
and operations centers . Either as a form of sole ownership or as a strategic alliance,
these centers involve the exporting of the work itself to places around the globe that
may be unrelated to where the work products are ultimately marketed. These centers
leverage such factors as workforce skills, cultural similarities, costs, time, and gov-
ernment policies in order to achieve competitive advantage. A good case in point is
India, which has been the recipient of many U.S. technical and customer service jobs
in recent years. Among developing countries, the Indian workforce is comparatively
well educated and speaks English. Upon achieving independence from Great Britain
in 1947, India adopted a democratic political system, although its economic system
involved significant government planning and intervention. Since the early 1990s,
however, the Indian government’s regulation of and involvement in private business
matters has been steadily declining in order to specifically encourage foreign direct
investment. At the same time, the cost of living in India is much lower than in devel-
oped countries, which means that the relative cost of labor is extremely attractive for
Western companies.
When the World Bank surveyed 150 prominent U.S. and European computer hard-
ware and software manufacturers, India’s programmers were ranked first out of eight
countries, well ahead of Ireland, Israel, Mexico, and Singapore. In fact, one in four
software engineers in the world is of Indian origin. About a decade ago, average annual
programmer salaries in India were approximately $3,000 per year, so it’s no wonder
companies such as Hewlett-Packard, IBM, Texas Instruments, Honeywell, and Motorola
have a skilled technical workforce there. 41 These salaries have been growing in recent
years, however. Fierce competition among foreign and local firms for a relatively small
number of highly qualified Indian employees has led many of these prized employees to
switch organizations to increase their pay. 42 As noted by one regional human resource
director, “Firms operating in India should expect attrition rates of 15–20% because
Indian workers are aspirational and individualistic.” 43 Consequently, retention is a key
factor for those employing these highly skilled Indian workers. In addition to competent
workers at advantageous costs, organizations also are benefiting from time advantages
by increasingly using international teams of skilled programmers in the United States,
Western Europe, and India who pass the work to the next team as each location’s work-
day ends. This permits around-the-clock product development and/or troubleshooting to
be done, a huge benefit in industries in which competitive advantage is influenced by
“first-to-market” capability.
Customer service facilities are also increasingly moving from developed countries, such
as the United States, Great Britain, and Australia, to India. Customer service representa-
tives helping these customers are often taught to speak English with traditional dialects
and adopt first and last names more similar to those found in the country which they are
serving. 44 They are sometimes provided with additional country-specific information. In
India’s programmers
ranked number one
Call centers
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one Indian call center, employees charged with collecting debts from Americans attended
seminars about the recent financial crisis and other events relating to Americans’ abili-
ties to repay their debts. 45 The net result of these trends is lower labor costs for American
companies and, thus greater profits. Of course, it also means the increased shipment of
previously American jobs overseas and the continued stagnation of middle-class wages in
this country.
Following a devastating fire that destroyed most of its factory in 1995, the CEO of
Malden Mills, one of New England’s last textile manufacturers, announced that he would
spend about $450 million to rebuild Malden Mills in Lawrence, Massachusetts. Aaron
Feuerstein further announced that he would continue to pay the salaries of its idled 4,000
workers, a total additional cost of $15 million. Feuerstein could have relocated the factory
to cheaper North Carolina or even China or India, but he chose to keep the company in its
home community. Tom Brokaw heralded him as the “saint of the 1990s,” while President
Clinton recognized him in the State of the Union address. Unfortunately the decisions
saddled Malden Mills with $150 million in debt, forcing the company into bankruptcy in
2001. In 2003, Feuerstein was replaced with a new CEO, who proceeded to set up manu-
facturing plants in China. 46
Multinational organizations must also make decisions about the particular markets in
which they plan to invest. This decision is typically based on a number of factors.
First, issues in a country’s general environment make a difference. A country’s general
environment tends to affect all organizations in a similar way. A particular country’s
WHAT INFLUENCES THE DECISION
TO INVEST IN A PARTICULAR
INTERNATIONAL MARKET?
In summary, then, there are a broad variety of approaches that organizations may take to
internationalize their business, ranging in risk and degree of involvement from an export
strategy to sole ownership of foreign facilities. Each of these approaches has substan-
tially different implications for human resource professionals. When companies engage
in exporting, licensing, or contract manufacturing, the major challenges may be primarily
related to operations, marketing, and legal issues. HR issues may be affected only on a
secondary basis. For instance, in Chapter 1, we mentioned the increasing importance of a
company’s reputation for social responsibility and the way this relates both to consumers
and to potential (or current) employees. When Nike’s or another company’s reputation
suffers because of the labor conditions used by its contract facilities, HR professionals
may find that it is increasingly difficult to attract, retain, and motivate qualified and high-
performance employees.
On the other hand, when companies engage in management contracts or franchising,
the terms and conditions of the agreement will affect the degree of HR involvement and
challenge. Certainly, as McDonald’s has franchised foreign restaurants, it has maintained
an extremely strong role in the training and development of workers at all levels. How-
ever, when McDonald’s directly owns and operates a restaurant on foreign shores, the
HR challenge increases exponentially to include all the HR domains described in Chapter
1. In general, the HR challenge increases as the degree of an organization’s international
involvement increases. Thus, sole ownership of foreign subsidiaries presents the highest
level of HR involvement and challenge.
The HR challenge also is affected by such things as the degree of cultural simi-
larity among a firm’s business holdings and the degree of internationalization of a
firm, both of which we will discuss later in this chapter. In the next sections, we
will describe the managerial strategies that firms may implement and the way they
influence HR issues.
SUMMARY
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economic, legal, political, and sociocultural systems, plus diversity in language and
religious beliefs, are all examples of general environment issues. For example, the in-
creasing cultural diversity of the U.S. workforce and the general aging of the population
are sociocultural factors that foreign companies would typically consider before they
located operations in the United States. U.S. laws on taxation, regulation, free-trade
agreements, currency valuations, inflation, and unemployment levels are other important
factors influencing whether Asian, European, and Latin American companies would
open subsidiaries here and what particular business and HR strategy they would imple-
ment. Political instability in a particular world region is obviously a major influence on
all businesses in the region.
A second factor that influences a company’s decision to invest in the international
market is the company’s task environment , typically those forces that are directly
related to the industry within which a firm operates. Such issues as cost pressures, the
intensity of competitive rivalry, the ease with which organizations may enter or leave
the industry, and the degree of power over the company maintained by suppliers and
customers are all examples of a firm’s task environment. Harvard professor Michael
Porter argues that such characteristics of an organization’s industry are among the most
important factors that influence the choice of which international strategy to imple-
ment. Porter addresses two types of international industries. 47 In multilocal industries ,
competition in each country, or region, is essentially independent of the competition in
other regions. In multilocal industries, business policies and practices can be as central-
ized or as decentralized as management prefers. In this situation, the organization may
choose to manage a portfolio of businesses, each with its own policies and practices.
Such multilocal industries include retailing, many consumer food products, wholesal-
ing, life insurance, consumer finance, and caustic chemicals. At the other end of the
continuum is the global industry in which a firm’s competitive position in one country
is significantly affected by its position in other countries. Global industries require high
integration among units in order to leverage gains and to achieve overall competitive ad-
vantage. It is difficult to operate in a decentralized fashion in a global industry because
of the high need for coordination. Yet, HR professionals in these organizations must
find the appropriate balance between global competitiveness and local responsiveness.
Global industries include commercial aircraft, semiconductors, copiers, automobiles,
and watches.
A third factor that influences the decision to invest in the international market is the
internal strengths or weaknesses of the organization. Relevant internal factors include
an organization’s culture, the expertise of its management staff, the sophistication of its
information systems, and the ability to detect and respond to consumer trends. In many
cases, these are critical assets that add value within the firm. Organizational capability is an
important internal strength and, as we indicated in Chapter 1, may be a source of sustain-
able competitive advantage for an organization, thus influencing its readiness to pursue a
particular international strategy.
How does HRM in an organization that is actively international differ from HRM in a
firm that is essentially rooted within the borders of a single nation? HR activities all relate
to the procurement, allocation, and utilization of people. Thus, the particular activities
themselves may not be all that different regardless of where they are performed or whom
they cover. Experts assert that what differentiates domestic HR from international HR is
the complexity involved in operating in different countries with different cultures, politics,
and laws and regulations. 48
Operating in different countries means that individuals must work with different na-
tional governments, different legal systems, under widely different economic conditions,
with people of diverse cultures and values, and with suppliers and customers over vast
geographical distances. 49 Figure 2-1 presents a summary of HRM activities and challenges
related to international joint ventures.
Porter’s two
international industries
HRM activities
and challenges
DOMESTIC VERSUS INTERNATIONAL HRM
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In Chapter 3, we will describe the broad array of employment laws that regulate orga-
nizations that operate within the United States. But this isn’t all there is! Later in the text,
you will be introduced to the extensive legal rules governing pay and benefits (Chapter 10),
labor relations (Chapter 13), and worker health and safety (Chapter 14). When a foreign
firm moves into the United States, it must be expert at understanding and applying legally
defensible HR policies and practices. One recent study indicated that the amount of U.S.
work-related legislation combined with the litigious orientation of Americans in general
places foreign companies at a competitive disadvantage here that they must overcome if
they are to be successful. 50 But the reverse is also true. Most developed countries and many
emerging economies have a broad framework of work-related legislation. The effective
HR professional must understand the implications of such legislation in relevant areas of
the world and must have a solid grasp of the costs relating to compliance.
Examples of the nuances in legislation and customs abound in international human
resource management as the expectations of employees and their rights vary substantially.
While unheard of in the United States, “boss-nappings” are common in France when work-
ers protest layoffs and plant closings. In 2009, when Caterpillar announced the cut of 733
workers, or 25 percent of its French labor force, workers stormed its plants and captured
four managers, holding them hostage overnight in their offices. They were released when
they agreed to reopen talks about layoffs and to mediation with the state. 51 Sony and 3M
experienced similar boss-nappings. 52 Such practices are deemed acceptable in France and
other countries of Western Europe where workers’ rights are protected through numerous
social programs.
In addition to the legal complexity of operating internationally, other factors affect the
level of difficulty involved in operating HR on an international basis. 53 First, the degree
of cultural difference influences the complexity of HR and managerial challenges. Cul-
ture has been defined as “a system of values and norms that are shared among a group of
people and that when taken together constitute a design for living.” 54 Studies indicate that
culture affects the policies and practices of HRM and that a major reason that international
assignments fail is culture shock, or the relocated person’s inability to adjust to a different
cultural environment. 55
A popular study of culture by Geert Hofstede suggests that societies vary in levels
of what he calls individualism/collectivism, power distance, uncertainty avoidance,
masculinity/femininity, and long-term versus short-term orientations. 56 These represent
examples of cultural values that have important implications for multinational organiza-
tions, as differences in such values between cultures affect employee and employer prefer-
ences in areas such as compensation, training, and recruitment.
Individualism is the opposite of collectivism. This dichotomy refers to the degree to
which individuals look after themselves or operate in groups. People from highly indi-
vidualistic societies, such as the United States, Australia, and Great Britain, attach more
HR Activity HRM Challenge
Staffing Host country may demand staffing policies contrary to
maximizing profits.
Decision making Conflicts among diverse constituent groups; complexity
of decision processes.
Communication Interpersonal problems due to geographical dispersion
and cultural differences.
Compensation Perceived and real compensation differences.
Career planning Perceptions regarding value of overseas assignments;
difficulties in reentry.
Performance management Differences in standards; difficulties in measuring
performance across countries.
Training Special training for functioning in international joint
venture (IJV) structure.
Figure 2-1
Unique HRM Challenges
in International Joint
Ventures
Source: Richard J. Klimoski, Academy of Management Review. Copyright 1987 by Academy of Management (NY).
Reproduced with permission of Academy of Management (NY) in textbook format via Copyright Clearance Center.
Geert Hofstede’s five
cultural values
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2 / The Role of Globalization in HR Policy and Practice
importance to freedom and challenges in jobs, individual decision making, self-started
activities, and individual achievement and initiative than do their counterparts from col-
lectivist societies. Individuals from more collective societies, such as Panama, Ecuador,
and Guatemala, may prefer working in groups, team-based pay, and group-based decision
making instead of individual-based decision making.
Power distance refers to the extent to which less powerful members of society accept
and expect that power is distributed unequally. Individuals from societies high in power
distance, such as Mexico, Malaysia, and Panama, may prefer centralized decision struc-
tures, tall organization pyramids, a wide salary range between the top and bottom of the
organization, and a large proportion of supervisory personnel. Individuals from societies
low in power distance, such as Austria, Israel, and Denmark, tend to prefer the opposite.
With the exceptions of France and Israel, individualist societies tend to be low in power
distance, while collectivist societies tend to be high in power distance.
Uncertainty avoidance refers to whether members of society feel comfortable in un-
structured situations. Individuals from societies with high levels of uncertainty avoidance,
such as Germany, Greece, Portugal, Finland, and Guatemala, tend to have a strong task
orientation, prefer stability and security and well-established rules and procedures, and
feel a strong loyalty to their employer. Those from societies with low levels of uncertainty
avoidance, such as Singapore, Jamaica, and Denmark, have a strong relationship orienta-
tion and feel less loyalty to their employer.
Masculinity/femininity refers to different expectations about gender roles in soci-
ety. In highly masculine societies, such as Japan, Austria, and Venezuela, there exists
a larger wage gap between the genders, fewer women are bosses, and job applicants
oversell themselves. In less masculine societies, such as the Netherlands, Norway, and
Sweden, more women are in management, a smaller wage gap exists, and job applicants
undersell themselves.
Long-term versus short-term orientation refers to the extent to which members
of a society accept delayed gratification of their material, social, or emotional needs.
Individuals from societies with a long-term orientation, such as China, Vietnam, and
Taiwan, emphasize perseverance, personal adaptability, and relationships ordered by
status. Those from societies with a short-term orientation, such as Canada, the Philip-
pines, and Nigeria, expect quick results, personal steadiness, stability, and place less
emphasis on status.
Furthermore, regional similarities exist. For example, the Nordic countries of Norway,
Sweden, and Denmark tend to cluster together in values. Table 2-1 presents an overview
of Hofstede’s values for 25 countries. While cultural values vary within countries and may
change over time with social, religious, political, and economic developments, understand-
ing societal variations in cultural values may be one useful tool for organizations in effec-
tively managing their human resources.
Hofstede collected his data while working for IBM in the late 1960s and early 1970s, yet
numerous studies have replicated his findings more recently and in more diverse popula-
tions. 57 One recent meta-analysis compiled 598 of these studies representing over 200,000
individuals. The authors found that Hofstede’s cultural values are as robust as certain
personality traits and demographics in predicting outcomes such as organizational citizen-
ship behaviors and organization commitment. 58 Another study conducted over this past
decade is the GLOBE project. 59 The GLOBE project expanded upon Hofstede’s original
five dimensions to also determine that cultural values vary as a function of the country and
region in which one is born and raised. This project was conducted by 170 scholars who
surveyed over 17,000 managers in 62 countries. The scholars retained the dimensions of
power distance, long-term orientation, and uncertainty avoidance. The masculinity/femi-
ninity dimension was expanded into four dimensions: assertiveness, gender egalitarianism,
performance orientation, and humane orientation. The individualism/collectivism dimension
was split into two dimensions: in-group collectivism and institutional collectivism. In-group
collectivism refers to the degree to which individuals express loyalty and cohesiveness in
their organizations and families. Institutional collectivism refers to the degree to which or-
ganizational and societal practices encourage and reward collective distribution of resources
and collective action.
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In addition to legal complexity and the degree of cultural differences, experts suggest that
a third issue that increases the complexity in managing HR internationally is an organization’s
degree of foreign investment in relation to its domestic investment. The United States is the
largest national economy in the world in terms of gross domestic product, whereas the European
Union (EU), when considered collectively, is the largest economy in the world. 60 Thus, EU
businesses have had many options concerning growth and expansion (e.g., introducing new
products, entering new market segments, finding new uses for existing products, etc.). When
U.S. organizations enter foreign markets, they often stumble and fall because they lack experi-
ence in effectively operating and managing foreign businesses. Wal-Mart is a great example
of a company that has struggled through a number of missteps in its thrust to internationalize.
While Wal-Mart has been successful in Canada and Mexico lately, it started out on very shaky
ground. Between 1997 and 2006, Wal-Mart struggled to survive in Germany, despite a series of
problems. In 2006, it finally gave up and closed its doors. 61
Organizations headquartered in Switzerland (e.g., Nestlé, ABB Ltd., Roche Pharmaceu-
ticals) have tended to plan for growth by internationalizing, since the Swiss domestic mar-
ket is so small. Such growth, then, is fundamentally based on the organization’s ability to
effectively manage foreign operations and foreign workers, and organizations tend to plan
for this eventuality. In the United States, we have traditionally measured complexity based
on size. Fortune ’s annual Global 500 list identifies the largest 500 international organiza-
tions in the world based on total revenues. Using this measure, the United States is the
headquarters to 139 (or 28 percent) of the world’s largest international corporations. 62 On
the other hand, the United Nations Conference on Trade and Development (UNCTAD),
which tracks industrial development around the world, measures the degree of internationality
Country PDI UAI IND MAS LTO *
Argentina 49 86 46 56 31
Australia 36 51 90 64 31
Brazil 69 76 38 49 65
Canada 39 48 80 52 23
China 80 30 20 66 118
Denmark 18 23 74 16 46
France 68 86 71 43 39
Germany 35 65 67 66 31
Great Britain 35 35 89 66 25
Hungary 46 82 80 88 50
Indonesia 78 48 14 46
India 77 40 48 56 61
Israel 13 81 54 47
Japan 54 92 46 95 80
Mexico 81 82 30 69
Netherlands 38 53 80 14 44
Panama 95 86 11 44
Poland 68 93 60 64 32
Russia 93 95 39 36
Spain 57 86 51 42 19
Sweden 31 29 71 5 33
Thailand 64 64 20 34 56
Turkey 66 85 37 45
United States 40 46 91 62 29
Vietnam 70 30 20 40 80
PDI = Power distance
UAI = Uncertainty avoidance
IND = Individualism
MAS = Masculinity
LTO = Long-term orientation
*Data not available for some countries.
Source: Hofstede, G. (2001). Culture’s consequences: Comparing values, behaviors, institutions, and organizations
across nations (2nd ed.). Thousand Oaks, California: Sage Publications, Inc.
Table 2-1
Hofstede’s Values
for 25 Countries
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among firms, based not on how much an organization directly invests in or derives from its
foreign business assets, but rather on the proportionate share of an organization’s overall
business that foreign investment and commerce represent. According to UNCTAD, it is
considerably more complex to manage a business and its people when the resources are
deployed in various ways all over the world than it is to manage just a big organization. The
UNCTAD index is based on a composite of three ratios: (1)  foreign assets to total assets,
(2) foreign sales to total sales, and (3) foreign employment to total employment. Xstrata
PLC (United Kingdom), a major global diversified mining and metals group, tops the
UNCTAD transnationality list with an overall index of 93.2, which means that 93.2  percent
of its sales, assets, and employees are based outside of the United Kingdom. At the end
of 2009, Xstrata PLC employed over 36,000 employees and over 21,000 contractors,
95 percent outside of Europe. 63
Ranking second is ABB Ltd (Switzerland) with a transnationality index of 90.4. ABB
Ltd. is a global leader in power and automation technology with operations in more than
100 countries and around 117,000 employees. 64 Figure 2-2 illustrates the top 10 organiza-
tions in terms of UNCTAD’s transnationality index. One can’t help but notice the con-
spicuous absence of any U.S.-based organization on the top 10 list. In fact, you have to go
down to number 13 to find Liberty Global, a U.S.-based telecommunications powerhouse.
Figure 2-3 identifies the 10 “most international” U.S. firms. Thus, the UNCTAD approach
to organizational complexity would suggest that, as the degree of a company’s internation-
alization increases, the complexity of the HR challenge increases exponentially.
Another issue (perhaps somewhat related to the preceding issue) is the attitude of senior
management toward international operations. If senior management lacks an international
orientation and considers its foreign subsidiaries as nothing more than “outposts” of the
home office, the overall importance of internationalization is diminished. Thinking can be-
come very parochial, as managers focus on domestic issues and assume that international
issues are identical to those at home. Regardless of the reason, this failure to recognize
differences between domestic and international operations frequently creates problems in
foreign business units. 65 This failure often limits the problem-solving capacity of the firm
and increases the difficulty of successfully operating offshore.
In summary, then, IHRM is generally more complex than domestic HR because it
crosses a number of different systems, including different political systems, economic
systems, and legal systems. However, when cultures are very similar, the challenge may
not be as difficult as when cultures vary considerably from one another. In addition, when
businesses move into the international arena earlier in their history, perhaps because of
domestic market size constraints, they build important internal capabilities that may be
more difficult to develop later in a firm’s experience curve. Finally, when senior managers
adopt a multicultural mindset, their international ventures are more likely to be successful.
In the next section, we will turn our attention to the different strategic approaches that
may be used when procuring, deploying, and utilizing people on an international basis.
Figure 2-2
Top 10 Transnational
Organizations

Rank Company Home Economy Industry TNI
1 Xstrata PLC United Kingdom Mining & quarrying 93.2
2 ABB Ltd. Switzerland Engineering services 90.4
3 Nokia Finland Electrical & electronic equipment 90.3
4 Pernod Ricard SA France Food, beverages and tobacco 89.1
5 WPP Group Plc United Kingdom Business services 88.9
6 Vodafone Group Plc United Kingdom Telecommunications 88.6
7 Linde AG Germany Chemicals 88.3
8 Anheuser-Busch Inbev SA Netherlands Food, beverages and tobacco 87.9
9 Anglo American United Kingdom Mining & quarrying 87.5
10 ArcelorMittal Luxembourg Metal and metal products 87.2
Source: UNCTAD Transnationality Index (2010), www.unctad.org
Recognize differences
between domestic and
international operations
IHRM is more complex
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International firms choose among four general HR management strategies although many
use different strategies for different situations. First, in the ethnocentric approach, for-
eign subsidiaries have little autonomy, operations are typically centralized, and major
decisions are made at the corporate headquarters. Although rank-and-file workers are
probably locals, key positions in foreign subsidiaries are typically held by management
who are moved to the assignment by or from the company headquarters. Individuals who
are residents of the organization’s home country who are sent offshore on assignment are
called parent-country nationals (PCNs). Toyota, for example, typically sends a team of
Japanese executives to oversee the start-up of a new operation in the United States. Many
organizations in the United States manage foreign operations using the same basic format.
Research suggests that companies follow this approach because they believe that their
management and human resource practices are a critical core competence that provides
competitive advantage to the firm. 66 Within this type of strategy, pay for the local workers
will tend to be based on the local marketplace. Pay for the management team, particularly
if they are PCNs, will tend to be related to the home country. One expert described the
traditional mindset about managing overseas operations of U.S. companies as being related
to two questions: “Who’s the best U.S. person to handle this job?” and “What will it take
to get him or her there?” 67 In ethnocentric situations, training and development efforts will
tend to be focused on ensuring that the local workers possess the necessary knowledge,
abilities, skills, and other characteristics (KASOCs) to perform effectively.
When organizations adopt a polycentric philosophy, they tend to treat each subsidiary as
a distinct entity with some level of decision-making authority. This approach suggests that
parent-company HR management systems should not be imposed on overseas affiliates since
these operations face considerably different legal, social, and cultural conditions. 68 Thus, sub-
sidiaries will be encouraged to craft policies and procedures that will work most effectively
based on the particular situation and locale. Within this strategy, subsidiaries are typically
led by talented individuals who have proven themselves in the local marketplace. However,
there is very little movement of talent from assignment to assignment, and foreign talent is
rarely promoted to key positions at headquarters. Individuals who are residents of countries
in which a foreign subsidiary is located are called host-country nationals (HCNs). During
the early stages of internationalization, HCNs tend to fill middle- and lower-level positions.
As time progresses, and the organization builds up management experience, it is increasingly
common to see HCNs replace PCNs in key management positions. Many organizations
specifically target promising HCNs for training and development initiatives. This is at least
partly because HCNs are considerably less expensive than PCNs. As with other HR policies,
pay in polycentric organizations will tend to be based on local marketplace trends. In poly-
centric settings, training and development efforts begin to focus on preparing talented locals
(HCNs), particularly in developing countries, for future managerial positions and challenges.
Figure 2-3
10 Most “International”
U.S. Companies
Rank Company Home Economy Industry TNI
13 Liberty Global Inc United States Telecommunications 86.2
25 Schlumberger Ltd United States Other consumer services 76.9
29 Coca-Cola Company United States Food, beverages and tobacco 74.3
42 ExxonMobil Corporation United States Petroleum expl./ref./distr. 67.9
50 IBM United States Electrical & electronic equipment 61.1
55 Procter & Gamble United States Diversified 60.2
58 Hewlett-Packard United States Electrical & electronic equipment 58.9
59 Chevron Corporation United States Petroleum expl./ref./distr. 58.1
69 United Technologies Corporation United States Aircraft 54.7
71 Ford Motor Company United States Motor vehicles 54.3
Source: UNCTAD Transnationality Index (2010), www.unctad.org
INTERNATIONAL HRM STRATEGIES
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When a company chooses to pursue a geocentric managerial approach, it strives to
integrate its businesses. In these organizations, relationships between headquarters and
foreign subsidiaries tend to be extremely collaborative, with each participant contribut-
ing important information, perspective, and decision-making factors. Organizations begin
considering themselves to have a global workforce that can be deployed in a variety of
ways throughout the world. Key positions tend to be filled by the most qualified individual,
regardless of national origin. In other words, individual differences in nationality are not as
important as individual differences in talent.
Geocentric organizations may still rely heavily on HCNs to fill most of their entry-level
and operating jobs, but key jobs will tend to be filled by HCNs, PCNs, or third-country
nationals (TCNs). TCNs are residents of a different country than the parent country or the
host country. Thus, when IBM (a U.S. company) transfers an Australian to a position in its
Singapore office, IBM is using a TCN.
More generally, inpatriates are individuals from a host country or a third country who
are assigned to work in the headquarters office, when it is located in a different country.
Thus, if IBM transfers an individual from Australia to work in the United States, it is using
an inpatriate. Expatriates , who are employees on assignment outside of their home coun-
try, are discussed in detail later in this chapter
Like the staffing patterns, compensation plans in geocentric organizations tend to be
based on the concept of a “global marketplace.” Pay differences will focus less on an in-
dividual’s country of origin. Instead, pay will begin to consider the value of this particular
work to the organization, at this particular time, in this particular setting, by a person with
these particular credentials. Training and development will be especially important in geo-
centric organizations because of the importance of developing a globally competent group
of managers. Investments will be made in sending talented individuals from all corners of
the globe to all corners of the organization, including to developmental positions in corpo-
rate headquarters.
The regiocentric managerial approach may be thought of as a scaled-down version of
the geocentric model in that it tends to appoint people to positions within general regions
of the world. Thus, European subsidiaries tend to be managed by Europeans, while Asian
subsidiaries tend to be managed by Asians. When this approach is used, there is limited
movement between corporate headquarters and regions. However, there typically is
a strong regional headquarters that is vested with considerable power to manage its opera-
tions. Such regional headquarters work very collaboratively and independently with the
subsidiaries within the region. Some organizations may use the regiocentric approach as
an interim step on their way to a geocentric philosophy. As indicated earlier, Coca-Cola
is regionally managed, although it maintains a group of global troubleshooters. In the
regiocentric management model, the staffing, compensation, and training strategies also
generally relate to regional norms.
What Influences
the Choice of IHRM
Strategy?
The selection and implementation of an IHRM strategy are very similar to the process used
when an organization decides on its business strategy. A variety of factors must be care-
fully assessed, including the general environment, the industry environment, and the firm’s
internal strengths and weaknesses. However, as we described in Chapter 1, the develop-
ment of an HR strategy also involves careful consideration of the firm’s strategy.
For example, a multilocal firm is one that is primarily targeted at local responsiveness.
As such, it tends to be a decentralized collection of relatively independent operating orga-
nizations. Many such organizations would find a polycentric IHRM strategy to effectively
respond to its need for local focus. However, if the firm was anticipating rapid growth
in the near future and was concerned about a sufficient supply of local talent to meet the
upcoming managerial challenges, a regiocentric strategy might provide an improved op-
portunity to identify and develop the necessary local talent. If the availability of qualified
talent on a regional basis was uncertain, the organization might find that a geocentric or
even an ethnocentric strategy could provide an effective transition that would enable a firm to
transfer the necessary managerial and operational know-how from talented parent-country C
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or third-country nationals to local-country nationals. The decision concerning which IHRM
strategy to implement also may be influenced by the cost pressures within an industry.
Firms with high cost pressures may find that the polycentric strategy—with its high level
of decentralization—requires so much duplication of functions and services that the strat-
egy is not economically feasible. The key point is that IHRM strategies do not necessarily
“match” firm strategies. This is because the particular elements of the firm’s environments
that indicate what products and services the firm should create do not necessarily consider
critical IHRM issues, such as the supply of and demand for labor in a particular area of the
world, its relative cost, and its skill level. In Chapter 5, we will describe the HR planning
process and the way it relates to both domestic and international businesses.
INTERNATIONAL BUSINESS ASSIGNMENTS
Goals of International
Business Assignments
Today, organizations report using international assignments in order to achieve one or
more of the following goals.
First, international assignments are a key element in developing management teams that
are globally focused and globally competent. The global leadership challenge is discussed
later in this chapter. Second, expatriate assignments encourage high levels of coordination
and control among business units. This is especially important when an organization inter-
nationalizes by acquiring or creating widely dispersed production and marketing facilities,
then integrating them with the rest of the overall business. Expatriates possess knowledge
about the way the overall company operates, its long-term goals, and its problem-solving
resources that may enable them to identify and capitalize on synergies, while noting dupli-
cations of effort.
Third, international business requires high levels of internal communication, both in-
formation sharing and information exchange, because of geographical distances, cultural
diversity, complex supply and demand conditions, and other similar pressures. Such in-
formation sharing is key to effective strategic and tactical decision making. While e-mail
and other technological developments facilitate interpersonal contact, global assignments
provide the opportunity to work side by side and to develop relationships of collaboration
International businesses need international expertise. International job rotation has long
been recognized as a key tool for developing such expertise. 69 Yet, foreign job assignments
create important HR challenges. In this section, we will describe the use of expatriates
and their advantages and disadvantages, and we will note contemporary trends concerning
international job assignments.
As indicated earlier, employees who are placed in an assignment outside their home
country are called expatriates (or “expats”). Traditionally, most expatriates have been
parent-country nationals (PCNs) assigned by the home office to lead and manage over-
seas expansions for two reasons. 70 First, top management doubted whether local talent
was up to the challenge of managing a business unit. Second, top management wanted
to “mold” offshore affiliates into its own culture and practices. Sending PCNs abroad
benefits organizations in building global management skills and knowledge in organiza-
tions, yet sometimes negative consequences occur, such as a failure to adjust to the host
environment and poor performance. Numerous studies have been conducted to deter-
mine the antecedents and outcomes of “expatriate adjustment” and most have primarily
focused on the viewpoints of the expatriate and/or spouse. 71 Additional studies focusing
on other stakeholders, such as host country nationals, who influence expatriate adjust-
ment are needed. 72
Today, organizations report a shift away from using PCNs and increasing their reliance
on host-country nationals (HCNs) and third-county nationals (TCNs) to fill their manage-
rial ranks. This stems from the desire of multinational organizations to move toward a geo-
centric managerial philosophy and/or reduce costs. In addition, governments often exert
pressure to fill increasing numbers of managerial positions with HCNs. 73
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2 / The Role of Globalization in HR Policy and Practice
and trust over an extended period. Such relationships do not end after the expat “returns
home” (or goes on to the next assignment). The continuous exchange of rich information,
particularly when people share competitive, marketplace, and technological information,
may enable an organization to seize opportunities and respond to challenges more quickly
and effectively.
Challenges of
International Business
Assignments
In spite of their strategic value, managing an effective program of international assign-
ments presents huge challenges.

Description of Challenge
U.S. Firms
Reporting
Challenges
European Firms
Reporting
Challenges
Japanese Firms
Reporting
Challenges
Difficulty attracting high-performance managers
for offshore assignments
21% 26% 44%
Poor relationships between parent-country nationals
(PCNs) and host-country nationals (HCNs)
13% 9% 32%
HCNs reporting frustration about advancement
opportunities
8% 4% 21%
High turnover among HCNs 4% 9% 32%
Lack of PCNs skilled in international management 29% 39% 68%
Few PCNs interested in accepting offshore
assignments
13% 26% 26%
Reported PCN adjustment problems upon
completion of offshore assignment
42% 39% 24%
Source: Adapted from R. Kopp, “International Human Resource Policies and Practices in Japanese, European, and
United States Multinationals,” Human Resource Management 33, no. 4 (Winter 1994), pp. 58–99.
Figure 2-4
Comparative Illustration
of HR Challenges
International
Compensation Approaches
A second challenge relates to the relatively high cost of expatriated executives, as one
estimate indicates that the cost of a manager triples as soon as he/she steps into a foreign
country. This high cost can be attributed to the traditional method of compensating expa-
triates based on home-country practices. For example, expatriates from companies based
in the United States, Germany, and Japan are typically compensated by a “ balance sheet
approach .” 76 The goal of this approach is to ensure that the expatriate maintains the same
standard of living in the host country as he/she had in the home country by providing a
Assignment Failure First, there is a high level of expatriate assignment failure. Traditionally, “failed” assignments
were those in which the expatriate left the assignment prematurely. It is estimated that 10–20
percent of assignments are failures based on this definition. The Global Relocation Trends
Survey found that 17 percent of expatriates left their companies during the assignment. The
most common factors relating to assignment failure are spouse/partner dissatisfaction (cited
by 65 percent of respondents), inability to adapt (47 percent), other family concerns (40 per-
cent), and poor candidate selection (39 percent). 74 One reason behind spouse dissatisfaction
may relate to a difficulty in securing employment. A recent study co-sponsored by the In-
dustrial Relations Counselors and ORC Worldwide found that while 90 percent of surveyed
spouses were employed prior to expatriation, only 35 percent were employed upon expatria-
tion. Seventy-five percent of those not working said that they wanted to work. 75
Assignment location also plays a role in assignment failure. The Global Relocations
Trends Survey (2010) reported that the most difficult locations for foreign assignments
were (1) India, (2) China, and (3) Russia. Difficulties securing housing, temporary accom-
modation, and immigration were cited. When asked for the top three locations for assign-
ment failure, respondents cited China, India, and the United States. Figure 2-4 reports the
results of a survey of Japanese, European, and U.S. firms concerning key problems with
international job assignments.
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variety of financial, social, and family benefits. Financial benefits include housing, trans-
portation, and goods and services differentials; company-paid children’s education allow-
ances; and tax equalization. Social benefits include a company car and/or driver, rest and
relaxation leave, club memberships, domestic staff, language and cross-cultural training,
and assistance with locating a new home. Family support benefits include language train-
ing, child care providers, locating schools for children, and assistance in locating spousal
employment. Factors influencing these benefits include the expatriates’ level in the organi-
zation, hazardous or difficult host country environments, and market surveys. 77 High-level
positions and difficult or hazardous locations require greater premiums and allowances to
attract expatriates.
To mitigate the high costs of the balance sheet approach, many companies have opted
to use an alternative method to compensate their employees: the going-rate approach .
This approach, also referred to as “localization” or a “market rate approach,” refers to
converting expatriates to local standards. For example, an expatriate manager acting as a
director for a firm would be paid at the same level as local directors in similar positions
are paid, with consideration for performance, work experience, and other inputs. One
recent study found that 21 percent of companies localized expatriates immediately, 35
percent localized in 1 to 4 years, and 44 percent localized in a period of 5 years or more. 78
The going-rate approach offers another advantage over the balance sheet approach, as
local employees may perceive that the pay of their localized counterparts is fair and not
based on U.S. pay levels. This approach is not always attractive to expatriates, however,
particularly those in developing host countries where pay levels are significantly less than
home-country levels.
A second approach used by firms to reduce costs is to offer expatriates a cafeteria-
style benefit package , under which expatriates can choose from a variety of benefits,
at costs that meet a specified total. 79 This package is less expensive than the balance
sheet approach, as certain benefits need not be offered to all expatriates. For example,
expatriates with children may choose tuition reimbursement, while those without chil-
dren may prefer a company car. Certain benefits offer greater appeal, given the coun-
try of assignment. As an example, tax equalization is less attractive in Dubai, U.A.E,
where employment taxes are not paid. 80 Tax equalization is a benefit often provided to
U.S. expatriates working for U.S. multinationals abroad to offset double taxation: taxa-
tion by the United States and by the country of assignment. While certain treaties and
foreign tax credits from the IRS offset some of these taxes, these offsets may not fully
reduce the expatriates’ tax liability to that of a single country. Tax equalization is pro-
vided to make up the difference.
Another approach is to utilize a regional system. In this approach, the wages are set
for all expatriates assigned to a particular region. As an example, expatriates assigned
to work in the European Union would be paid under a compensation system specific to
that region. Costs for this approach vary as some regions are more costly to operate in
than others.
Recently, as the number of dual-income families has increased in the United States,
international HR deals have expanded to include “trailing spouse” benefits. Deals typi-
cally include direct assistance in locating a position for the spouse, paying the search
firm fee when a position is located, or actually paying the spouse’s salary until suitable
employment can be located. If no suitable employment can be found, the company often
continues to subsidize the spouse for lost wages, which can be costly for organizations.
In one recent survey, 85 percent of employers provided trailing spouses with language
training, while 38 percent provided education training and 34 percent sponsored work
permits. 81
When setting compensation, HR managers need to be cognizant of worldwide varia-
tions in the cost of living so they can offer competitive wages. The Economist publishes an
annual index of the cost of living in major cities around the world. The 10 most expensive
cities in 2011 in which to live, relative to New York City’s base index of 100, are listed in
Table 2-2 .
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Table 2-2
Top Ten Most
Expensive Cities
See Chapter 10 for a further discussion on international compensation.
1 Tokyo Japan 152
2 Osaka Kobe Japan 145
3 Paris France 132
4 Copenhagen Denmark 124
5 Oslo Norway 123
6 Zurich Switzerland 122
7 Frankfurt Germany 118
8 Helsinki Finland 118
9 Geneva Switzerland 115
10 Singapore Singapore 112
11 Hong Kong Hong Kong 110
12 Vienna Austria 109
13 Dublin Ireland 108
A third challenge relates to the necessity of adequate cross-cultural training for expatriates
and accompanying families. Organizations invest significant time and resources preparing
individuals and their families for international assignments. Such preparation may include
cross-cultural training. A classic study by Rosalie Tung suggests that expatriates should
be provided with the following forms of cross-cultural training: (1) training on factual
information about geography, climate, housing, and schools; (2) cultural orientation train-
ing, which provides information related to the cultural institutions and value systems of the
host country; (3) cultural assimilation training, which provides brief episodes describing
intercultural encounters; (4) language training; (5) sensitivity training, so trainees can de-
velop some attitudinal flexibility; and (6) a field experience, where candidates are sent to
the host country or a “microculture” nearby and can undergo some of the stress of living
and working with people abroad. 82 Some researchers suggest that predeparture training is
not enough, however, and suggest that “real-time” training, where training is conducted
throughout the international assignment, is very useful in reducing problems that occur as
the assignment progresses. A newer form of training has also emerged, self-training via the
Internet, where trainees teach themselves about cultures by surfing the Web. 83 See Chapter 8
for a further discussion on international training.
Cross-Cultural Training
Repatriation A fourth challenge occurs when the expatriates return to the home country. Many orga-
nizations have reported difficulty in retaining expatriates after completion of an over-
seas assignment. One study indicates that 38 percent of expatriates left their companies
within 1 year of returning, and 22 percent left after 2 years. 84 This rate far exceeds the
annual turnover rate for all employees of 13 percent. 85 Consultants add that anecdotal
evidence leads them to place an annual expatriate turnover rate closer to 50 percent. 86
Why is there such turnover following an experience that should deliver a clear benefit to
both the company and the individual? One reason is “ reverse culture shock, ” a very real
problem. 87 Expatriates who live and work in foreign cultures often become immersed in
their new cultures and grow to enjoy their new lives. When they return home, they often
are surprised to find that everything has changed, from their companies to their com-
munities. 88 If frequent communication between the expatriate and the home office did
not exist while on assignment, these changes may seem drastic. In addition, expatriates
and repatriates are increasingly reporting frustration with perceived career opportunities
when the international assignment is complete. Organizations sometimes fail to take
account of the repatriates’ international experience and may place them in lateral posi-
tions. In several studies of Western repatriates, less than half of the respondents reported
using the knowledge, skills, and abilities they acquired overseas upon repatriation. 89 One
Cultural orientation
Cultural assimilation
Sensitivity training
Field experience
Language training
Factual information
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exceptional, more recent study reported that Indian repatriates felt that their expatriate
experience in the United States helped them in a positive way. 90 Organizations may also
fail to consider the significant degree of discretion and authority the repatriates had while
on assignment when placing them in new positions with greater reporting requirements
and more hierarchy. 91
Fortunately companies are increasingly taking steps to mitigate repatriation problems.
One recent study found that 92 percent of organizations surveyed held repatriation dis-
cussions, 74 percent had written repatriation policies, and 95 percent identified new jobs
within the company for repatriated executives. 92
Recent Trends in
Overseas Assignments
Most expatriate assignments are long-term assignments, generally lasting between 1
and 4 years. One study found that 65 percent of assignments were considered long
term (generally between 1 and 4 years), while only 22 percent were considered short
term. 93 Yet costs and family pressures have led policy makers to consider other options,
such as creating commuter policies or offering extended business trips. They may also
consider localization of the expatriate workforce, hiring local workers, or short-term
assignments. 94
Today, four types of expatriate assignments are identified. Short-term assignments ,
described as “something longer than a business trip,” are increasingly popular. Typi-
cally, these are project-oriented assignments with the worker staying in a hotel and the
family remaining behind at home. The second type is developmental assignments that
are increasingly considered to be a necessity for a high-potential fast-tracker in many
large international companies. Strategic assignments involve persons with special skills
who are moved to become a country manager in an unfamiliar area. For example, an
individual may be sent to Korea because an organization is planning an expansion and
wants a complete immersion in learning the marketplace, in relationship building, and
in understanding the way business is conducted. A long-term assignment is similar to
the traditional expatriate role. Typically, long-term assignments involve start-ups, or an
ongoing managerial presence to resolve major problems, and would typically be taken by
a “career expatriate.” 95
These changing trends in international assignments may mean that such assignments
become more available to women. Today, although women occupy an estimated 50 per-
cent of the U.S. middle-management labor pool, they represent only 17 percent of the ex-
patriate pool. One study indicated that when actually offered an international assignment,
80 percent of women accepted the offer, while only 71 percent of men did. Yet, women
are rarely offered international assignments. Two surveys have indicated that women were
left out because of managerial beliefs that women were not as globally mobile as men and
because supervisors were worried about crime overseas as well as cultural biases against
women in some areas of the world. 96 Thus far, studies have failed to find a rational foun-
dation for these beliefs. Even though the use of expatriates may be slowing, expatriates
continue to occupy a critically important position in organizations’ international expansion
and management development strategies. One recent survey provided a snapshot of the
characteristics of the “typical” expatriate in 2010. 97
■ 90 percent of current expatriates had no previous expatriate experience.
■ 17 percent of expatriates were women.
■ 58 percent of expatriates were 40 years or older.
■ 70 percent of expatriates were married and 79 percent of spouses accompanied their
partners on assignment.
■ 47 percent of expatriates had children accompanying them.
In response to the recent economic climate, almost three-quarters (72 percent) of re-
spondents in the same study were reducing expenses. To achieve these reductions, com-
panies are increasingly turning to shorter-term assignments and relying on localization.
A recent meta-analysis of the expatriate literature revealed some surprising effects. 98
While expatriate adjustment was found to be sensitive to many stressors, some of the most
More international
assignments for women
The “typical” expatriate
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obvious predictors such as previous overseas experience and host country language ability
had negligible effects. Spouse—family adjustment, role clarity, and relational skills were
potent predictors of assignee adjustment and success.
The United States, China, and the United Kingdom are the most active destinations,
while China, India, and Russia present the greatest challenges for program managers and
expatriates. Chief issues cited—by both expats and program administrators—relate to fluc-
tuating inflation for goods and services, cultural differences, time delays, complex laws,
and general inconvenience. 99
Figure 2-5 summarizes expert recommendations for successful international assign-
ments. In summary, then, international business assignments provide critical opportunities
and resources to organizations as they internationalize. Although the traditional use of
expatriates, particularly parent-country nationals, continues to be popular, their costs are
increasingly under scrutiny. Firms are investing more resources in third-country nationals
and other developmental programs in order to increase the managerial potential of local
workers.
Figure 2-5
Three Steps to Getting
Payback from Expat
Investments
Specific Considerations
Step 1: Send people for the right reasons Specifically what do we want to achieve?
• Response to immediate business demands?
• Generating new knowledge?
• Developing global capability?
• Some combination of the above?
Step 2: Send the right people Technical skills are needed plus
• Communication skills
• Cultural flexibility
• Broad social skills
• “Cosmopolitan orientation”
• Collaborative negotiation style
Step 3: Finish the assignment the right way Create straightforward processes to smooth transition
• Start planning early
• Involve the expat in reentry planning
• Find suitable job—focus on direct application of
new knowledge and skills
• Prepare expat for social adjustment realities:
• Family’s readjustment
• Mentors may be gone, reassigned
• Transition from “in-charge leader” to “fitting
back in” or “starting over again” in new
international assignment
Source: Reprinted by permission from “The Right Way to Manage Expats,” by J. S. Black and H. B. Gregerson, Harvard
Business Review 77(2), pp. 52–63. Copyright © 1999 by the Harvard Business School Publishing Corporation, all rights
reserved.
GLOBAL LEADERSHIP CHALLENGES
As organizations internationalize, there is an increasing sense that managing global op-
erations involves a particular expertise that is separate and distinct from traditional U.S.
domestic managerial techniques. Today, organizations are increasingly committed to de-
veloping management teams that are globally focused. According to management guru
Rosabeth Moss Kanter, global management skills are becoming a major core competence
for future business leaders. 100 Over half of CEOs surveyed in a 2011 study indicated plans
to send staff overseas. 101 The same study noted that over the past decade, the number of
international assignments has increased by 25 percent and it forecasted a 50 percent growth
rate over the coming decade.
In some organizations, considerable global experience is recognized as a major strate-
gic imperative. At General Electric, for example, an individual will not advance beyond a
Recommendations for
successful international
assignments
Global management skills
are a core competence
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1 / Human Resource Management and the Environment
particular level without significant experience managing overseas operations. Each of the
final candidates in the search for GE CEO Jack Welch’s replacement had spent consider-
able time working outside the United States during the past decade or so. Richard Wag-
goner was promoted to president and CEO of General Motors after he successfully turned
around GM’s South American operations. Avon appointed Charles Perrin as CEO largely
based on the global business expertise he demonstrated at Duracell.
A Conference Board study of executives in 33 countries indicates that the most important
HR goal for the coming years is to develop solid global leadership teams. 102 Some argue that
the lack of global management bench strength in many organizations has limited business’s
ability to implement global growth strategies. 103 In other words, the stage is ready for major
expansion, but the supply of effective, well-trained leadership talent is short of the mark.
A Fortune 200 global consumer products company provides a good illustration of the
challenge. 104 In the early 1990s, the organization had approximately 60 “globally compe-
tent” managers, that is, knowledgeable, effective, well-rounded individuals who could be
sent anywhere on the globe to run an operation. Estimates indicated that this was a shortfall
of 30–35 people if the company was going to be able to implement its strategic growth
plans during the next 5 years. Why the shortfall? First, the organization had grown faster
internationally over the past 5 years than they anticipated. In the early 1990s, they had
opened facilities in 25 new locations, primarily in developing markets, including Eastern
Europe, Africa, and Asia. Second, a third of their current globally competent team was
nearing retirement age. In addition, the firm was having difficulty maintaining its high-
potential employees. As investments were being made in developing global capabilities,
individuals were being scooped up by other organizations (including many competitors).
Most of these high-potential individuals were part of dual-career, high-potential families
who were not particularly interested in expatriate duty, especially in the organization’s
high-growth areas such as the Ukraine, Nigeria, and Vietnam. In addition, many of the
developmental attempts seemed to be “hit or miss” propositions, since the firm had never
really articulated exactly what a globally competent leader was. Finally, HR development
specialists expressed ongoing frustration because the KASOCs for successful global man-
agers seemed to be changing while developmental efforts were taking place. Review of the
popular press would suggest that this organization’s experience was not unusual.
Exactly what is a globally competent leader? A variety of answers have been offered.
One expert describes three key skills relating to globally competent managers and lead-
ers. First, they are integrators who see beyond obvious country and cultural differences.
Second, they are diplomats who can resolve conflicts and influence locals to accept world
standards or commonalities. Finally, they are cross-fertilizers who recognize the best from
various places and adapt it for utilization elsewhere. 105 Another expert cites three knowl-
edges as being critical. First, globally competent managers have an in-depth understanding
of world markets, their potentials, and their problems. Second, they master all elements of
global supply chains and distribution channels. Finally, they skillfully embrace cultural
diversity. 106 In general, it appears that the need for global leadership is clear, but exactly
what this is and how it is developed are much less clear. 107
One of the difficulties in agreeing about the attributes of effective global skills may be
related to the evolution taking place in the way people think about management roles in
global settings in general. One expert asserts that management is currently in the fourth
stage of an evolving process of international management philosophy and practices. 108
During early internationalization efforts, companies typically relied on a domestic leader-
ship style, at least partly because they didn’t see a reason for managing differently. The
traditional assumption was that companies achieved competitive advantage by noting and
exploiting marketplace discontinuities. For example, if an organization spotted an unfilled
need for a particular type of product or service, or noted a rapid improvement in a culture’s
standard of living, and a dearth of middle-class products, the ability to rush in and produce
the desired goods or services could create a windfall for the company. Mostly these were
temporary opportunities, however, because other organizations would imitate a successful
campaign and drive the price down, and eventually the market would return to a balanced
state. This thinking, then, assumed that international success was based on operational
capability and marketing savvy, rather than any particular adaptation of managerial style.
Most important HR goal:
Develop solid global teams
What is a globally
competent leader?
Understand world markets
Master global supply chains
Embrace cultural diversity
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2 / The Role of Globalization in HR Policy and Practice
During the second stage, international operations began falling short of expectations,
and issues of “How should this facility be managed?” arose. Emerging from this thinking
was a general consensus that effective management style varied based on the particular
situation and setting. Usually referred to as contingency theory, leaders began to examine
the applicability of different managerial styles and mindsets, seeking the one that “fit” best,
given a specific situation. In the third stage of international managerial development, the
spotlight increased its focus on management practices, but thinking shifted away from a
pure “it depends on the situation” attitude, and began examining the way managerial roles
and styles need to be altered and adjusted to meet the needs of a particular cultural setting.
A wealth of cross-cultural managerial literature emerged, including such bestsellers as
Kiss, Bow or Shake Hands and Riding the Waves of Culture. 109 Today, the interest in cross-
cultural management and contingency theory continues, but there is an increasing belief
that global business leadership needs an overarching managerial philosophy that considers
the collection of situations, challenges, and styles as its primary frame of reference.
A review of the popular literature suggests that the most widespread (and perhaps faddish)
approach to global leadership development currently in use is a “competency model.” This
thinking assumes that effectiveness in global leaders is based on the degree to which indi-
viduals possess particular knowledges, abilities, skills, and other characteristics (KASOCs),
such as “customer orientation,” “building alliances,” and “intellectual capacity.” However,
critics of this approach assert that these competencies are often subjectively derived, poorly
defined, and related to an individual’s basic traits, rather than learned behavior. In addition,
some organizations have too many competencies and they overlap considerably. For exam-
ple, Chase Manhattan identifies 250 competencies that comprise effective global leadership.
Furthermore, little research has been conducted to investigate whether measures of individual
competencies can predict actual performance, domestically or internationally. In Chapter 1
we emphasized the need to measure the effects of HR interventions. Competency models are
useful. As we said in Chapter 1, sound measurement is absolutely necessary.
The term global mindset is frequently seen these days in the popular press. Global mind-
set is more a general description of the need for all organizational decision makers to think
well beyond domestic issues. One European expert indicates:
Figure 2-6
General Components
of a Global Mindset
Component Description/Illustration
Global data bank Maintaining relevant, current, “hard” data about countries, regions.
Market knowledge What are the top 20 markets in our industry?
What are a key country’s defining historic moments?
What are a key country’s defining cultural moments?
What is the economic system and performance of a key market?
What is a key country’s political system?
What are the relevant business practices in a key country?
What are the major geographic features of a key country?
Understanding the global
superstructure
Same questions as required for market knowledge, but applied to
critical regions.
Global economic system Appreciation for and knowledge of the “interconnected economy”;
that is, the system that connects the world and covers trade and
finance, the world capital markets, and the major trade areas.
Cross-cultural skills Competence in effectively interacting with managers from many
countries or cultures.
Foreign language skills.
Understanding nonverbal communication commonalities.
Appreciation for culture-based nuances in communication
techniques.
Cultural roots Global mindsets require grounding in a home culture for personal
balance.
Spirit of generosity,
magnanimity
Giving others the opportunity to proceed and to define own
directions.
Source: Jean-Pierre Jeannet, Managing with a Global Mindset, 1st Edition, © 2000. Electronically reproduced by
permission of Pearson Education, Inc., Upper Saddle River, NJ.
Competency model of
global leadership
Global mindset
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1 / Human Resource Management and the Environment
The idea of the global mindset as a roving globetrotter is probably overblown, and clearly,
managers possessing, or aspiring to, a global mindset need to come equipped with a glo-
balized database, or some factual knowledge that is different from the domestic mindset.
Furthermore, they need to be able to view the world differently. And, finally, their thinking
patterns, responses, and cognitive skills differ sharply from a traditional domestic or even
multi-domestic mindset. 110
Figure 2-6 lists the general components of this global mindset according to this expert.
In summary, then, developing global leaders and global mindsets will be a continuing
challenge faced by HR professionals probably both in the short term as well as over the
long term.
SUMMARY
Business and commerce are increasingly crossing national, regional, and continental borders.
Some organizations have expanded their marketplaces; some organizations have extended
their operations; some organizations operate globally. Even if you never work for an interna-
tional organization, the global economy affects the marketplaces and the operational environ-
ments of most business, even small domestic organizations. In this chapter, we described and
discussed the way that this expansion affects human resource practices.
When organizations decide to focus attention outside their national borders, there are a
variety of approaches that may be taken. Such choices range in risk and degree of involvement
from simply exporting goods and services to sole ownership of foreign facilities. Each
of these approaches may present very different HR challenges, ranging from providing
technical advice and expertise all the way up to (and including) providing in-depth, com-
prehensive management services and job-related training to people who live in developing
parts of the world.
International organizations tend to choose among four general HR strategies. In ethno-
centric organizations, offshore operations have little autonomy, major decisions are made
at corporate headquarters, and managers are often moved to assignments from the home
country (parent-country nationals). At the other end of the spectrum is the polycentric
strategy in which each subsidiary is empowered to make important decisions concerning
its own operations and markets. When this approach is adopted, employees tend to have
stable assignments and rarely move from location to location. The geocentric HR strategy
tends to balance the two philosophies: relationships between headquarters and foreign sub-
sidiaries tend to be collaborative, with each participant contributing important inputs. The
partnership found in the geocentric HR strategy often gives rise to a global workforce that
can be deployed as needed in various areas throughout the world. A scaled-down version of
this philosophy is the regiocentric approach in which the world is viewed as a collection of
areas in which people and resources may move fluidly, but cross-regional movement may
be the exception rather than the rule. Some organizations use a regiocentric approach as a
stepping stone to a global philosophy. In deciding on which international HR management
(IHRM) strategy to consider, a company typically considers a variety of factors, including
the general environment, an organization’s industry characteristics, the business’s strategy,
and the firm’s internal strengths and weakness. In other words, the process of choosing an
IHRM philosophy is very similar to the process of deciding which business strategy an
organization will choose to pursue.
Traditionally, U.S. organizations have used key management talent and international
job rotation as a means for developing and deploying strategic capability during efforts
to internationalize business. Yet, such job rotation creates huge cross-cultural challenges,
and the record of expatriate success has been increasingly called into question. These chal-
lenges include a relatively high expatriate failure rate, the high costs and challenges asso-
ciated with international compensation, the need for cross-cultural training of expatriates
and families, and repatriation. At this time, two trends are emerging: (1) the widespread
reliance of U.S. companies on their own expatriate managers to build effective businesses
abroad is decreasing, and (2) expatriate job rotation is increasingly being used to aid in the
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2 / The Role of Globalization in HR Policy and Practice
development of global capability, rather than primarily as a tool for transplanting specific
home-country business, managerial, and HR practices. In other words, international job
rotation is increasingly being used as a developmental assignment for an organization’s
managerial talent, rather than as a way of creating “satellite offices” or “home-country
clones.”
The development of effective global leadership continues to be a major challenge for
organizations. Most international companies view such development as critical to their
long-term effectiveness in international marketplaces. There is little question that business
leaders everywhere in the world have a great deal to learn about the way to establish, build,
and leverage subsidiaries in foreign countries in order to fully deliver strategic capabilities
and organizational excellence.
Discussion Questions
1. Why do you think businesses internationalize? Which forces are most influential
and which are secondary forces?
2. Think of three or four organizations with which you are familiar. How have they
been affected by the globalization of business? Make sure you consider both
direct and indirect influences. If they have not been particularly affected, what are
some of the reasons for their insulation from the trend?
3. Think about two businesses: (1) a manufacturer of athletic gear and (2) a property
and casualty insurance company. How might the internationalization of each of
these companies differ from the other? What factors might account for these
differences? Choose one company and pretend that you’re the HR director. How
would you figure out the “right” way to manage this international expansion?
4. How do differences in international HR management (IHRM) strategies affect the
relative importance of each of the HR domains?
5. What are the advantages and disadvantages of using parent-country, host-country,
and third-country nationals? Under what specific circumstances might an organization
choose to utilize third-country nationals?
57
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59
OVERVIEW
Chapter 1 briefly summarized the regulatory environment in which HRM is practiced
today, and Chapter 2 discussed this environment in the context of the globalization of the
economy. Many experts in HRM have noted that the legal environment is a critical compo-
nent of the external environment for HRM and that legal considerations are a primary force
shaping staffing policies and the outsourcing and offshoring of manufacturing and service
jobs. Indeed, legal and regulatory studies related to labor issues and labor costs often cite
the regulatory environment as a major reason that some U.S. jobs (and facilities) are moved
offshore (or at least to southern states).
There are a plethora of federal, state, and local laws and regulations that can be the basis
of a lawsuit against an employer for actions (or inactions) related to labor relations, work-
ers’ compensation, unemployment compensation, wages, health and safety in the work-
place, whistleblower’s protection, retirement, employee benefits, rights of privacy, and/or
alleged unlawful dismissal. 1 The most important of these laws will be considered when the
most relevant HRM activities are covered in the chapters to follow.
No other area of the regulatory environment has had such a profound effect on HRM as
the laws related to equal employment opportunity (EEO). Surveys of perceived discrimina-
tion in the workplace underscore the importance of EEO law for HRM practice. A 2008
USA Today /Gallup Poll found that most Americans believe that racism is still widespread
against blacks in the United States. A slim majority of whites (51 percent) feel this way,
59 percent of Hispanics, and 78 percent of blacks. Over 4 in 10 whites, blacks, and Hispanics
O B J E C T I V E S
After reading this chapter, you should be able to
1. Explain the legal issues affecting HRM activity and the various laws related
to equal employment opportunity (EEO) and employment discrimination.
2. Identify potential problems in HRM policy and practice as related to equal
employment opportunity laws.
3. Know the importance of judicial interpretation in EEO law.
4. Understand the implications of EEO law in the international context.
5. Describe the future trends related to EEO law and their implications for
HRM practice.
Chapter
3
The Legal Environment of
HRM: Equal Employment
Opportunity
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1 / Human Resource Management and the Environment
believe that anti-white bias is also a problem. 2 Another survey found that over 31 percent
of Asians reported incidents of discrimination (the largest ethnic group percentage) and 26
percent of African-Americans reported incidents of discrimination. Other noteworthy sta-
tistics: 22 percent of white women perceived discrimination versus 3 percent of white men;
20 percent of Hispanic men reported discrimination versus 15 percent of Hispanic women. 3
Such findings, in the context of the increasing diversity of the U.S. workforce, 4 trans-
late into a picture of expanding legal activity related to personnel decisions. The focus of
discussion in this chapter is on federal EEO law since most work areas of HRM can be
affected by the EEO laws and the regulations about to be discussed. The processes by which
employers recruit, hire, place, evaluate, transfer, train, promote, compensate, monitor, lay
off, and terminate employees can fall under the close scrutiny of the courts and regulatory
agencies based on some form of EEO legislation. In addition, there are numerous state and
local laws that also affect HRM practice.
The purpose of this chapter is to provide an overview of the legal environment with
particular emphasis on equal employment opportunity laws and regulations. Descriptions
of the most important laws in EEO and the legal interpretations of those laws are provided.
The chapter concludes with a discussion of the implications of these laws in the global
environment and likely future trends related to EEO.
The trend of increasing litigation and regulation has had an impact on virtually all
aspects of HRM. Let’s start out with some recent cases that represent fairly typical legal
actions today. Figure 3-1 presents some examples of cases that reflect this trend.
As discussed in Chapter 1, litigation related to workplace activity is on the rise despite
the fact that practicing managers should know more about the legal implications of their
behavior than managers did 20 years ago. 5 Jury verdicts have grown substantially in re-
cent years with about 25 percent of verdicts resulting in awards of $1 million or more. A
2010 report concluded that the value of major employment discrimination class-action
settlements “increased four-fold over the prior year and the top ten settlements of wage &
hour, the Employee Retirement Income Security Act of 1974 (ERISA) and governmental
enforcement class actions increased to $1.16 billion, the highest amount ever.” 6 A 2011 re-
port concluded that the “last several years have seen an exponential increase in class action
and collective action litigation involving workplace issues. The present economic climate
Increasing litigation
and regulation
Figure 3-1 Examples of Recent Litigation
• White firefighters won a Title VII lawsuit against New Haven, Connecticut, after the city threw out test results because none of the black
firefighters scored high enough to be considered for promotion.
• The EEOC sued Kaplan Higher Education Corporation for discrimination against black job applicants due to the way Kaplan uses credit
histories in its hiring process.
• A federal judge threw out the minimum test score requirement imposed by the NCAA for college athletic eligibility, ruling that the SAT
or ACT score requirement had “an unjustified disparate impact against African-Americans.”
• Seven Muslim security workers filed a complaint with the EEOC, alleging they were fired because they refused to remove their hijabs
while at work.
• The EEOC settled a lawsuit for $8.5 million against Ford and the United Auto Workers (UAW) on behalf of African-Americans denied ap-
prenticeships based on a written application test.
• Lockheed Martin Corporation agreed to pay $13 million to settle claims of age discrimination brought by former employees of Martin
Marietta.
• Bus drivers in Indianapolis challenged the mandatory retirement age of 55 under the Age Discrimination in Employment Act.
• Target Stores was sued for using a psychological test to screen applicants for security guard positions that the plaintiffs regarded as an
invasion of privacy.
• A former Army Special Forces commander who was denied a job as a terrorist analyst won a sex discrimination lawsuit against the fed-
eral government because he was denied employment after the agency discovered that he was in the process of changing genders.
• A California jury awarded a college instructor $2.75 million after San Francisco State University turned him down for tenure because he
was white.
• Home Depot agreed to a $65 million settlement in a discrimination lawsuit involving gender bias in promotion decisions.
• A supervisor was sued by a former employee who claimed the supervisor libeled him in a reference check.
• Ford Motor Company settled a reverse discrimination lawsuit related to its downsizing efforts.
• African-Americans working for Coca-Cola claimed racial discrimination in the manner in which the company promoted people. The case
settled for $196 million.
• A terminated employee sued his former employer for disability discrimination, citing his clinical depression as a disability.
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3 / The Legal Environment of HRM: Equal Employment Opportunity
is likely to fuel even more lawsuits. The stakes in this type of employment litigation can be
extremely significant, as the financial risks of such cases are enormous.” 7
One of the reasons for the rise in legal activity is that there are more and more legal
options and theories available to someone who feels he or she has been treated unfairly in
the workplace. One review summarized the “piecemeal evolution of the U.S. employment
law system” as follows:
[E]mployees are now statutorily protected from workplace discrimination on the basis of
race, color, sex, religion, national origin, age, union status, disability, marital status, and in
some places, sexual preference, smoking habits, personal appearance, height and weight,
political affiliation, arrest and conviction records, and even the method of birth control they
choose. Simultaneously, courts have applied long-standing common law to recognize torts
of wrongful discharge, negligent and intentional infliction of emotional distress, breach of
contract, invasions of privacy, fraud, defamation, and negligent hiring, retention, training and
supervision. Employment law further affords employees the right to a minimum wage and to
overtime pay, the right to a safe and healthful workplace, and the right to benefits of social
security, unemployment insurance, worker’s compensation, family and medical leave, and
proper administration of their pension. Thus, U.S. employment law is a broad patchwork of
federal and state statutory rights, common law rights, and administratively created rights that
can be implicated by almost any managerial decision that affects employees. 8
The cases listed in Figure 3-1 illustrate the situation. Most Americans work under the
employment-at-will doctrine that stipulates that both employer and employee can ter-
minate a working relationship at any time and for any reason other than those explicitly
covered by law, which, as illustrated by the review quoted earlier, have been expanding.
There has been a “gradual erosion of the employment-at-will doctrine through limit-
ing legislation” and many challenges to the doctrine today. 9 Plaintiffs are winning large
judgments against employers under creative legal theories related to contract or tort law.
For example, most state courts have ruled that an implied contract exists as a conse-
quence of actions or statements of an employer. 10 Statements in employment documents
and manuals are often used to define this implied contract. If the employer fires an em-
ployee in violation of an implied employment contract regarding the steps to follow prior
to firing, the employer may be found liable for breach of contract. The use of the implied
contract theory or other exceptions to the employment-at-will doctrine depends on the
particular state. (Employment-at-will is discussed in detail in Chapter 12.) Of course,
while employers may invoke the “at-will” doctrine in the context of a termination, this
position clearly doesn’t necessarily stop an employee from claiming that the termination
was due to his or her race or gender or age or disability and filing a lawsuit pursuant to
this claim.
The trends in litigation related to specific HR practices will be covered when the par-
ticular HRM activity is discussed. But what you should know at the outset is that the
practice of human resources management in the U.S. is a litigious “minefield” with even
more “mines” being planted in the form of new laws, regulations, and legal theories in
recent years.
This expansion of new legal theories, combined with the changing demographics of
the workforce (an aging, more diverse workforce), suggests the likelihood that the legal
“minefield” will be more heavily mined in the future. Practicing HRM specialists need to
know where the mines are. HRM researchers can shed light on issues related to the legality
of certain HRM practices. Let’s first enter perhaps the most contentious of the minefields:
equal employment opportunity law.
A legal “minefield”
EQUAL EMPLOYMENT OPPORTUNITY LAW
Prior to the civil rights movement of the early 1960s, employment decisions often were
made on the basis of an applicant’s or worker’s race, gender, religion, or other character-
istics unrelated to job qualifications or performance. And across racial groups, women
routinely earned less than men, even in identical jobs. C
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The laws discussed in this chapter were designed to punish employers that used such
criteria as race, gender, national origin, disability, or age to exclude certain persons from
employment or as a basis for other personnel decisions. These laws were also designed to
restore the unfairly treated worker to the position that she or he would have held without
the discrimination.
Employment discrimination occurs in a variety of ways, and there are a number of methods
for seeking redress through the courts. While the legal definition of discrimination differs
depending on the specific law, it can be broadly defined as employment decision making
or working conditions that are unfairly advantageous (or disadvantageous) to a member
or members of one protected group compared to members of another protected group. The
decision-making can apply to personnel selection, admission to training programs, promo-
tions, work assignments, transfers, compensation, layoffs, punishments, and dismissals.
The conditions also can pertain to the work atmosphere itself. For example, a common
lawsuit today concerns allegations of sexually harassing behaviors at work that place an
individual in an offensive or intimidating environment.
Figure 3-2 presents a summary of illegal discriminatory practices. Of the many sources of
redress that are available, the most frequently used sources are federal laws: Title VII of
the 1964 U.S. Civil Rights Act (CRA), the Age Discrimination in Employment Act of
1967 (ADEA), and the Americans with Disabilities Act of 1990 (ADA). (See Figure 3-4
for some excerpts from Title VII.) Most of the states and many municipalities also have
their own fair employment laws. Complainants can also use the equal protection clause
of the U.S. Constitution in lawsuits against the states. This clause guarantees that no person
shall be denied the same protection of the laws that is enjoyed by other persons in their
lives, liberty, property, and pursuit of happiness.
What Is Employment
Discrimination?
What Are the Major
Sources of EEO
Redress?
Figure 3-2 Prohibited Employment Policies/Practices
Under the laws enforced by EEOC, it is illegal to discriminate against someone (applicant or employee) because of that person’s race,
color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information. It is also illegal to retaliate
against a person because he or she complained about discrimination, filed a charge of discrimination, or participated in an employment
discrimination investigation or lawsuit.
The law forbids discrimination in every aspect of employment.
The laws enforced by EEOC prohibit an employer or other covered entity from using neutral employment policies and practices that have
a disproportionately negative effect on applicants or employees of a particular race, color, religion, sex (including pregnancy), or national
origin, or on an individual with a disability or class of individuals with disabilities, if the polices or practices at issue are not job-related and
necessary to the operation of the business. The laws enforced by EEOC also prohibit an employer from using neutral employment policies
and practices that have a disproportionately negative impact on applicants or employees age 40 or older, if the policies or practices at
issue are not based on a reasonable factor other than age.
JOB ADVERTISEMENTS
It is illegal for an employer to publish a job advertisement that shows a preference for or discourages someone from applying for a job
because of his or her race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information.
For example, a help-wanted ad that seeks “females” or “recent college graduates” may discourage men and people over 40 from applying
and may violate the law.
RECRUITMENT
It is also illegal for an employer to recruit new employees in a way that discriminates against them because of their race, color, religion, sex
(including pregnancy), national origin, age (40 or older), disability or genetic information.
For example, an employer’s reliance on word-of-mouth recruitment by its mostly Hispanic work force may violate the law if the result is
that almost all new hires are Hispanic.
APPLICATION & HIRING
It is illegal for an employer to discriminate against a job applicant because of his or her race, color, religion, sex (including pregnancy),
national origin, age (40 or older), disability or genetic information. For example, an employer may not refuse to give employment
applications to people of a certain race.
(Continued)
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An employer may not base hiring decisions on stereotypes and assumptions about a person’s race, color, religion, sex (including
pregnancy), national origin, age (40 or older), disability or genetic information.
If an employer requires job applicants to take a test, the test must be necessary and related to the job and the employer may not
exclude people of a particular race, color, religion, sex (including pregnancy), national origin, or individuals with disabilities. In addition,
the employer may not use a test that excludes applicants age 40 or older if the test is not based on a reasonable factor other than age.
If a job applicant with a disability needs an accommodation (such as a sign language interpreter) to apply for a job, the employer is
required to provide the accommodation, so long as the accommodation does not cause the employer significant difficulty or expense.
JOB REFERRALS
It is illegal for an employer, employment agency or union to take into account a person’s race, color, religion, sex (including pregnancy),
national origin, age (40 or older), disability or genetic information when making decisions about job referrals.
JOB ASSIGNMENTS & PROMOTIONS
It is illegal for an employer to make decisions about job assignments and promotions based on an employee’s race, color, religion, sex
(including pregnancy), national origin, age (40 or older), disability or genetic information. For example, an employer may not give
preference to employees of a certain race when making shift assignments and may not segregate employees of a particular national origin
from other employees or from customers.
An employer may not base assignment and promotion decisions on stereotypes and assumptions about a person’s race, color, religion, sex
(including pregnancy), national origin, age (40 or older), disability or genetic information.
If an employer requires employees to take a test before making decisions about assignments or promotions, the test may not exclude
people of a particular race, color, religion, sex (including pregnancy), or national origin, or individuals with disabilities, unless the employer
can show that the test is necessary and related to the job. In addition, the employer may not use a test that excludes employees age 40 or
older if the test is not based on a reasonable factor other than age.
PAY AND BENEFITS
It is illegal for an employer to discriminate against an employee in the payment of wages or employee benefits on the bases of race, color,
religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information. Employee benefits include sick and
vacation leave, insurance, access to overtime as well as overtime pay, and retirement programs. For example, an employer many not pay
Hispanic workers less than African-American workers because of their national origin, and men and women in the same workplace must be
given equal pay for equal work.
In some situations, an employer may be allowed to reduce some employee benefits for older workers, but only if the cost of providing the
reduced benefits is the same as the cost of providing benefits to younger workers.
DISCIPLINE & DISCHARGE
An employer may not take into account a person’s race, color, religion, sex (including pregnancy), national origin, age (40 or older),
disability or genetic information when making decisions about discipline or discharge. For example, if two employees commit a similar
offense, an employer many not discipline them differently because of their race, color, religion, sex (including pregnancy), national origin,
age (40 or older), disability or genetic information.
When deciding which employees will be laid off, an employer may not choose the oldest workers because of their age.
Employers also may not discriminate when deciding which workers to recall after a layoff.
EMPLOYMENT REFERENCES
It is illegal for an employer to give a negative or false employment reference (or refuse to give a reference) because of a person’s race,
color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information.
REASONABLE ACCOMMODATION & DISABILITY
The law requires that an employer provide reasonable accommodation to an employee or job applicant with a disability, unless doing so
would cause significant difficulty or expense for the employer.
A reasonable accommodation is any change in the workplace (or in the ways things are usually done) to help a person with a disability
apply for a job, perform the duties of a job, or enjoy the benefits and privileges of employment.
Reasonable accommodation might include, for example, providing a ramp for a wheelchair user or providing a reader or interpreter for a
blind or deaf employee or applicant.
REASONABLE ACCOMMODATION & RELIGION
The law requires an employer to reasonably accommodate an employee’s religious beliefs or practices, unless doing so would cause
difficulty or expense for the employer. This means an employer may have to make reasonable adjustments at work that will allow the
employee to practice his or her religion, such as allowing an employee to voluntarily swap shifts with a co- worker so that he or she can
attend religious services.
TRAINING & APPRENTICESHIP PROGRAMS
It is illegal for a training or apprenticeship program to discriminate on the bases of race, color, religion, sex (including pregnancy), national
origin, age (40 or older), disability or genetic information. For example, an employer may not deny training opportunities to African-
American employees because of their race.
In some situations, an employer may be allowed to set age limits for participation in an apprenticeship program.
HARASSMENT
It is illegal to harass an employee because of race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or
genetic information.
It is also illegal to harass someone because they have complained about discrimination, filed a charge of discrimination, or participated in
an employment discrimination investigation or lawsuit.
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Figure 3-2 (Continued)
Harassment can take the form of slurs, graffiti, offensive or derogatory comments, or other verbal or physical conduct. Sexual harassment
(including unwelcome sexual advances, requests for sexual favors, and other conduct of a sexual nature) is also unlawful. Although the law
does not prohibit simple teasing, offhand comments, or isolated incidents that are not very serious, harassment is illegal if it is so frequent
or severe that it creates a hostile or offensive work environment or if it results in an adverse employment decision (such as the victim being
fired or demoted).
The harasser can be the victim’s supervisor, a supervisor in another area, a co-worker, or someone who is not an employee of the
employer, such as a client or customer.
Harassment outside of the workplace may also be illegal if there is a link with the workplace. For example, if a supervisor harasses an
employee while driving the employee to a meeting.
TERMS & CONDITIONS OF EMPLOYMENT
The law makes it illegal for an employer to make any employment decision because of a person’s race, color, religion, sex (including
pregnancy), national origin, age (40 or older), disability or genetic information. That means an employer may not discriminate when it
comes to such things as hiring, firing, promotions, and pay. It also means an employer may not discriminate, for example, when granting
breaks, approving leave, assigning work stations, or setting any other term or condition of employment – however small.
PRE-EMPLOYMENT INQUIRIES (GENERAL)
As a general rule, the information obtained and requested through the pre-employment process should be limited to those essential for
determining if a person is qualified for the job; whereas, information regarding race, sex, national origin, age, and religion are irrelevant in
such determinations.
Employers are explicitly prohibited from making pre-employment inquiries about disability.
Although state and federal equal opportunity laws do not clearly forbid employers from making pre-employment inquiries that relate to, or
disproportionately screen out members based on race, color, sex, national origin, religion, or age, such inquiries may be used as evidence
of an employer’s intent to discriminate unless the questions asked can be justified by some business purpose.
Therefore, inquiries about organizations, clubs, societies, and lodges of which an applicant may be a member or any other questions, which
may indicate the applicant’s race, sex, national origin, disability status, age, religion, color or ancestry if answered, should generally be avoided.
Similarly, employers should not ask for a photograph of an applicant. If needed for identification purposes, a photograph may be obtained
after an offer of employment is made and accepted.
PRE-EMPLOYMENT INQUIRIES AND:
• Race
• Height & Weight
• Credit Rating Or Economic Status
• Religious Affiliation Or Beliefs
• Citizenship
• Marital Status, Number Of Children
• Gender
• Arrest & Conviction
• Security/Background Checks For Certain Religious Or Ethnic Groups
• Disability
• Medical Questions & Examinations
DRESS CODE
• In general, an employer may establish a dress code which applies to all employees or employees within certain job categories. However,
there are a few possible exceptions.
• While an employer may require all workers to follow a uniform dress code even if the dress code conflicts with some workers’ ethnic be-
liefs or practices, a dress code must not treat some employees less favorably because of their national origin. For example, a dress code
that prohibits certain kinds of ethnic dress, such as traditional African or East Indian attire, but otherwise permits casual dress would
treat some employees less favorably because of their national origin.
• Moreover, if the dress code conflicts with an employee’s religious practices and the employee requests an accommodation, the em-
ployer must modify the dress code or permit an exception to the dress code unless doing so would result in undue hardship.
• Similarly, if an employee requests an accommodation to the dress code because of his disability, the employer must modify the dress
code or permit an exception to the dress code, unless doing so would result in undue hardship.
CONSTRUCTIVE DISCHARGE/FORCED TO RESIGN
• Discriminatory practices under the laws EEOC enforces also include constructive discharge or forcing an employee to resign by making
the work environment so intolerable a reasonable person would not be able to stay.
All claims of discrimination under CRA, ADEA, and ADA must first be filed with the
EEOC, which received over 80,000 in 2010, up from 2009 claims (check out its website at
www.eeoc.gov ). The highest percentages of claims of discrimination are for race, gender,
age, disability, national origin, and religion (in that order).
The EEOC can (and does) sue employers on its own based on its own investigation.
In 2010, the EEOC’s Annual Report announced that it would shift its emphasis toward
more “pattern and practice” class-action lawsuits on behalf of larger groups of workers. 11
A “pattern or practice” case of discrimination must be established by a preponderance of
Equal Employment
Opportunity Commission
(EEOC)
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the evidence that discrimination is the employer’s standard operating procedure. For ex-
ample, the 2010 EEOC lawsuit against Kaplan Higher Education Corporation is based on
the theory that Kaplan did not hire persons with a bad credit history and that this policy dis-
criminated against minorities. The EEOC’s theory is that this personnel practice is an “un-
lawful pattern or practice.” 12 In 2011, the EEOC sued the nation-wide Texas Roadhouse
chain of restaurants for employment discrimination, claiming that Texas Roadhouse did
not hire people age 40 and older because of their age. In another recent case, EEOC sued
Hamilton Growers, Inc., doing business as Southern Valley Fruit and Vegetable, claiming
the company engaged in a pattern or practice of firing virtually all American workers while
retaining workers from Mexico.
Unfortunately, claims of discrimination are up for all of areas covered by the EEOC.
National-origin lawsuits represented 10 percent of Title VII claims in 2010 and this includes
suits from resident aliens. Aliens who are eligible to work in the United States are covered
by Title VII. 13 Title VII also covers employees of U.S. companies working abroad. The 1991
Amendment to Title VII of the Civil Rights Act and the 2008 amendment to the Americans
with Disabilities Act (ADA), combined with the increasing diversity and aging of the Ameri-
can workforce and the struggling economy have increased the number of EEO lawsuits.
Compensatory and punitive damages have been added as remediation for violations of the
law, thus creating a greater financial incentive for plaintiffs and plaintiffs’ attorneys to pursue
these cases. Compensatory damages include future financial loss and emotional effects, and
punitive damages are intended to punish the employer to discourage discrimination. Depend-
ing on the size of the organization, damages can range from $50,000 to $300,000 per viola-
tion. Punitive damages are only allowed if the employer intentionally discriminated or acted
with malice or reckless indifference to the plaintiff’s rights.
Equal employment laws similar to Title VII exist in 41 states as well as Washington, DC,
and Puerto Rico. There are also state and local laws that vary on the legality of certain personnel
practices. For example, as of 2011, 10 states, the District of Columbia, and over 165 cities and
counties had laws prohibiting employment discrimination based on sexual orientation. Bills are
pending and already may have passed in other states (see www.aclu.org for up-to-date data). Most
laws cover actual and perceived sexual orientation. Several state laws include all orientation,
including heterosexuals and bisexuals. Some states also provide additional protection beyond
the ADA opposing discrimination against people who are HIV positive or are victims of AIDS.
The costs of violation can be substantial, not only because of direct expenses related to
litigation, but also in terms of a company’s reputation and future outside controls on per-
sonnel practices that may be imposed because of legal settlements. For example, Novartis
Pharmaceuticals lost a $253 million jury verdict and then, in 2010, agreed to a $175 million
settlement of a gender discrimination lawsuit involving over 6,000 current and former
female sales representatives. A jury had found Novartis guilty of discrimination in pay,
promotions, and other working conditions. As part of the settlement, Novartis agreed to
retain consultants to “design and carry out an annual adverse impact analysis of ratings,” to
work with an outside compensation expert to “design a base salary pay-in-range analysis
and subsequent adverse impact analysis of annual rates of pay,” and to work with consul-
tants (approved by the court) to “improve the overall culture of the company.” 14
Plaintiffs’ successes in court have a tendency to encourage similar lawsuits. For example,
the same law firm that successfully represented plaintiffs in the Novartis gender discrimina-
tion case, set it sites on Bayer HealthCare Pharmaceuticals in 2011 under Title VII of the
Civil Rights Act and a New Jersey state law. The charge alleges a “pattern and practice” of
discrimination in pay, promotions, and the treatment of pregnant women and mothers by
this multinational corporation. The complaint states that Bayer “engages in systemic dis-
crimination against its female employees – particularly those with family responsibilities –
by paying them less than their counterparts, denying them promotions into better and higher
paying positions, limiting their employment opportunities to lower and less desirable job
classifications, and exposing them to different treatment and a hostile work environment.” 15
An interesting case to be monitored is the EEOC’s recent lawsuit against the Kaplan
Higher Education Corporation charging the company of discrimination against black job
Claims of Title VII
discrimination are up
Compensatory and
Punitive Damages
What Is the Cost of
Violating EEO Laws?
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1 / Human Resource Management and the Environment
applicants in the way Kaplan uses credit histories in its hiring process. The EEOC claims
that this practice has a “significant disparate impact” on blacks. Many states, including
Hawaii, Washington, Oregon, and Illinois, have already banned or limited the use of credit
reports in hiring, and other states and Congress are considering similar laws. About half of
all employers use credit histories in at least some hiring decisions. 16
Employers are now well aware of how costly violations of EEO laws can be. In a much-
publicized case, Abercrombie and Fitch settled a Title VII race discrimination lawsuit for
$40 million. As part of the settlement, A&F agreed to hire 25 “diversity” recruiters and
now has “benchmarks” to monitor its hiring and promotion of minorities and women.
A&F also agreed to increase diversity in its advertisements and catalogs, which have
featured models who were mainly white and, as described in a New York Times article,
“seemed to have stepped off the football field or out of fraternities or sororities.” 17 The
Equal Employment Opportunity Commission (EEOC), a federal agency of the U.S. De-
partment of Labor, filed and then settled a race discrimination lawsuit against Walgreens
for $24 million. Morgan Stanley agreed to pay $52 million to end a sex discrimination suit.
The firm was also accused by the EEOC of a pattern of discrimination that denied women
opportunities for promotions and higher salaries. Another $2 million was set aside for a
training program directed at gender-based discrimination. Home Depot settled a class-
action lawsuit alleging sex discrimination for $65 million. The federal government itself
is not immune from charges of discrimination. The Department of Justice settled a lawsuit
against the Voice of America for $108 million, and the Social Security Administration
settled a race discrimination lawsuit for $7.75 million.
With some 25 percent of jury verdicts at $1 million or more, organizations have be-
come much more careful about their personnel practices with monitoring systems and
EEO offices and training programs for personnel decision makers and supervisors. HRM
specialists and labor attorneys are active in conducting training and research in areas
related to EEO. Many organizations have taken advantage of the EEOC’s outreach pro-
grams that provide information about discrimination laws enforced by EEOC and the
charge/complaint process. EEOC representatives also make presentations and participate
in meetings, conferences, and seminars with employee and employer groups.
One major component of training programs is simply making personnel decision mak-
ers aware of EEO laws. Let us follow this approach by introducing you to the major laws
that account for most of the federal regulation and litigation in EEO. The major federal
laws are presented in the same order as the frequency with which they are used as a source
of redress in employment discrimination claims. Remember that there are many other laws
related to HRM practice and policy. These laws will be introduced when relevant to each
HRM activity covered in the text.
If you believe you were a victim of illegal discrimination and wish to pursue a claim
through the legal system, you must first file a charge of discrimination with an office of
the U.S. Equal Employment Opportunity Commission (EEOC) , a U.S. Department of
Labor agency in charge of enforcing most EEO laws. This alleged discrimination must be
related to race, color, religion, sex (including pregnancy), national origin, age (40 or older),
disability, or genetic information. All laws enforced by the EEOC, except for the Equal
Pay Act, require this charge of discrimination first before a lawsuit can be filed against
an employer (it received almost 100,000 new charges in 2010, over 7,000 more than the
previous year).
Although there are some exceptions, this charge must be filed within 180 calendar
days from the day the alleged discrimination took place. The EEOC guidelines for fil-
ing this charge are presented in Figure 3-3 . The EEOC has 60 days to investigate the
complaint. If the EEOC finds that there is no probable cause for the claim or does not
complete the investigation in a timely manner, the complainant can then file a lawsuit in
federal court.
If the EEOC finds probable cause for action, the agency will attempt to reconcile the
matter with the employer through its mediation process. Mediation is an informal process
in which a neutral third party assists the opposing parties to reach a voluntary, negotiated
Recent EEO cases
How Do You File
a Discrimination
Lawsuit?
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resolution of the charge. 18 Through this process, the EEOC often enters into “consent
decree” agreements with an employer in which the employer agrees to take certain actions
to put the matter to rest. For example, in 2011, Dunkin Donuts agreed to a “consent decree”
in response to a sexual harassment complaint. As part of the agreement, Dunkin Donuts
agreed to pay a cash settlement, to appoint an equal employment opportunity coordinator,
to provide training for all employees on sexual harassment prevention, and to not rehire a
manager responsible for the harassment.
Research on the EEOC mediation process is quite positive. A survey of parties who
participated in the program found the process to be fair and neutral, with 96 percent of
respondents and 91 percent of charging parties indicating that they would use the media-
tion process again if the opportunity arose, even when the results of the mediation were
Consent decrees
Figure 3-3 Filing a Charge of Employment Discrimination
Note: Federal employees or applicants for federal employment should see Federal Sector Equal Employment Opportunity Complaint
Processing.
WHO CAN FILE A CHARGE OF DISCRIMINATION?
• Any individual who believes that his or her employment rights have been violated may file a charge of discrimination with EEOC.
• In addition, an individual, organization, or agency may file a charge on behalf of another person in order to protect the aggrieved
person’s identity.
HOW IS A CHARGE OF DISCRIMINATION FILED?
• A charge may be filed by mail or in person at the nearest EEOC office.
• Individuals who need an accommodation in order to file a charge (e.g., sign language interpreter, print materials in an accessible
format) should inform the EEOC field office so appropriate arrangements can be made.
• Federal employees or applicants for employment should see Federal Sector Equal Employment Opportunity Complaint Processing.
WHAT INFORMATION MUST BE PROVIDED TO FILE A CHARGE?
• The complaining party’s name, address, and telephone number.
• The name, address, and telephone number of the respondent employer, employment agency, or union that is alleged to have
discriminated, and the number of employees (or union members), if known.
• A short description of the alleged violation (the event that caused the complaining party to believe that his or her rights were violated).
• The date(s) of the alleged violation(s).
• Federal employees or applicants for employment should see Federal Sector Equal Employment Opportunity Complaint Processing.
WHAT ARE THE TIME LIMITS FOR FILING A CHARGE OF DISCRIMINATION?
All laws enforced by EEOC, except the Equal Pay Act, require filing a charge with EEOC before a private lawsuit may be filed in court. There
are strict time limits within which charges must be filed.
• A charge must be filed with EEOC within 180 days from the date of the alleged violation in order to protect the charging party’s rights.
• This 180-day filing deadline is extended to 300 days if the charge also is covered by a state or local antidiscrimination law. For ADEA
charges, only state laws extend the filing limit to 300 days.
The Ledbetter Act became law in 2009. The Ledbetter Act states that the 180-day statute of limitations for filing an equal-pay lawsuit
regarding pay discrimination resets with each new discriminatory paycheck.
• These time limits do not apply to claims under the Equal Pay Act, because under that Act persons do not have to first file a charge with
EEOC in order to have the right to go to court. However, since many EPA claims also raise Title VII sex discrimination issues, it may be
advisable to file charges under both laws within the time limits indicated.
• To protect legal rights, it is always best to contact EEOC promptly when discrimination is suspected.
• Federal employees or applicants for employment should see Federal Sector Equal Employment Opportunity Complaint Processing.
WHAT AGENCY HANDLES A CHARGE THAT IS ALSO COVERED BY STATE OR LOCAL LAW?
Many states and localities have antidiscrimination laws and agencies responsible for enforcing those laws. EEOC refers to these agencies as
“Fair Employment Practices Agencies (FEPAs).” Through the use of “work sharing agreements,” EEOC and the FEPAs avoid duplication of
effort while at the same time ensuring that a charging party’s rights are protected under both federal and state law.
• If a charge is filed with a FEPA and is also covered by federal law, the FEPA “dual files” the charge with EEOC to protect federal rights.
The charge usually will be retained by the FEPA for handling.
• If a charge is filed with EEOC and also is covered by state or local law, EEOC “dual files” the charge with the state or local FEPA but
ordinarily retains the charge for handling.
HOW IS A CHARGE FILED FOR DISCRIMINATION OUTSIDE THE UNITED STATES?
U.S.-based companies that employ U.S. citizens outside the United States or its territories are covered under EEO laws, with certain
exceptions. An individual alleging an EEO violation outside the United States should file a charge with the district office closest to his or her
employer’s headquarters. However, if the individual is unsure where to file, he or she may file a charge with any EEOC office.
For answers to common questions about how EEO laws apply to multinational employers, go to: www.EEOC.gov and find these:
• The Equal Employment Opportunity Responsibilities of Multinational Employers
• Employee Rights When Working for Multinational Employers
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different than they had anticipated. 19 In 2011 Cracker Barrel joined the more than 200 com-
panies, including several Fortune 500 firms, that have signed a National Universal Agree-
ment to Mediate to streamline the handling of employment discrimination claims with
the EEOC. This agreement provides the framework for both organizations to informally
resolve most EEO workplace issues that may arise through Alternative Dispute Resolution
(ADR) procedures rather than through a traditional (often) lengthy, formal EEOC investi-
gation followed by potential litigation.
Consent decrees do not necessarily settle a matter as whether and how an employer is
complying can be challenged. One of your authors (Bernardin) recently worked on a case
involving the employment practices of Jefferson County, Alabama. The lawsuit stems
originally from a consent decree signed in 1974 and the trail of the litigation (challenging
responses to the consent decree) goes through the Supreme Court. 20
TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964
The Civil Rights Act was signed by President Johnson in 1964 and was amended by the
Equal Employment Opportunity Act in 1972 and the Civil Rights Act of 1991. Title VII
deals specifically with discrimination in employment and prohibits discrimination based on
race, color, religion, sex, or national origin. Figure 3-4 provides major excerpts from Title
VII. The Act covers all employers having 15 or more employees except private clubs, reli-
gious organizations, and places of employment connected to an Indian reservation.
The EEOC can (and often does) file Title VII suits against organizations for violations
of the law. This agency can file lawsuits without named complainants or can join in a law-
suit. The EEOC also issues interpretive regulations and guidelines regarding employment
practices (see www.eeoc.gov to review these guidelines). Among the many regulatory in-
terpretations issued by the EEOC are the “Uniform Guidelines on Employee Selection
Procedures” that provide recommendations for employment staffing, the “Interpretative
Guidelines on Sexual Harassment,” and the “Policy Guidance on Reasonable Accommodation
EEOC issues guidelines
Figure 3-4 Excerpts from Title VII of the Civil Rights Act of 1964
SECTION 703
(a) It shall be an unlawful practice for an employer :
(1) to fail to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to compensation,
terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin; or (2) to limit,
segregate, or classify employees or applicants for employment in any way which would deprive or tend to deprive any individual of
employment opportunities or otherwise adversely affect status as an employee, because of such individual’s race, color, religion, sex,
or national origin.
(e) Notwithstanding any other provision of this title,
(1) it shall not be an unlawful employment practice for an employer to hire and employ those employees … on the basis of religion,
sex, or national origin in those certain instances where religion, sex, or national origin is a bona fide occupational qualification reason-
ably necessary to the normal operation of that particular business or enterprise …
(h) Notwithstanding any other provision of this title, it shall not be an unlawful employment practice for an employer to apply differ-
ent standards of compensation, or different terms, conditions, or privileges of employment pursuant to a bona fide seniority or merit
system, or a system which measures earnings by quantity or quality of production or to employees who work in different locations,
provided that such differences are not the result of an intention to discriminate because of race, color, religion, sex, or national origin,
nor shall it be unlawful employment practice for an employer to give and act upon the results of any professionally developed ability
test provided that such test, its administration or action upon the results is not designed, intended, or used to discriminate because of
race, color, religion, sex, or national origin …
(j) Nothing contained in this title shall be interpreted to require any employer … to grant preferential treatment to any individual or to
any group because of the race, color, religion, sex, or national origin of such individual or group on account of an imbalance which
may exist with respect to the total number or percentage of persons of any race, color, religion, sex, or national origin employed by
any employer … in comparison with the total number or percentage of persons of such race, color, religion, sex, or national origin in
any community, State, section, or other area, or in the available work force in any community, State, section, or other area.
SECTION 704
(a) It shall be an unlawful employment practice for an employer to discriminate against any employees or applicants for employment …
because the employee or applicant has opposed any practice made an unlawful employment practice by this title, or because he or
she has made a charge, testified, assisted, or participated in any matter in an investigation, proceeding, or hearing under this title.
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Under the Americans with Disabilities Act.” The EEOC recently issued regulations regard-
ing the Genetic Information Nondiscrimination Act. 21
HRM legal specialists participate in the development of these regulations and guide-
lines. While these guidelines and regulations are not law, the EEOC uses them to evaluate
claims in cases, and courts often defer to them in interpretations and rulings.
The EEOC also requires that most employers with 100 or more employees submit an
annual EEO-1 Form (see Figure 3-5 ). Data from these forms are often used to identify
possible patterns of discrimination in particular organizations or segments of the work-
force. The EEOC may then take legal action or join in a legal action against an organiza-
tion based on these data. Such data can also be made available to private parties as part
of a lawsuit.
Title VII does not prohibit discrimination based on seniority systems, veterans’ preference
rights, national security reasons, or job qualifications based on “job-related” test scores,
backgrounds, or experience, even when the use of such practices may be correlated with
the race, gender, color, religion, or national origin. Title VII also does not prohibit bona
fide occupational qualifications (BFOQs) or discriminatory practices whenever these
practices are “reasonably necessary to the normal operation of the organization.” For ex-
ample, a BFOQ that excludes one group (e.g., males or females) from an employment
opportunity is permissible if the employer can argue that the “essence of the business”
requires the exclusion; that is, when business would be significantly affected by not em-
ploying members of one group exclusively.
What if a company had data showing that customers clearly prefer employees with
certain protected class characteristics? Pan Am Airways tried this argument in Diaz v. Pan
American World Airways . 22 In attempting to defend the policy that only females could
be flight attendants, Pan Am presented data showing that the vast majority of its custom-
ers (overwhelmingly male) preferred female flight attendants. The court agreed with
the position of the EEOC that customer preference is not a legally defensible reason to
discriminate.
In general, the position of the courts and the EEOC regarding BFOQs favors judgments
about the performance, abilities, or potential of specific individuals rather than discrimina-
tion by class or categories. The courts have said that the BFOQ exception to Title VII is a
narrow one, limited to policies that are directly related to a worker’s ability to do the job
and the essence of the business. The University of Incarnate Word in San Antonio, Texas,
invoked an English-only BFOQ that stipulated that only English must be spoken at work.
In general, the EEOC and the courts have taken the position that English-only rules consti-
tute national origin discrimination under Title VII when applied at all times or when they
cannot be justified by business necessity. 23 The university settled the case and agreed to
drop the requirement.
The Supreme Court has established the legal steps to be followed in a Title VII action
through the federal court system. Although the plaintiff retains the “burden of proof,” a
model is used such that the burden of producing evidence shifts from the plaintiff to the
defendant and back to the plaintiff. Initially the complainant or plaintiff has the burden to
show that a prima facie case of discrimination exists. Prima facie means “presumed to
be true until proven otherwise”; the plaintiff must show that there is a high likelihood
that a violation of EEO law has occurred. After the plaintiff produces sufficient evidence
to establish a prima facie case, the burden of producing evidence shifts to the employer or
defendant, who must provide some proof of a legitimate, nondiscriminatory reason for the
employment decision. Finally, the burden of producing evidence shifts back to the plaintiff
to either show that the reason given was a pretext for discrimination or that an alternative
practice, less discriminatory in its effect, would have achieved the employer’s purpose
equally well. Title VII cases can be brought under either (or both) of two theories of dis-
crimination: disparate treatment and disparate impact. The steps to follow for each are
illustrated in Figure 3-6 .
What Is Not Prohibited
by Title VII?
Diaz v. Pan American Airways
What Legal Steps Are
Followed in a Title VII
Case?
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Figure 3-5 EEO-1 Form
(Continued)
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Plaintiffs can demonstrate a prima facie case by showing disparate treatment, the most
frequently used theory of discrimination. According to the procedures established in the
1973 McDonnell Douglas v. Green Supreme Court case, plaintiffs must show that an
employer treats one or more members of a protected group differently. 24 For example, the
use of different criteria for promotion depending on the candidate’s sex would constitute
disparate treatment. Female applicants who were not hired by a firm might show that the
employer asked them questions about their marital status or childcare arrangements that
were not asked of male applicants. In disparate treatment cases, the Supreme Court estab-
lished that the burden is on the plaintiff to prove that the employer intended to discriminate
because of race, sex, color, religion, or national origin. 25
One special form of disparate treatment is retaliation. All of the laws enforced by the EEOC,
including Title VII, make it illegal to fire, demote, harass, or otherwise “retaliate” against
people (applicants or employees) because they filed a charge of discrimination, because they
complained to their employer about discrimination on the job, or because they participated
(e.g., gave testimony) in an employment discrimination proceeding (such as an investigation
or a lawsuit). Employers are also prohibited from retaliating against a worker who has filed a
discrimination complaint by making reprisals against that worker’s fiancé, family members,
or other close associates. In a 2010 Supreme Court decision in Thompson v. North American
Stainless, Justice Scalia wrote, “We think it obvious that a reasonable worker might be dis-
suaded from engaging in protected activity if she knew that her fiancé would be fired.” 26
According to procedures established in the 1971 Supreme Court ruling in Griggs v. Duke
Power, 27 plaintiffs can show that an employer’s practices had a disparate impact on
members of a protected group by showing that the employment procedures (e.g., tests,
interviews, credentials) had a disproportionately negative effect or “adverse impact” on
members of a protected group. Impact cases are often established as class-action cases in
which a judge can certify a class of people who make similar claims against a company.
For example, the plaintiffs in the Abercrombie and Fitch case were certified as a class
before the rest of the case was pursued.
What Is Disparate
Treatment?
McDonnell Douglas
v. Green
EEO law and retaliation
What Is Disparate
Impact?
Griggs v. Duke Power
Figure 3-6 Evidence and Proof in Title VII Cases
Evidence Burden
Plaintiff’s initial burden
(prima facie case)
Disparate Treatment
He or she belongs to the discriminated-against
group.
He or she applied and was qualified.
He or she was rejected.
The position remained open to applicants
with equal or fewer qualifications.
Disparate Impact
Unequal impact of the
practice(s) in question
on different groups
(e.g., 80% rule violation)
Defendant’s rebuttal burden Articulate a “legitimate nondiscriminatory
reason for the rejection.”
Demonstrate that the
challenged practice is
job-related for the position
in question and consistent
with business necessity.
Plaintiff’s burden in response Show that the stated reason is a pretext by
demonstrating, e.g.:
• The employer doesn’t apply that reason equally
to all.
• The employer has treated the plaintiff unfairly
before.
• The employer engages in other unfair employment
practices.
OR
Show the plaintiff’s group membership was a
factor in the rejection decision.
Show that a less
discriminatory and equally
valid alternative practice or
method does exist.
Defendant’s burden in response Show that the decision would have been the
same even if it had not taken plaintiff’s group
membership into account.
 
Source: From J. Ledvinka, Federal Regulation of Personnel in Human Resource Management 1e. © 1982 South-Western, a part of Cengage Learning, Inc.
Reproduced by permission. www.cengage.com/permissions .
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A common class-action discrimination lawsuit involves the use of “subjective
employment practices” to arrive at personnel decisions such as promotions. Such prac-
tices include allowing managers considerable discretion in how to arrive at decisions. But
does such a practice then qualify as a “class-action” lawsuit? The Supreme Court recently
took up this issue in Wal-Mart Stores, Inc. v. Dukes in which a federal judge (and the 9 th
Circuit Court) had certified a class of about 1.4 million female workers. Do the circum-
stances regarding these women have enough in common to allow them to join together in
a single class action? The plaintiffs’ argument, proffered in numerous other discrimination
cases, is that a centralized companywide policy that provides little guidance and allows
store managers considerable discretion in personnel decisions made Wal-Mart Stores,
Inc., vulnerable to “gender stereotyping.” Wal-Mart argued that this “class” of female
plaintiffs worked in 3,400 different stores with 170 different job classifications and that
there is not enough “commonality” to warrant class-action certification. In 2011, the
Supreme Court ruled in favor of Wal-Mart Stores, Inc., and set down some guidelines
regarding criteria for class certification. 28 Since this decision, employers are now challeng-
ing class certification on the basis that the members of the proposed class lack sufficient
commonality. Courts will surely be more critical when plaintiffs make the argument that
class members shared “common issues of law or fact;” this “commonality” is required for
class certification.
Whether or not the employer had good intentions or didn’t mean to discriminate is ir-
relevant to the courts in “disparate impact” cases. If an employment practice or policy has
a disparate impact based on race, color, religion, sex, or national origin, the employer must
show that the practice is job related and consistent with business necessity. An employer
can meet this standard by showing that it is necessary to the safe and efficient performance
of the job. According to the EEOC, the challenged policy or practice should be associated
with the skills needed to perform the job successfully. In contrast to a general measure-
ment of applicants’ or employees’ skills, the challenged policy or practice must evaluate
an individual’s skills as related to the particular job in question. 29
HRM specialists are very much involved in this important area. The concept of “job
relatedness” as defined in Griggs is very similar to the concept of validity developed by
industrial psychologists. 31 Thus, once evidence is established showing an employment
practice has an adverse impact on a protected class, the burden will be on the employer to
show the practice is “job related” or a “business necessity.” Finally, the burden shifts back
to the plaintiff, who must then show that an alternative procedure is available that is equal
to or more effective than the employer’s practice and has less adverse impact. 30
Adverse impact One common “yardstick” recommended (and used) by the EEOC in the
Uniform Guidelines and adopted in numerous court cases for determining adverse impact
(AI) is the four-fifths rule (also known as the 80 percent rule). 32 AI is some form of sta-
tistical finding that is presented to support the “prima facie” evidence of disparate impact
discrimination. The 80 percent rule means that a selection rate (number selected/number
considered) for a protected group cannot be less than four-fifths or 80 percent of the selec-
tion rate for the group with the highest selection rate. For example, the City of Columbus,
Ohio, used a paper-and-pencil, multiple-choice examination to screen applicants for its
firefighter positions. While 84 percent of the whites passed the examination, only 27 per-
cent of the blacks did. Using the four-fifths rule, 80 percent of the white selection rate is
67 percent (0.8 × 0.84). Since the 27 percent selection rate for blacks was less than 67 per-
cent, the Columbus test was determined to have an adverse impact on blacks.
The 80 percent or four-fifths rule derives from the EEOC’s Uniform Guidelines on
Employee Selection Procedures. However, it is not the only statistical measure of adverse
impact that can be used to establish prima facie evidence of discrimination. The makeup
of a workforce can also be compared to population or industry data (e.g., a geographical
area is 15 percent Hispanic while only 3 percent of workers for Company X in that same
area are Hispanic). For example, in the sex discrimination lawsuit against Wal-Mart we
discussed earlier, the plaintiffs presented data showing that 58 percent of managers in
general merchandising were women while only 32 percent of Wal-Mart’s managers were
women. Plaintiffs (or the EEOC) can also analyze the extent to which a protected class
Wal-Mart v. Dukes
What is job-relatedness?
How Do You Determine
Disparate or Adverse
Impact?
80 percent rule
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possesses a particular credential or a job requirement of a number of years of experience
versus a majority group. 33
The standard deviation (SD) rule can also be followed that uses probability distribu-
tions to investigate adverse impact. The SD analysis looks at the difference between the
expected representation (e.g., hiring or promotion rates) for a protected group and the actual
rate in order to determine whether the difference between the two values is greater than
what would occur by chance. For example, 30 percent (60 of 200) of the applicants for retail
supervisory positions were women. We would thus expect that 15 women would be promoted
for the 50 promotions that were actually made. However, only five women were actually
promoted. To determine if this statistical difference is greater than what would be expected
by chance, you calculate the SD (go to endnote #34 for the detail). If the difference between
the actual and expected representation of women is greater than two standard deviations, we
would conclude that there was AI against women (in our example, this is AI). 34
A superior statistic also used in numerous EEO cases to examine and define “prima
facie” evidence of discrimination is the Fisher’s Exact Test (for a demonstration go to:
http://www.langsrud.com/fisher.htm ). The Fisher test can be used to test whether there is
any relation between two categorical variables (e.g., males and females) and two levels
(e.g., promoted/not promoted). 35
Remember that these statistical findings establish only prima facie evidence of discrimi-
nation. The employer still has the opportunity to prevail in the case by providing evidence
supporting the “job relatedness” and/or “business necessity” of the personnel practice or
procedure . Such statistical evidence can also be used in disparate treatment cases to but-
tress a claim of intentional discrimination and a “pattern and practice” of such discrimination.
The disparate impact theory has been used in many cases involving “neutral employ-
ment practices” such as tests, entrance requirements, particular credentials, or physical
requirements. For example a class of African-Americans who were denied apprenticeships
at Ford Motor Company based on low test scores applied the 80 percent rule to show that
the proportion of African-Americans meeting the minimum test score requirements was
less than 80 percent of the rate for whites. The EEOC is using “impact” theory to challenge
Kaplan’s practice regarding the use of credit histories. The Civil Rights Act of 1991 is un-
clear as to precisely what an employer must demonstrate; it simply says that the employer
must demonstrate “that the challenged practice is job related for the position in question
and consistent with business necessity.” There is a great deal of litigation (and confusion)
over just what both employees and the organizations they sue must demonstrate under the
CRA of 1991. HRM specialists and academics often find themselves on both sides of a
court case, attacking (and defending) the validity evidence and the statistics presented to
support or refute a theory of discrimination and claims of “job relatedness.”
Prior to 1991, organizations attempted to avoid statistical adverse impact by interpret-
ing test scores based on the ethnicity of the test taker. Called race norming and even
practiced by the U.S. Department of Labor, the exact raw scores on the same test were
interpreted (and converted) depending on whether the test taker was white, Latino, or
African- American. The practice of race (and gender) norming was outlawed by the
Civil Rights Act of 1991. Title VII now states that “It shall be an unlawful employment
practice for a respondent, in connection with the selection or referral of applicants or can-
didates for employment or promotion, to adjust the scores of, use different cutoff scores
for, or otherwise alter the results of, employment related tests on the basis of race, color,
religion, sex, or national origin.”
There is a large body of case law that provides legal definitions of the term job related.
The major case in this area is Griggs v. Duke Power, in which the Supreme Court struck
down the use of an employment test and a high school educational requirement for entry-
level personnel selection. Such practices were judged to be discriminatory because they
excluded a disproportionate number of blacks from employment and thus had an “adverse
impact,” and because the employer could not show that the hiring requirements were “job
related,” or related to performance on the job. As the court noted, if an employment prac-
tice cannot be shown to be related to job performance, and that practice causes an “adverse
impact” against “protected class” members, then the practice is prohibited. 36
Prima Facie evidence
Race Norming
How Does an Employer
Prove “Job Relatedness”?
Griggs v. Duke Power
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Since the Griggs decision was rendered in 1971, there have been many cases that have
focused on job-relatedness issues. In Albemarle Paper Company v. Moody (1975), the
Supreme Court clarified the job-relatedness defense, requiring a careful job analysis to
identify the specific knowledge, skills, and abilities necessary to perform the job or a study
that shows a clear statistical relationship between applicants’ test scores (or a particular job
requirement or credential) and their job performance. 37
The Supreme Court declared that the job-relatedness argument must be applied to all
steps of a multiple-hurdle selection procedure. 38 Winnie Teal had been denied promotion
to a supervisory position because of a low score on a written exam that was the first hurdle
of the promotion process. When the final promotion decisions were made, the “bottom
line” decisions (i.e., who was actually promoted) actually favored African-Americans. But
in 1982 the Supreme Court ruled in Connecticut v. Teal that the “bottom line” is not an ac-
ceptable legal defense in such a case. Rather, the “job relatedness” argument must be made
for any step where “prima facie” evidence is presented. Thus, in Connecticut v. Teal, the
burden was on the defendant to prove that the test was “job related” even though the state
had actually promoted a larger proportion of African-Americans for the position.
Evidence of a significant correlation between test scores and job performance is consid-
ered ideal to support an argument of job relatedness. HRM specialists conduct such studies
routinely to evaluate the use of a test or selection procedure. Suppose a company is sued
based on the disparate impact theory and must establish the “job relatedness” of its test.
The company does not have enough data to conduct an internal study. What if a study ex-
ists showing that the test being challenged has validity for the same or similar jobs? Could
the company “borrow” a validity study based on data collected in several other organiza-
tions? Section 15E of the EEOC’s Uniform Guidelines provides guidance regarding “trans-
porting” validity evidence from existing studies into new situations. A “transportability”
defense requires the following evidence: (1) the results of the borrowed study (or studies),
(2) a test fairness analysis investigating differences in scores as a function of protected
class characteristics, (3) job analysis data showing the similarity of the jobs under study,
and (4) data showing the similarity of the applicants under study.
The argument of “transportability” is related to the concept known as validity gener-
alization (VG). As we discuss in Chapter 6, VG concerns whether validity evidence gen-
eralizes to a particular situation. VG studies are based on meta-analytic research. 39 There
are now over 500 such studies based on the correct assumption that the mean of several
correlational studies is probably a strong basis for concluding that there is a valid relation-
ship between test scores and job performance for similar job situations. However, the most
recent review on this issue concluded that the “sole reliance on VG evidence to support test
use is probably premature” 40 In order to “borrow” validity from a VG study, the organiza-
tion should follow the four steps presented earlier for establishing “transportability.” It is
critical that the VG study present sufficient detail on the individual studies that led to the
inference that the test was valid. 41
Once the defendant has presented acceptable evidence of job relatedness, the case is
not necessarily over. Title VII allows that where two or more selection (or other decision-
making) procedures are available that serve the user’s “legitimate interest in efficient and
trustworthy workmanship” and that are equally valid for a given purpose, the user should
use the procedure that has been demonstrated to have the lesser adverse impact. Thus, the
plaintiffs could present evidence that an alternative method exists and that its use would
result in less (or no) adverse impact. This step in the process could even apply to the use of
a particular “cutoff’ score for a test (e.g., 70 percent is passing). 42
Another critical case related to “disparate impact” theory is Watson v. Ft. Worth
Bank & Trust (1988). Clara Watson was denied a promotion based on an interview. The
critical question that the Supreme Court addressed here was whether “impact” theory
could be used in “subjective” employment practices such as interviews and performance
appraisals (the Griggs and Albemarle cases concerned “neutral employment practices”
such as credentials or test scores). In a unanimous decision, the Court allowed “dis-
parate impact” theory for subjective employment practices. 43 This decision is of
course critical for many class-action cases, including the Novartis and Bayer cases
we described earlier, where, among other issues, women charged that the “subjective”
Albermarle v. Moody
Connecticut v. Teal
Transportability
Validity Generalization
Alternative procedures
Watson v. Fort Worth Bank
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method of selecting and promoting managers was responsible for the statistical disparity
in promotion rates for women. However, as these cases are class-action lawsuits, the
2011 Supreme Court ruling throwing out the class certification in Wal-Mart v. Dukes
will probably place constraints on the ability to establish class-certification for many of
these types of cases.
Harassment is another form of employment discrimination that also violates Title VII
and other federal laws (the Age Discrimination in Employment Act and the Americans
with Disabilities Act). Harassment is unwelcome conduct that is based on race, color,
sex, religion, national origin, disability, and/or age. Sexual harassment is one form of
such illegal harassment. There were over 30,000 charges of illegal harassment, including
sexual harassment. In a much-publicized case, the EEOC settled a harassment case with
Tavern on the Green, a landmark restaurant located in Central Park in New York City.
The settlement was for over $2 million but also entailed substantial remedial relief and
careful court scrutiny in the future. The EEOC alleged that the restaurant’s managers and
others engaged in severe and pervasive sexual, racial, and national origin harassment
of female, black, and Hispanic employees and then retaliated against employees who
complained.
The harassment becomes unlawful where (1) enduring the offensive conduct be-
comes a condition of continued employment, or (2) the conduct is severe or pervasive
enough to create a work environment that a reasonable person would consider intimi-
dating, hostile, or abusive. Antidiscrimination laws also prohibit harassment against
individuals in retaliation for filing a discrimination charge; testifying; or participating
in any way in an investigation, proceeding, or lawsuit under these laws or opposing
employment practices that they reasonably believe discriminate against individuals in
violation of these laws.
Petty slights, annoyances, and isolated incidents (unless extremely serious) will not rise
to the level of illegality. To be unlawful, the conduct must create a work environment that
would be intimidating, hostile, or offensive to reasonable people. The offensive conduct
may include: offensive jokes, slurs, epithets or name calling, physical assaults or threats,
intimidation, ridicule or mockery, insults or put-downs, offensive objects or pictures, and
interference with work performance.
Harassment can occur in a variety of circumstances. The harasser can be the victim’s
supervisor, a supervisor in another area, an agent, a client or customer of the employer, a
co-worker, or a nonemployee. The victim does not have to be the person harassed but can
be anyone affected by the offensive conduct. The harassment can be illegal even without
economic injury to, or discharge of, the victim.
Under Title VII, sexual harassment, like racial and ethnic harassment, is illegal since it
constitutes discrimination with respect to a person’s conditions of employment. These con-
ditions can refer to psychological and emotional workplace conditions that are coercive or
insulting to an individual. The EEOC has published guidelines for employers dealing with
sexual harassment issues (go to www.eeoc.gov ). According to these guidelines, sexual
harassment is defined as follows:
unwelcome sexual advances, requests for sexual favors, and other verbal or physical con-
duct of a sexual nature constitute sexual harassment when (1) submission to such conduct
is made either explicitly or implicitly a term or condition of an individual’s employment,
(2) submission to or rejection of such conduct by an individual is used as the basis for
employment decisions affecting such individual, or (3) such conduct has the purpose or
effect of unreasonably interfering with an individual’s work performance or creating an
intimidating, hostile, or offensive working environment.
Over 16 percent of the 12, 717 2010 charges were filed by males, a 1 percent increase
from 2005. However, harassment of an employee because of sexual orientation does not
constitute illegal harassment under Title VII (it probably does under applicable state or lo-
cal laws prohibiting discrimination based on sexual orientation).
What Is Illegal
Harassment?
Unlawful harassment,
two conditions
What Constitutes
Sexual Harassment
under Title VII?
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According to the EEOC, sexual harassment can occur in a variety of circumstances,
including but not limited to the following:
■ The victim as well as the harasser may be a woman or a man. The victim does not have
to be of the opposite sex.
■ The harasser can be the victim’s supervisor, an agent of the employer, a supervisor in
another area, a co-worker, or a nonemployee.
■ The victim does not have to be the person harassed but could be anyone affected by the
offensive conduct.
■ Unlawful sexual harassment may occur without economic injury to or discharge of the
victim.
■ The harasser’s conduct must be unwelcome.
The EEOC also states that “It is helpful for the victim to inform the harasser directly that
the conduct is unwelcome and must stop. The victim should use any employer complaint
mechanism or grievance system available.” 44
In 1986, the Supreme Court in Meritor Savings v. Vinson stated that it was not necessary
for the plaintiff to establish a causal relationship or quid pro quo between the rejection of
sexual advances and a specific personnel action such as a dismissal or a layoff. 45 Rather,
it was necessary for the plaintiff only to establish that the harassment created unfavorable
or hostile working conditions for him or her. Any workplace conduct that is “sufficiently
severe or pervasive to alter the conditions of employment and create an abusive working
environment” constitutes illegal sexual harassment. 46
The Supreme Court has since provided further clarification on this and other harass-
ment issues. In Harris v. Forklift (1993), Theresa Harris was asked to remove coins from
her boss’s front pocket, was asked to go to the Holiday Inn to “negotiate” her raise, and
was exposed to hundreds of other disgusting suggestions and behaviors. 47 A lower court
determined that Harris had not suffered emotionally from the harassment and thus a hos-
tile working environment was not created. The Supreme Court disagreed, stating that the
psychological effect was unnecessary and that only a “reasonable person” needed to find
it hostile or abusive. The Court also provided some guidance for the lower courts in de-
termining a hostile working environment. The frequency of the behavior or verbal abuse,
its severity, the extent to which it is threatening or humiliating, and whether the abuse
interferes with the employee’s work performance all may be considered in making the
determination of a hostile working environment.
Research on the judicial outcomes of sexual harassment claims identified the following
correlates of favorable legal outcomes for the claimant: (1) when the harassment involved
physical contact of a sexual nature, (2) when sexual propositions were linked to threats
or promises of a change in the conditions of employment, (3) when the claimant notified
management of the problem before filing charges, (4) when the claims were corroborated,
and (5) when the organization had no formal policy toward sexual harassment that had
been communicated to its employees. 48
While The Civil Rights Act of 1991 provides for compensatory and punitive damages (in
addition to back pay) of up to $300,000 for companies with over 500 employees, the price
tag for sexual harassment can be even much higher under state or municipal laws that
may have no ceilings on compensatory or punitive damages. For example, Aaron Rents,
the “rent-to-own” company with more than 1,800 stores, made a profit of $118 million in
2010. But they were ordered to pay over $115 million for findings of sexual harassment
(and punitive damages) against the company under New York state law.
Two 1998 Supreme Court decisions provided clarification on employer liability for
sexual harassment by supervisors. In Burlington Industries, Inc. v. Ellerth and in Fara-
gher v. City of Boca Raton, the Court said that the employer is always liable when a
hostile environment is created by a supervisor that results in a tangible employment
action (e.g., termination). 49 This position was sustained in a later Supreme Court ruling
Meritor Savings v. Vinson
Harris v. Forklift
Legal outcomes in
harassment suits
What Is the Employer’s
Liability in Harassment
Cases?
Burlington Industries
v. Ellerth
Faragher v. City of Boca
RatonC
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1 / Human Resource Management and the Environment
(i.e., Pennsylvania State Police v. Suders ) with the court making it clear that an employer
has no defense when a supervisor does the harassing and an adverse employment action
results. 50 However, the employer may not be liable when there is no tangible employ-
ment action if it can be shown that the employer exercised “reasonable care” in prevent-
ing and correcting the harassing behavior and the plaintiff failed to take advantage of
corrective opportunities that were available. This so-called affirmative defense clearly
indicates that organizations should have sexual harassment policies in place and com-
municated to all employees.
Keep in mind here that sexual harassment lawsuits can be filed based on statutes other
than Title VII and that the legal basis for a lawsuit can affect outcomes. For example, in
2010, the New York Court of Appeals held in Zakrzewska v. The New School that the
“affirmative defense,” available under Title VII, is not available under the New York City
Human Rights Law (NYCHRL). Under the NYCHRL, employers are subject to strict
liability for sexual harassment committed by supervisory employees. 51
Figure 3-7 presents a summary of employer liability for all forms of harassment by
supervisors. Regarding co-workers, the employer will be liable if someone in authority knew
or should have known of the harassment and did nothing to stop it. The courts are generally
clear that this rule applies to any kind of harassment: racial, ethnic, gender, or religious. 52
Employers also may be liable for behaviors committed by nonemployees, clients, tempo-
rary employees, or outside contractors in the workplace if they knew or should have known
about the acts and didn’t take appropriate action. Essentially, the courts have made it clear
that an organization is liable for sexual harassment when management is aware of the ac-
tivity yet does not take immediate and appropriate corrective action.
An employer is not always liable for sexual harassment. For example, a company is
less likely to be found liable under the following conditions: (1) there is a specific policy
on harassment that an employee violated, (2) there is a company grievance procedure that
the complainant did not follow, and (3) the grievance procedure allows the complainant to
bypass the alleged harasser in filing the violation.
The policy has to be acceptable. A policy that requires that a complaint be made through
an immediate supervisor (with no alternatives) is not an acceptable policy. But a good ha-
rassment policy (for any type of harassment) can give an employer legal protection.
In Farley v. American Cast Iron Pipe, the 11th U.S. Circuit Court of Appeals estab-
lished that once an employer has promulgated an effective antiharassment policy, it is
incumbent upon the employees to utilize the procedural mechanisms established by the
company specifically to address problems and grievances. 53
The following “affirmative defense” strategies have been recommended for organiza-
tions: (1) Develop a written policy against sexual harassment, including a definition of
sexual harassment and a strong statement by the CEO that it will not be tolerated (some
courts have concluded that an employer without a harassment policy is sanctioning a hos-
tile environment); (2) Conduct training to make managers aware of the problem (required
in Massachusetts, California, Connecticut, and Maine); (3) Inform employees that they
should expect a workplace free from harassment, and what actions they can take if their
rights are violated; (4) Detail the sanctions for violators and protection for those who
make any charges; (5) Establish a grievance procedure for alleged victims of harassment;
(6) Investigate claims made by victims; and (7) Discipline violators of the policy. 54 On
this last point, companies must be careful. Individuals can claim “unlawful termination”
and have prevailed in cases where they show that they were not treated fairly in the in-
vestigation or the hearing that led to the dismissal. Judgments have been in the millions.
The person being accused of sexual harassment deserves as fair a treatment as that which
is afforded the accuser. Miller Brewing executive Jerold MacKenzie was awarded over
$26 million after he was fired for “sexually harassing” a female employee by describing
an episode of the Seinfeld show.
The sexual harassment policy should stipulate that the policy applies to same-sex harass-
ment as well. In Oncale v. Sundowner Offshore Services, the Supreme Court ruled unani-
mously in 1998 that same-sex harassment was illegal under the CRA. 55
Affirmative Defense
Employer is not
always liable
Farley v. American
Cast Iron Pipe
What Steps Should
a Company Follow
Regarding Sexual
Harassment?
Oncale v. Sundowner
offshore services
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3 / The Legal Environment of HRM: Equal Employment Opportunity
Figure 3-7 Employer Liability for Harassment by Supervisors
1. When does harassment violate federal law ?
Harassment violates federal law if it involves discriminatory treatment based on race, color, sex (with or without sexual conduct),
religion, national origin, age, or disability or because the employee opposed job discrimination or participated in an investigation
or complaint proceeding under the EEO statutes.
Federal law does not prohibit simple teasing, offhand comments, or isolated incidents that are not extremely serious. The conduct must be
sufficiently frequent or severe to create a hostile work environment or result in a “tangible employment action,” such as hiring, firing, promotion,
or demotion.
2. Does the guidance apply only to sexual harassment ?
No, it applies to all types of unlawful harassment.
3. When is an employer legally responsible for harassment by a supervisor?
An employer is always responsible for harassment by a supervisor that culminated in a tangible employment action. If the harass-
ment did not lead to a tangible employment action, the employer is liable unless it proves that: (1) it exercised reasonable care
to prevent and promptly correct any harassment; and (2) the employee unreasonably failed to complain to management or to
avoid harm otherwise.
4. Who qualifies as a “ supervisor ” for purposes of employer liability?
An individual qualifies as an employee’s “supervisor” if the individual has the authority to recommend tangible employment deci-
sions affecting the employee or if the individual has the authority to direct the employee’s daily work activities.
5. What is a “ tangible employment action ”?
A “tangible employment action” means a significant change in employment status. Examples include hiring, firing, promotion, de-
motion, undesirable reassignment, a decision causing a significant change in benefits, compensation decisions, and work assignment.
6. How might harassment culminate in a tangible employment action?
This might occur if a supervisor fires or demotes a subordinate because she rejects his sexual demands or promotes her because
she submits to his sexual demands.
7. What should employers do to prevent and correct harassment ?
Employers should establish, distribute to all employees, and enforce a policy prohibiting harassment and setting out a procedure
for making complaints. In most cases, the policy and procedure should be in writing.
Small businesses may be able to discharge their responsibility to prevent and correct harassment through less formal means. For example, if a
business is sufficiently small that the owner maintains regular contact with all employees, the owner can tell the employees at staff meetings that
harassment is prohibited, that employees should report such conduct promptly, and that a complaint can be brought “straight to the top.” If the
business conducts a prompt, thorough, and impartial investigation of any complaint that arises and undertakes swift and appropriate corrective ac-
tion, it will have fulfilled its responsibility to “effectively prevent and correct harassment.”
8. What should an antiharassment policy say?
An employer’s antiharassment policy should make clear that the employer will not tolerate harassment based on race, sex, religion,
national origin, age, or disability or harassment based on opposition to discrimination or participation in complaint proceedings.
The policy should also state that the employer will not tolerate retaliation against anyone who complains of harassment or who participates in an
investigation. (Retaliation was the second highest charge category, behind race, in 2007.)
9. What are important elements of a complaint procedure ?
The employer should encourage employees to report harassment to management before it becomes severe or pervasive.
The employer should designate more than one individual to take complaints and should ensure that these individuals are in accessible locations.
The employer also should instruct all of its supervisors to report complaints of harassment to appropriate officials. The employer should assure
employees that it will protect the confidentiality of harassment complaints to the extent possible.
10. Is a complaint procedure adequate if employees are instructed to report harassment to their immediate supervisors?
No, because the supervisor may be the one committing harassment or may not be impartial. It is advisable for an employer to
designate at least one official outside an employee’s chain of command to take complaints to ensure that the complaint will be
handled impartially. A policy that requires that the complaint go through the supervisor is unacceptable.
11. How should an employer investigate a harassment complaint?
An employer should conduct a prompt, thorough, and impartial investigation. The alleged harasser should not have any direct or
indirect control over the investigation.
The investigator should interview the employee who complained of harassment, the alleged harasser, and others who could reasonably be ex-
pected to have relevant information. Before completing the investigation, the employer should take steps to make sure that harassment does not
continue. If the parties have to be separated, then the separation should not burden the employee who has complained of harassment. An invol-
untary transfer of the complainant could constitute unlawful retaliation. Other examples of interim measures are making scheduling changes to
avoid contact between the parties or placing the alleged harasser on nondisciplinary leave with pay pending the conclusion of the investigation.
12. How should an employer correct harassment ?
If an employer determines that harassment occurred, it should take immediate measures to stop the harassment and ensure that
it does not recur. Disciplinary measures should be proportional to the seriousness of the offense.
(Continued)C
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1 / Human Resource Management and the Environment
Figure 3-7 (Continued)
13. Does an employee who is harassed by his or her supervisor have any responsibilities ?
Yes. The employee must take reasonable steps to avoid harm from the harassment. Usually, the employee will exercise this re-
sponsibility by using the employer’s complaint procedure.
14. Is an employer legally responsible for its supervisor’s harassment if the employee failed to use the employer’s complaint procedure?
No, unless the harassment resulted in a tangible employment action or unless it was reasonable for the employee not to com-
plain to management. An employee’s failure to complain would be reasonable, for example, if he or she had a legitimate fear of
retaliation. The employer must prove that the employee acted unreasonably.
15. If an employee complains to management about harassment, should he or she wait for management to complete the investigation
before filing a charge with EEOC?
It may make sense to wait to see if management corrects the harassment before filing a charge. However, if management does
not act promptly to investigate the complaint and undertake corrective action, then it may be appropriate to file a charge. The
deadline for filing an EEOC charge is either 180 or 300 days after the last date of alleged harassment, depending on the state in
which the allegation arises. This deadline is not extended because of an employer’s internal investigation of the complaint.
Note: The “affirmative defense” may not be available based on state or municipal statutes.
The California law mandating sexual harassment training for all supervisors of
employers with 50 or more employees took effect in 2006. The law sets specific
standards for the training. The training must be conducted via “classroom or other
effective interactive training” and include the following topics: (1) information and
practical guidance regarding the federal and state statutory provisions concerning the
prohibition against and the prevention of sexual harassment; (2) information about the
correction of sexual harassment and the remedies available to victims of sexual harass-
ment in employment; and (3) practical examples aimed at instructing supervisors in the
prevention of harassment, discrimination, and retaliation. Massachusetts Maine and
Connecticut also have harassment training requirements.
Although there is no one generally recognized definition, affirmative action has to do with
the extent to which employers make an effort through their personnel practices to attract,
retain, and upgrade members of the protected classes of the 1964 Civil Rights Act. Af-
firmative action (AA) may refer to several strategies, including actively recruiting under-
represented groups in a firm, changing management and employee attitudes about various
protected groups, eliminating irrelevant employment practices that bar protected groups
from employment, and granting preferential treatment to protected groups. The term affir-
mative action is related to corporate diversity programs and policies, and the actual HRM
activities defining the old affirmative action programs and the new diversity programs are
similar. The issue of affirmative action and how it is carried out has been identified as a
source of difficulty between HRM professionals and line managers. Whether or not prefer-
ential treatment can or should be granted based on protected class characteristics is at the
heart of the trouble. Diversity is a complex term. The 1990 census included five categories
of ethnicity. The 2000 census included 63 categories. 56
Contractors and subcontractors with more than $50,000 in government business and 50
or more employees not only are prohibited from discriminating, but also must take affirma-
tive action to ensure that applicants and employees are not treated differently as a function
of their sex, religion, race, color, and national origin.
Section 503 of the Rehabilitation Act requires federal contractors to take affirmative
action to employ and advance qualified people with disabilities. Under Executive Order
11246, contractors and subcontractors are required to develop a written affirmative action
plan that is designed to ensure equal employment opportunity. These plans are monitored
by the Office of Contract Compliance Programs (OFCCP) in the U.S. Department of Labor
( www.dol.gov ). Its website includes a sample affirmative action plan. 57 The OFCCP con-
ducted over 4,000 compliance reviews in 2010 and, in 2011, launched a more aggressive
review process called “Active Case Enforcement” (ACE). 58
Mandated harassment
training
What Is Affirmative
Action?
Rehabilitation Act
OFCCP
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Federal courts can order involuntary affirmative action programs, or organizations can
implement voluntary affirmative action without a court mandate. Given the recent personnel
changes (justices) on the Supreme Court, the legality of such programs is now more question-
able than ever. As either part of a judicial decision or the negotiated settlement of a lawsuit,
a court also can order targeted quota hiring. For example, as a part of a negotiated settlement
with the U.S. Forest Service, a California federal judge ordered the Forest Service to hire a set
number of females over a prescribed period. The Forest Service had to submit an annual report
on compliance with the quota and was subject to punitive action for failure to comply.
In 1979, the Supreme Court in U.S. Steelworkers v. Weber approved Kaiser Alumi-
num’s voluntary affirmative action plan because it did not “unnecessarily trammel” the
interests of majority employees and it was a temporary measure that would cease when
blacks reached parity with their representation in the labor market. Lower courts reviewing
subsequent challenges to voluntary affirmative action programs have used the Weber test
to ascertain their legality. 59
It has been argued that affirmative action is appropriate only as a remedy for past
discrimination against specific individuals. The Supreme Court had opposed this narrow
application in early decisions. The 1987 Supreme Court ruling in Johnson v. Santa Clara
Transportation Agency provided some clarity to the remedies that have been pursued under
affirmative action and equal employment opportunity. 60 According to the Court, organiza-
tions may adopt voluntary programs to hire and promote qualified minorities and women to
correct a “manifest imbalance” in their representation in various job categories, even when
there is no evidence of past discrimination. This was the first time that the Supreme Court
explicitly ruled that women as well as blacks and other minorities can receive preferential
treatment. The decision also affects the most common employment situation in the United
States today: work situations where it is difficult or impossible to prove past discrimina-
tion, but a statistical disparity exists in the number of females and minorities in certain
occupations relative to population statistics. Even that decision emphasized that “manifest
imbalance” meant substantial, inexplicable differences in workforce representation. The
decision also emphasized that preferential treatment may only be granted when job can-
didates are judged to be “equally qualified.” Thus, race or gender may be considered to
essentially break a tie under a condition of “manifest imbalance.”
While the majority of the Supreme Court decisions have favored affirmative action and
most forms of preferential treatment, there now appear to be some important qualifiers on
their appropriateness. These qualifiers include (1) affirmative action plans should be “nar-
rowly tailored” to achieve their ends with a timetable for ending the preferential practice,
(2) class-based firing or layoff schemes are too harsh on the innocent and inappropriate in
most circumstances, and (3) preferential personnel practices of any kind are appropriate
only in employment situations where there is a prior history or indication of past discrimi-
nation. Also unclear is the literal meaning of prior discrimination. In its earlier decision in
U.S. Steelworkers v. Weber, the Supreme Court said it was acceptable to use affirmative
action programs to remedy “manifest racial imbalance” regardless of whether an employer
had been guilty of discriminatory job practices in the past.
In two cases involving the University of Michigan in 2004, the Supreme Court provided
some clarity to the issue of affirmative action and college admissions. Both Michigan cases
( Gratz v. Bollinger ; Grutter v. Bollinger ) addressed the question of whether racial prefer-
ence programs unconstitutionally discriminate (based on the Equal Protection Clause of
the U.S. Constitution) against white students. 61
The Court ruled that race can be a factor in college admissions since a social value may
be derived from greater “diversity” in the classroom. However, race cannot be an “over-
riding” factor in admissions decisions. While these twin decisions only directly applied to
public universities, the decisions could have implications for private schools, other govern-
mental decision-making, and perhaps the business world. The impact of both decisions is
that schools have dropped fixed or rigid, point-based systems for admission. Justice Sandra
Day O’Connor, writing for the majority in the law school admissions case ( Grutter ), stated
that the Constitution “does not prohibit the law school’s narrowly tailoring use of race
in admissions decisions to further a compelling interest in obtaining the educational
benefits that flow from a diverse student body.” 62 Justice O’Connor retired in 2006. The
What Is the Legal
Status of Affirmative
Action?
U.S. Steelworkers v. Weber
Voluntary AA programs
Johnson v. Santa Clara
Transportation
“Manifest imbalance”
“Equally qualified”
Gratz v. Bollinger
Grutter v. Bollinger
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Supreme Court took up a case in 2012 (Fisher v. Texas) that may reverse the Grutter ruling.
In reaction to the Supreme Court’s decision in Grutter favoring a form of affirmative
action where race can be a factor in decision making, the state of Michigan amended
its Constitution in 2006 with Proposition 2, banning race and gender preferences in public
education, employment, and contracting. Thus, in Michigan, race and gender can no
longer be used as a factor in admissions for their public universities. Arizona, Nebraska,
and Washington have joined California and Michigan in outlawing preferential treatment
by governments and public agencies in their state.
The courts have clarified criteria for voluntary affirmative action plans. For voluntary
plans, it has been suggested that they (1) be designed to eradicate old patterns of discrimi-
nation, (2) not impose an “absolute bar” to white advancement, (3) be temporary, (4) not
“trammel the interests of white employees,” (5) be designed to eliminate a “manifest racial
imbalance,” and (6) show preference only from a pool of equally qualified candidates. For
involuntary affirmative action programs, it was suggested that preferential treatment is
legal when it (1) is necessary to remedy “pervasive and egregious discrimination”; (2) is
used as a flexible benchmark for court monitoring, rather than as a quota; (3) is temporary;
and (4) does not “unnecessarily trammel the interests of white employees.”
Despite the apparent legal protection for voluntary affirmative action plans, employers
must tread very carefully to avoid “reverse discrimination” lawsuits. Race- or gender-
conscious employment decisions made in the absence of an AA plan may result in a suc-
cessful claim of reverse discrimination by a rejected majority applicant or employee. Even
when OFCCP-approved AA programs exist, managers must ensure that all individuals
meet the stated job requirements and that affirmative action plans are carefully drafted and
followed. The most difficult and legally troublesome issue related to AA is when (and if) a pro-
tected class characteristic may be considered relative to the qualifications of the job candidates.
It is strongly recommended that employers audit their personnel practices, policies, and
decisions for possible “adverse impact” (e.g., 80 percent rule violations) against protected
classes. 63 However, actions taken as a consequence of this audit should be done cautiously.
Nineteen firefighters filed a Title VII lawsuit against New Haven, Connecticut, claiming
that the city discriminated against them with regard to promotion decisions. The firefight-
ers, 17 white and two Hispanic, all passed a promotion exam. The city threw out the test
results (and the test) because none of the black firefighters scored high enough to be con-
sidered for promotion. The city’s argument was that they anticipated a Title VII disparate
impact lawsuit by the black officers because of the anticipated adverse impact against this
protected minority. But complainants argued that they were denied promotions because of
their race, a form of intentional, disparate treatment. In Ricci v. DeStefano, the Supreme
Court ruled that the standard for permissible race-based action under Title VII is that the
employer must “demonstrate a strong basis in evidence that, had it not taken the action,
it would have been liable under the disparate-impact statute.” According to the court, the
respondents did not meet this high standard. Justice Kennedy, writing for the 5-4 majority,
stated that there was no evidence that “the tests were flawed because they were not job-
related or because other, equally valid and less discriminatory tests were available to the
City. Fear of litigation alone cannot justify an employer’s reliance on race to the detriment
of individuals who passed the examinations and qualified for promotions.” 64
Some now argue that Barack Obama’s election in 2008 supports the argument that AA
is now unnecessary because equal employment opportunity already exists. Women and
minorities strongly disagree with this argument. 65 The glass ceiling refers to the lack of
women and minorities in top managerial positions. The various diversity programs are
designed to break down some of these barriers (go to www.ilr.cornell.edu for the Glass
Ceiling Commission archives; also see Catalyst www.catalyst.org for current research doc-
umenting women and diverse women in leadership positions). A 3-year study conducted
by a bipartisan federal commission concluded that women and minorities still face barriers
to their advancement: that is, the glass ceiling. 66
State constitutional
amendments
What Is Required
before a Company
Embarks on a
Voluntary Affirmative
Action/Diversity
Program?
Reverse discrimination
claims
U.S. Office of Contract
Compliance (OFCCP)
Ricci v. DeStefano
Is Affirmative Action
Still Necessary?
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It seems that people tend to favor affirmative action in terms of recruitment, training op-
portunities, and attention to applicant qualifications, rather than using race or gender when
making staffing or admissions decisions. They tend to oppose preferential treatment and
any form of quota-based decision making. 67
THE AGE DISCRIMINATION IN
EMPLOYMENT ACT OF 1967,
AMENDED IN 1978 AND 1986
The Age Discrimination in Employment Act (ADEA) was designed to prohibit age dis-
crimination in employment decisions (e.g., hiring, job retention, compensation, and other
terms and conditions). The law applies to workers over the age of 39. The ADEA applies to
employers with 20 or more employees, unions of 25 or more members, employment agen-
cies, and federal, state, and local governments. There were 23,264 claims of age discrimi-
nation filed in 2010, up almost 7,000 from 2005. The vast majority of the complaints fall
under the “disparate treatment” theory where an individual claimant must prove intentional
discrimination based on age. A 2009 Supreme Court decision made such ADEA claims
even more difficult for individual claimants to prevail using the “disparate treatment”
theory. In Gross v. FBL Financial Services, the Supreme Court held that “a plaintiff bring-
ing a disparate-treatment claim pursuant to the ADEA must prove, by a preponderance
of the evidence, that age was the ‘but-for’ cause of the challenged adverse employment
action . . . the burden of persuasion does not shift to the employer to show that it would
have taken the action regardless of age, even when a plaintiff has produced some evidence
that age was one motivating factor in the decision.” 68
“Disparate impact” theory can now be used in ADEA cases because of the Supreme
Court decision in Smith v. Jackson. In 2008, the Supreme Court, in Meacham v. Atomic
Power , also ruled that an “employer defending a disparate-impact claim under the ADEA
bears both the burden of production and the burden of persuasion for the ‘reasonable fac-
tors other than age’ (RFOA) affirmative defense.” 69 Thus, the burden of proof shifts in
“impact” cases but not in “treatment” cases.
Similar to Title VII cases, there are certain requirements for establishing a prima facie case
of “disparate treatment” age discrimination. These include showing that (1) the employee is a
member of the protected age group (40 or older); (2) the employee has the ability to perform
satisfactorily at some absolute or relative level (e.g., relative to other employees involved in
the decision process or at an absolute standard of acceptability); (3) the employee was not
hired, promoted, or compensated or was discharged, laid off, or forced to retire; and (4) the
position was filled or maintained by a younger person (just younger, not necessarily under
age 40). This second condition is the biggest challenge for the plaintiff and is usually the one
where the plaintiff falls short in establishing a prima facie case due to the usual subjectivity in
comparing individuals. 70 Expert witnesses are often used who present evidence that the plain-
tiff is more qualified than the person (or persons) hired (or retained). Of course, a defendant
can rebut all such claims based on other data or critiques of the plaintiff’s evidence and expert
testimony. Most “disparate treatment” claims fall short here because the evidence presented
to support this condition is often successfully rebutted by the defendant. 71
Once a prima facie case has been established based on the evidence presented by the
plaintiff, the defendant must then present evidence that “reasonable factors” other than age
were the basis of the personnel decision. At this point, appearing to be untruthful or incom-
plete in communications could be costly for employers.
One of the most common scenarios for litigation under ADEA concerns the termination
of an employee because of alleged poor performance. For example, in Mastie v. Great Lakes
Steel Corp., the employer maintained that Mr. Mastie had been discharged in reduction-
in-force efforts because of his poorer performance relative to other employees. 72 Mr. Mastie
presented personnel records reflecting an exemplary performance record and a history of
ADEA lawsuits are up
Gross v. FBL Financial
Services
Smith v. Jackson
Meacham v. Atomic Power
What Is Required
to Establish Prima
Facie Evidence of Age
Discrimination?
Difficult burden
for plaintiffs
Mastie v. Great Lakes Steel
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merit-based salary increases. However, the court found for the employer and said that the
controlling issue is whether age was a determinative factor in the personnel decision, not the
“absolute accuracy” or correctness of the personnel decision. The Gross v. FBL Financial
Services Supreme Court ruling clearly places the burden of proof on the claimant in “treat-
ment” cases. The plaintiff must prove that age was the determinative factor in any employ-
ment decision, even when there is evidence that age played some role in the decision. 73 The
High Court made it clear that it is not the role of the Court to “second guess” employers in
their personnel decisions—that is, did they really discharge the poorest performer or hire the
very best person? So, the critical question in ADEA disparate treatment cases is whether age
was a “determinative factor” in a personnel decision. In individual ADEA “disparate treat-
ment” cases alleging claims of intentional discrimination based on age, it is the plaintiff’s
burden to establish that age was the determinative factor in the decision, which makes it dif-
ficult for plaintiffs to win such individual cases. Congress has recently considered an amend-
ment to the ADEA to make it easier for plaintiffs to prevail in “treatment” cases.
The burden of persuasion does shift to the defendant in “disparate impact” ADEA cases.
As a Fortune magazine writer put it so delicately, “there usually is a ‘business necessity’
for dumping workers over 50.” 74 In fact, the burden on the employer is not as onerous as the
“business necessity” defense required in Title VII impact cases. Rather the burden is a “rea-
sonable factor other than age.” A provocative issue is whether a “reasonable factor other than
age” (RFOA) is compensation; that is, the organization fired the higher paid employees who
just happened to be older. Based on the EEOC’s guidelines regarding RFOAs, this simple
defense would probably be illegal. However, as we already discussed, the EEOC issues
guidelines that are not necessarily adopted or used by the courts to render opinions.
Greyhound Bus Lines survived a court challenge to its rule that it would accept no applicants
over 40 years of age to drive its buses. The company successfully contended that age was a
bona fide occupational qualification (BFOQ) since it was related to the safe conduct of the
busline. 75 Other cases have supported the use of age as a BFOQ. In general, if public safety is
relevant and the employee must be in good physical condition, the courts have supported the
use of age requirements, both in terms of entry-level positions and, more commonly, manda-
tory retirement for certain jobs. Congress specifically exempted public safety personnel, al-
lowing mandatory retirement for police officers and firefighters (usually 55 years of age). The
courts have generally recognized age ceilings as legal BFOQs, but only when the employer
can demonstrate that (l) physical fitness, and especially good aerobic fitness, is important to
the job and (2) the employer applies the same physical fitness standards to employees under
40 as well as to older employees. The EEOC provides the following rules for the imposition
of BFOQs: (1) the age limit is reasonably necessary for the business, (2) all or almost all indi-
viduals over the age are unable to perform adequately, or (3) some people over the age have a
disqualifying characteristic (e.g., health) that cannot be determined independent of age.
One managerial implication is to determine if it is in the employer’s best interests to
impose an age ceiling or mandatory retirement. In 2008, the retirement age for commercial
pilots was raised to 65, the mandatory age used by the rest of the world. Capt. Chesley B.
Sullenberger “splash-landed” US Airways Flight 1549 in the Hudson River on January 15,
2009 and was considered a hero. Two years later, Sully was retired.
Is age the determinative
factor?
ADEA and disparate
impact
Can Employers
Claim Age as a Bona
Fide Occupational
Qualification (BFOQ)?
THE AMERICANS WITH DISABILITIES
ACT OF 1990 (ADA) AMENDED IN 2008
In 1990, Congress passed the Americans with Disabilities Act, which extends the rights
and privileges disabled employees of federal contractors have under the Rehabilitation
Act of 1973 to virtually all employees. Figure 3-8 presents a summary of the ADA, some
excerpts from the law, and a list of the EEOC ADA Enforcement Guidelines and Policy
Documents. You can retrieve these documents at www.eeoc.gov . Keep in mind, however,
that EEOC guidelines are only guidelines and are subject to judicial interpretation. For
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Figure 3-8 A Summary of the ADA and the 2008 Amendments Act; Excerpts from the ADA;
Guidelines Available at eeoc.gov
DISABILITY DISCRIMINATION
Title I of the Americans with Disabilities Act of 1990 prohibits private employers, state and local governments, employment agencies and
labor unions from discriminating against qualified individuals with disabilities in job application procedures, hiring, firing, advancement,
compensation, job training, and other terms, conditions, and privileges of employment. The ADA covers employers with 15 or more employees,
including state and local governments. It also applies to employment agencies and to labor organizations. The ADA’s nondiscrimination
standards also apply to federal sector employees under section 501 of the Rehabilitation Act, as amended, and its implementing rules.
An individual with a disability is a person who:
• Has a physical or mental impairment that substantially limits one or more major life activities (2008 Amendment expands the definition
of “major life activities”).
• Has a record of such an impairment.
• Is regarded as having such an impairment.
A qualified employee or applicant with a disability is an individual who, with or without reasonable accommodation, can perform the
essential functions of the job in question. Reasonable accommodation may include, but is not limited to:
• Making existing facilities used by employees readily accessible to and usable by persons with disabilities.
• Job restructuring, modifying work schedules, reassignment to a vacant position.
• Acquiring or modifying equipment or devices, adjusting or modifying examinations, training materials, or policies, and providing quali-
fied readers or interpreters.
An employer is required to make a reasonable accommodation to the known disability of a qualified applicant or employee if it would not
impose an “undue hardship” on the operation of the employer’s business. Undue hardship is defined as an action requiring significant
difficulty or expense when considered in light of factors such as an employer’s size, financial resources, and the nature and structure of its
operation.
An employer is not required to lower quality or production standards to make an accommodation; nor is an employer obligated to provide
personal use items such as glasses or hearing aids.
Title I of the ADA also covers:
• Medical examinations and inquiries— Employers may not ask job applicants about the existence, nature, or severity of a disability.
Applicants may be asked about their ability to perform specific job functions. A job offer may be conditioned on the results of a medical
examination, but only if the examination is required for all entering employees in similar jobs. Medical examinations of employees must
be job related and consistent with the employer’s business needs.
• Drug and alcohol abuse —Employees and applicants currently engaging in the illegal use of drugs are not covered by the ADA when an
employer acts on the basis of such use. Tests for illegal drugs are not subject to the ADA’s restrictions on medical examinations. Employ-
ers may hold illegal drug users and alcoholics to the same performance standards as other employees.
• Retaliation —It is also unlawful to retaliate against an individual for opposing employment practices that discriminate based on disability
or for filing a discrimination charge, testifying, or participating in any way in an investigation, proceeding, or litigation under the ADA.
Need More Information?
The law:
• Titles I and V of the ADA
The regulations:
• 29 C.F.R Part 1630
• 29 C.F.R Part 1640
• 29 C.F.R Part 1641
EEOC Enforcement Guidances and Policy Documents:
• Veterans with Services-Connected Disabilities in the Workplace and the ADA
• The Family and Medical Leave Act, the ADA, and Title VII of the Civil Rights Act of 1964
• The ADA: A Primer for Small Business
• Your Responsibilities as an Employer
• Your Employment Rights as an Individual with a Disability
• Job Applicants and the ADA
• Small Employers and Reasonable Accommodation
• Work at Home/Telework as a Reasonable Accommodation
• The ADA: Applying Performance and Conduct Standards to Employees with Disabilities
• Obtaining and Using Employee Medical Information as Part of Emergency Evacuation Procedures
• How to Comply with the Americans with Disabilities Act: A Guide for Restaurants and Other Food Service Employers
• Questions and Answers about:
• Diabetes in the Workplace and the ADA
• Epilepsy in the Workplace and the ADA
• Persons with Intellectual Disabilities in the Workplace and the ADA
EXCERPTS FROM ADA
(a) General Rule. No covered entity shall discriminate against a qualified individual with a disability because of the disability of such
individual.
(b) Construction. As used in subsection (a), the term “discrimination” includes:
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Figure 3-8 (Continued)
(1) limiting, segregating, or classifying a job applicant or employee in a way that adversely affects the opportunities or status of such
applicant or employee because of … disability …
(2) participating in a contractual or other arrangement or relationship that has the effect of subjecting a qualified applicant or
employee with a disability to the discrimination prohibited by this title …
(3) not making reasonable accommodations to the known physical or mental limitations of a qualified individual who is an applicant
or employee, unless such covered entity can demonstrate that the accommodation would impose an undue hardship on the op-
eration of the business of such covered entity, and
(4) using employment tests or other selection criteria that screen out or tend to screen out an individual with a disability or a class of
individuals with disabilities unless the test or other selection criteria, as used by the covered entity, is shown to be job-related for
the position in question and is consistent with business necessity.
(c) Medical Examinations and Inquiries.
(1) In general. The prohibition against discrimination as referred to in subsection (a) shall include medical examinations and inquiries.
Definitions
(2) Disability. The term “disability” means, with respect to an individual:
(A) a physical or mental impairment that substantially limits one or more of the major life activities of such individual (The 2008
Amendments Act expands the definition of “major life activities”)
(B) a record of such an impairment, or
(C) being regarded as having such an impairment.
(D) mitigating measures shall not be considered in assessing whether an individual has a disability.
Definitions
(3) Qualified Individual with a Disability. The term “qualified individual with a disability” means an individual with a disability who, with
or without reasonable accommodation, can perform the essential functions of the employment position that such individual holds or
desires.
(4) Reasonable Accommodation. The term “reasonable accommodation” may include:
(A) making existing facilities used by employees readily accessible to and usable by individuals with disabilities, and
(B) job restructuring, part-time or modified work schedules, reassignment to a vacant position, acquisition or modification of
equipment or devices, appropriate adjustment or modifications of examinations, training materials or policies, the provision of
qualified readers or interpreters, and other similar accommodations for individuals with disabilities.
(5) (A) In general. The term “undue hardship” means an action requiring significant difficulty or expense.
(B) Determination. In determining whether an accommodation would impose an undue hardship on a covered entity, factors to be
considered include:
(i) the overall size of the business;
(ii) the type of operation; and
(iii) the nature and cost of the accommodation.
Defenses
(a) Qualification Standards. The term “qualification standards” may include a requirement that an individual with a currently con-
tagious disease or infection shall not pose a direct threat to the health or safety of other individuals in the workplace.
Illegal Drugs and Alcohol
(a) Qualified Individual with a Disability. For purposes of this title, the term “qualified individual with a disability” shall not include
any employee or applicant who is a current user of illegal drugs …
(b) Authority of Covered Entity. A covered entity:
(1) may prohibit the use of alcohol or illegal drugs at the workplace by all employees;
(2) may require that employees shall not be under the influence of alcohol or illegal drugs at the workplace;
(3) may require that employees behave in conformance with the requirements established under “The Drug-Free Workplace
Act” (41 U.S.C. 701 et seq.) [See Chapter 14.];
(4) may hold an employee who is a drug user or alcoholic to the same qualification standards for employment or job performance
and behavior that such entity holds other employees …
(c) Drug Testing.
(1) In general. For purposes of this title, a test to determine the use of illegal drugs shall not be considered a medical examination.
example, in 2002, the EEOC had to amend its guidelines on “reasonable accommodation”
based on a Supreme Court ruling. The EEOC also issues new regulations, so be sure to
monitor the EEOC website for changes. The EEOC received 25,165 charges of disability
discrimination in fiscal year 2010 (almost 10,000 more than in 2000). This increase is
probably mainly due to the ADA Amendments Act of 2008 (ADAAA).
The ADA provides that qualified individuals with disabilities may not be discriminated
against by a private-sector organization or a department or agency of a state or local gov-
ernment employing 15 or more employees, if the individual can perform the essential func-
tions of the job with or without reasonable accommodation. Reasonable accommodations
are determined on a case-by-case basis and may include reassignment, part-time work,
Essential functions
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and flexible schedules. They also may include providing readers, interpreters, assistants,
or attendants. No accommodation is required if an individual is not otherwise qualified for
the position. The EEOC Policy Guidance on Reasonable Accommodation Under ADA sug-
gests the following process for assessing “reasonable accommodation.”
1. Look at the particular job involved; determine its purpose and its essential functions.
2. Consult with the individual with the disability to identify potential accommodations.
3. If several accommodations are available, preference should be given to the indi-
vidual’s preferences.
Public facilities such as restaurants, doctor’s offices, pharmacies, grocery stores, shopping
centers, and hotels must be made accessible to people with disabilities unless undue hard-
ship would occur for the business. It is not clear, however, how exactly organizations will
show “undue hardship,” although the law suggests that a reviewing court compare the cost
of the accommodation with the employer’s operating budget.
The three areas of disability that are the most common for ADA claims as of 2011 are
various mental difficulties (e.g., depression, attention deficit disorder), headaches, and back-
aches. The most common personnel action has been termination. While many claims of men-
tal duress and headaches are undoubtedly legitimate, there is no question that some people
have taken advantage of the ambiguity in the law to make costly and unwarranted claims.
The EEOC approved enforcement guidelines on preemployment disability-related inqui-
ries and medical exams under ADA. The guidelines state that “the guiding principle is that
while employers may ask applicants about the ability to perform job functions, employers
may not ask about disability.” For example, a lawful question would be: “Can you perform
the functions of this job with or without reasonable accommodation?” But it is unlawful
for an employer to ask questions related to a disability, such as “Have you ever filed for
worker’s compensation?” or “What prescription drugs do you take?” or “Have you ever
been treated for mental illness?” After an employer has made an offer and an applicant
requests accommodation, the employer may “require documentation of the individual’s
need for, and entitlement to, reasonable accommodations.”
There has been a great deal of litigation under ADA since the law took effect for most em-
ployers, and the Supreme Court has been very much involved in attempting to clarify the law
and its implications. Perhaps the most important issue is what constitutes a disability under ADA.
Bonnie Cook was a 300-pound Rhode Island woman who was rejected for an attendant’s
job at a school for the mentally retarded. She sued, claiming her obesity was a disability un-
der ADA. 76 The EEOC now takes the position that basic obesity, without any other under-
lying condition, sufficiently impacts the life activities of bending, walking, digestion, cell
growth, and so on, to qualify as a disability or perceived disability under the ADA Amend-
ments Act (ADAAA). 77 The courts have deferred to the EEOC’s position on this matter.
Two Supreme Court rulings probably had the most to do with the passage of the 2008
ADAAA. The first case, Sutton v. United Air Lines, 78 established that courts can consider
remedial aids, such as eyeglasses for poor eyesight or medication for high blood pressure,
to mitigate impairments when determining whether an individual has a disability under the
ADA. Contrary to the EEOC’s interpretive guidance on the issue, the Court ruled that the
mitigating measures used by an employee must be taken into account in judging whether
an individual has a disability under the ADA. Thus, the Court reasoned, because a person’s
eyeglasses corrected an impairment, that person was not disabled under the ADA and thus
had no standing in an ADA lawsuit.
The second case, Toyota v. Williams, considered the degree that impairments can be
considered to “substantially” interfere with a person’s daily activities and therefore require
coverage under the ADA. In Toyota, the Court held that the plaintiff was limited by carpal
tunnel syndrome only in certain activities that were not considered major life activities, as
the plaintiff was able to perform other nonmanual work duties. 79 Again, the court ruled that
Ms. Williams was thus not disabled under the law.
The ADAAA makes important changes to the definition of the term disability by reject-
ing the holdings of these Supreme Court decisions. While retaining the basic definition
EEOC guidelines
Common area of
disability claims
What Is Legal and
Illegal under ADA?
ADAAA
Sutton v. United Air Lines
Toyota v. Williams
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of disability as an impairment that substantially limits one or more major life activities,
a record of such an impairment, or being regarded as having such an impairment, this
amendment changes the way that these terms should be interpreted. In addition to direct-
ing the EEOC to revise its regulations defining the term substantially limits, the ADAAA
emphasizes that the definition of disability should be interpreted broadly (go to www.eeoc
.gov for information on ADA-related action pursuant to this law).
The ADA Amendments Act expands the definition of “major life activities” by including
those activities that the EEOC had recognized (e.g., walking) and adding other activities that
EEOC had not specifically recognized (e.g., reading, bending, and communicating). In addi-
tion, a second list is stipulated in the amendment that includes major bodily functions (e.g.,
“functions of the immune system, normal cell growth, digestive, bowel, bladder, neurologi-
cal, brain, respiratory, circulatory, endocrine, and reproductive functions”).
The ADA amendment also states that mitigating measures other than “ordinary eye-
glasses or contact lenses” shall not be considered in assessing whether an individual has a
disability and that an impairment that is episodic or in remission is a disability if it would
substantially limit a major life activity when active. 80 The ADAAA is probably mainly
responsible for the increase in ADA lawsuits since 2010.
Major life activities
Mitigating measures
GENETIC INFORMATION
NONDISCRIMINATION ACT (GINA)
The Genetic Information Nondiscrimination Act (GINA) became law in 2008. 81 The legis-
lation is designed to address concerns that workers could be denied employment or job ben-
efits due to a predisposition for a genetic disorder. There were 201 charges of discrimination
filed under GINA in fiscal year (FY) 2010. GINA has the following major provisions.
1. GINA prohibits insurers from denying coverage to patients.
2. GINA prohibits employers from making hiring, firing, or promotional decisions
based on genetic test results.
Figure 3-9 presents a summary of GINA protections, exceptions, and remedies. Sup-
porters of the new law, which evolved over 13 years of legislative work, proclaim that
GINA will help usher in an age of genetic medicine where DNA tests will help predict if a
person is at risk for a particular disease so as to take action in order to prevent it. The EEOC
issued a final rule regarding GINA enforcement in 2009. 82
DNA testing
Figure 3-9 Genetic Information Nondiscrimination ACT of 2008 (GINA)
Nondiscrimination in Employment —GINA prohibits an employer from discriminating against an individual in the hiring, firing,
compensation, terms, or privileges of employment on the basis of genetic information of the individual or family member of the individual.
An employer would also be prohibited from limiting, segregating, or classifying an employee in any fashion that would deprive the
employee of any employment opportunities or adversely affect the status of the employee because of the employee’s genetic information
(or the genetic information of the family member of the individual).
Health Care Coverage Protections —GINA prohibits an insured or self-insured health care plan from denying eligibility to enroll for
health care coverage or from adjusting premium or contribution rates under a plan based on an individual or family member’s genetic
information. Health care plans cannot require an individual or a family of a plan participant to undergo a genetic test to be eligible for
coverage under a health care plan or maintain enrollment restrictions based on the need for genetic services.
Exceptions for Genetic Testing for Health Care Treatment —GINA allows a health care professional to request that a patient undergo a
genetic test or advise a patient on the provision of genetic tests or services through a wellness program.
Remedies for Violations of the Health Care Coverage Provisions —GINA allows plan participants to receive injunctive relief under the
Employee Retirement Income Security Act (ERISA) and to have health care coverage reinstated back to the date of loss of coverage. Plan
administrators could be personally liable for discriminating in coverage decisions and be assessed a penalty of $100 per day for the period of
noncompliance. Plans could be fined a minimum penalty of $2,500 to $15,000 for violations up to a total of $500,000 for multiple violations.
Confidentiality of Genetic Health Care Information —GINA provides that the disclosure of protected genetic health care information is
governed by the medical privacy requirements of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). GINA allows
injunctive relief for violations of the confidentiality provisions of the bill. For violations of the privacy provisions of the bill, civil monetary
penalties of $100 per day up to $250,000 and 10 years in prison for egregious violations.
State Genetic Law Preemption —GINA allows state laws that are more stringent in the requirements, standards, or implementations then
those contained in GINA to supersede the federal act. Most states have genetic testing laws.
Definition of Family Member —GINA defines a family member as the:
(1) spouse of the individual;
(Continued)
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(2) a dependent child of the individual, including a child who is born to or placed for adoption with the individual; or
(3) parent, grandparent, or great-grandparent.
Restrictions on Collecting Genetic Information —GINA forbids an employer from requesting, requiring, or purchasing genetic
information of the individual or family member except
(1) where the employer inadvertently requests or requires the information,
(2) for genetic services offered by the employer (including wellness programs),
(3) for purposes of complying with the Family and Medical Leave Act, and
(4) where the employer purchases documents that are commercially available. GINA also limits or expand the protections, rights, or
obligations of employees or employers under workers’ compensation laws.
Genetic Monitoring in the Workplace Exception —GINA allows for genetic monitoring of biological effects of toxic substances in the
workplace, but only if
(1) the employer provides written notice of the monitoring to the employee;
(2) the employee agrees to the monitoring in writing or the monitoring is required by federal, state, or local law;
(3) the employee is informed of the results of the test;
(4) the monitoring conforms to any federal or state law, including rules promulgated by OSHA; and
(5) the employer receives the results of the tests in aggregate terms. Employers also may offer genetic services to the employee, but
only if the services are voluntary and shared only with the employee or family member of the employees.
PREGNANCY DISCRIMINATION
ACT OF 1978
A total of 6,119 charges of Pregnancy Discrimination Act (PDA) violations were filed
with the EEOC in 2010, up 5 percent since 2007. The PDA prohibits employment prac-
tices that discriminate on the basis of pregnancy, childbirth, or related medical conditions
(e.g., abortion). This means that a woman is protected from being fired or refused a job
or promotion simply because she is pregnant or has had an abortion. She also cannot be
forced to take a leave of absence as long as she is able to work. What about refusing to hire
a woman because she may become pregnant soon? Can’t do that either. An employer may
not use potential pregnancy as a basis for a decision. For example, the retailer Motherhood
Maternity recently settled a PDA complaint with the EEOC in which it was alleged that
it refused to hire pregnant women. The company agreed to a 3-year consent decree that
included training employees on the law and its prohibitions. 83
Pregnant women must be treated in the same manner as other applicants (or employees)
with similar abilities. Like the ADA, the PDA stipulates that an employer cannot refuse to hire
a pregnant woman if she can perform the essential functions of the job. What about a pregnant
woman who freely admits that she plans to take a leave 3 months after her starting date? Surely
this is a “job-related” reason to not hire her? While this may be costly to the employer, in fact
the employer cannot consider either her pregnancy or her impending leave in a hiring decision.
Under the law, women are not guaranteed the same job or, indeed, any job when they re-
turn from their pregnancy leave. However, most U.S. companies have adopted either a “same
job,” “comparable job,’’ or “some job” policy for women who wish to return to work. The
employer must adopt such a policy with consideration to the disparate treatment theory of
Title VII, and pregnancy should be treated like any other disability. In other words, if other
employees on disability leave are entitled to return to their jobs when they are able to work
again, then so should women who have been unable to work due to pregnancy.
The PDA also requires that employers must provide benefit coverage for pregnancy
as fully as for other medical conditions. In other words, a woman unable to work for
pregnancy-related reasons is entitled to disability benefits or sick leave on the same basis
as other employees unable to work for medical reasons.
The PDA does not prohibit states from requiring additional benefits for pregnant em-
ployees. The Supreme Court, for example, upheld a California law that required employers
to provide up to 4 months’ unpaid pregnancy disability leave with guaranteed reinstate-
ment, even though disabled males were not entitled to the same benefit. The Family and
Medical Leave Act, discussed in Chapter 10, provides additional protection related to
pregnancy. Figure 3-10 presents a summary of the PDA.
Benefit coverage
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Figure 3-10 Pregnancy Discrimination
The Pregnancy Discrimination Act is an amendment to Title VII of the Civil Rights Act of 1964. Discrimination on the basis of pregnancy,
childbirth, or related medical conditions constitutes unlawful sex discrimination under Title VII, which covers employers with 15 or more
employees, including state and local governments. Title VII also applies to employment agencies and to labor organizations, as well as
to the federal government. Women who are pregnant or affected by related conditions must be treated in the same manner as other
applicants or employees with similar abilities or limitations.
Title VII’s pregnancy-related protections include:
• Hiring —An employer cannot refuse to hire a pregnant woman because of her pregnancy, because of a pregnancy-related condition, or
because of the prejudices of co-workers, clients, or customers.
• Pregnancy and maternity leave —An employer may not single out pregnancy-related conditions for special procedures to determine an
employee’s ability to work. However, if an employer requires its employees to submit a doctor’s statement concerning their inability to
work before granting leave or paying sick benefits, the employer may require employees affected by pregnancy-related conditions to
submit such statements.
If an employee is temporarily unable to perform her job due to pregnancy, the employer must treat her the same as any other
temporarily disabled employee. For example, if the employer allows temporarily disabled employees to modify tasks, perform alternative
assignments, or take disability leave or leave without pay, the employer also must allow an employee who is temporarily disabled due to
pregnancy to do the same.
Pregnant employees must be permitted to work as long as they are able to perform their jobs. If an employee has been absent from work
as a result of a pregnancy-related condition and recovers, her employer may not require her to remain on leave until the baby’s birth. An
employer also may not have a rule that prohibits an employee from returning to work for a predetermined length of time after childbirth.
Employers must hold open a job for a pregnancy-related absence the same length of time jobs are held open for employees on sick or
disability leave.
• Health insurance —Any health insurance provided by an employer must cover expenses for pregnancy-related conditions on the same
basis as costs for other medical conditions. Health insurance for expenses arising from abortion is not required, except where the life of
the mother is endangered.
Pregnancy-related expenses should be reimbursed exactly as those incurred for other medical conditions, whether payment is on a fixed
basis or a percentage of reasonable-and-customary-charge basis.
The amounts payable by the insurance provider can be limited only to the same extent as amounts payable for other conditions. No
additional, increased, or larger deductible can be imposed.
Employers must provide the same level of health benefits for spouses of male employees as they do for spouses of female employees.
• Fringe Benefits —Pregnancy-related benefits cannot be limited to married employees. In an all-female workforce or job classification, ben-
efits must be provided for pregnancy-related conditions if benefits are provided for other medical conditions.
If an employer provides any benefits to workers on leave, the employer must provide the same benefits for those on leave for
pregnancy-related conditions.
Employees with pregnancy-related disabilities must be treated the same as other temporarily disabled employees for accrual and
crediting of seniority, vacation calculation, pay increases, and temporary disability benefits.
It is also unlawful to retaliate against an individual for opposing employment practices that discriminate based on pregnancy or for filing
a discrimination charge, testifying, or participating in any way in an investigation, proceeding, or litigation under Title VII.
Need More Information?
The law:
• Title VII of the Civil Rights Act
The regulations:
• 29 C.F.R Part 1604
The EEOC has also issued guidance on:
• The Family and Medical Leave Act, the Americans with Disabilities Act, and Title VII of the Civil Rights Act of 1964
ARE EXPATRIATES COVERED BY
FEDERAL EEO LAWS WHEN THEY
ARE ASSIGNED TO COUNTRIES
OTHER THAN THE UNITED STATES?
Figure 3-11 presents guidelines to help multinational employers determine their obliga-
tions under EEO laws. In general, the Civil Rights Act, the ADEA, and the ADA all have
extraterritoriality. This means that an American working for an American corporation on
foreign soil is covered by these laws. With some exceptions, the laws also apply to resident
aliens working for foreign companies on U.S. soil.
Many U.S. companies have branches, subsidiaries, or joint venture partners throughout
the world. Companies doing business within the countries of the European Union are
subject to the minimum requirements in working conditions and employee representation
and involvement set forth by the European Community (EC). The EC sets policy with
respect to working time, labor unions (aka “European Work Councils”), and other social
protections and Member States transpose this Community law into their own national laws.
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Figure 3-11 The Equal Employment Opportunity Responsibilities of Multinational Employers
The globalization of business activity has resulted in employers from around the world assigning increasing numbers of personnel
internationally. The following general guidance is intended to help multinational employers determine their obligations under U.S. equal
employment opportunity laws (EEO laws).
OPERATIONS IN THE UNITED STATES OR U.S. TERRITORIES
Multinational employers that operate in the United States or its territories—American Samoa, Guam, the Commonwealth of the Northern
Mariana Islands, Puerto Rico, and the U.S. Virgin Islands—are subject to EEO laws to the same extent as U.S. employers, unless the
employer is covered by a treaty or other binding international agreement that limits the full applicability of U.S. antidiscrimination laws,
such as one that permits the company to prefer its own nationals for certain positions.
OPERATIONS OUTSIDE THE UNITED STATES AND U.S. TERRITORIES
Companies Based in the U.S.
Employers that are incorporated or based in the U.S. or are controlled by U.S. companies and that employ U.S. citizens outside the United
States or its territories are subject to Title VII, the ADEA, and the ADA with respect to those employees. U.S. EEO laws do not apply to non-
U.S. citizens outside the U.S. or its territories.
How to Determine Who Is a U.S. Employer
An employer will be considered to be a U.S. employer if it is incorporated or based in the United States or if it has sufficient connections
with the United States. This is an individualized factual determination that will be based on the following relevant factors:
• The employer’s principal place of business, i.e., the primary place where factories, offices, and other facilities are located.
• The nationality of dominant shareholders and/or those holding voting control.
• The nationality and location of management (the officers and directors of the company).
How to Determine Whether a Company Is “Controlled” by a U.S. Employer
Employers operating outside the United States are covered by Title VII, the ADEA, and the ADA only if they are controlled by a U.S. employer.
Whether a company is controlled by a U.S. employer is also an individualized determination, which will be based on the following relevant factors:
• Whether the operations of the employers are interrelated.
• Whether there is common management.
• Whether there is centralized control of labor relations.
• Whether there is common ownership or financial control.
Foreign Laws Defense
U.S. employers are not required to comply with the requirements of Title VII, the ADEA, or the ADA, if adherence to that requirement
would violate a law of the country where the workplace is located. For example, an employer would have a “Foreign Laws Defense” for a
mandatory retirement policy if the law of the country in which the company is located requires mandatory retirement.
A U.S. employer may not transfer an employee to another country in order to disadvantage the employee because of his/her race, color,
sex, religion, national origin, age, or disability. For example, an employer may not transfer an older worker to a country with a mandatory
retirement age for the purpose of forcing the employee’s retirement.
WHAT U.S. EEO LAWS COVER
The federal EEO laws enforced by the EEOC are Title VII of the Civil Rights Act of 1964 (Title VII), the Age Discrimination in Employment
Act (ADEA), the Americans with Disabilities Act (ADA), and the Equal Pay Act (EPA). These laws prohibit covered employers from
discriminating on the bases of race, color, sex, national origin, religion, age, and disability. Examples of conduct prohibited include:
• Discriminatory employment decisions —Title VII, the ADEA, and the ADA prohibit discrimination in all aspects of the employment relation-
ship including recruitment, hiring, assignment, transfer, firing, layoffs, and other conditions or privileges of employment.
• Discrimination in compensation and benefits —Title VII, the ADEA, and the ADA prohibit discrimination in compensation based on race,
color, sex, national origin, religion, age, and disability. In addition, the EPA prohibits pay discrimination between men and women who
are performing substantially equal work. Although the EPA does not apply outside the United States, such claims are covered by Title
VII, which also prohibits discrimination in compensation on the basis of sex.
• Harassment —Title VII, the ADEA, and the ADA also prohibit offensive conduct that creates a hostile work environment based on race,
color, sex, national origin, religion, age, and disability. Employers are required to take appropriate steps to prevent and correct unlawful
harassment and employees are responsible for reporting harassment at an early stage to prevent its escalation.
• Retaliation —Title VII, the ADEA, the ADA, and the EPA prohibit employers from retaliating against employees because they have op-
posed unlawful discrimination or participated in a discrimination-related proceeding.
Need More Information?
For more detailed information, including a comprehensive discussion of these and other issues, please see:
• EEOC’s Web site at www.eeoc.gov for detailed information on EEO laws. Go to “Laws, Regulations and Policy Guidance” for Compli-
ance Manual Sections and Enforcement Guidance.
• EEOC Enforcement Guidance, “Application of Title VII and the Americans with Disabilities Act to Conduct Overseas and to Foreign Em-
ployers Discriminating in the United States” (1993).
• EEOC Policy Guidance, “Application of the Age Discrimination in Employment Act of 1967 and the Equal Pay Act of 1963 to American
Firms Overseas, Their Overseas Subsidiaries, and Foreign Firms” (1989).
• EEOC Policy Guidance, “Analysis of the sec. 4(f)(1) ’foreign laws’ defense of the Age Discrimination in Employment Act of 1967.”
To be automatically connected to an EEOC field office, call 1-800-669-4000 or TTY 1-800-669-6820. For more information on EEO law in
other countries, see:
• Directorate General for Employment and Social Affairs for the European Union, http://www.europa.eu.int/comm/employment_social/
fundamental_rights/index_en.htm
• Canadian Human Rights Commission http://www.chrc-ccdp.ca
• UK Equal Opportunities Commission http://www.eoc.org.uk
• UK Disability Rights Commission, http://www.drc-gb.org
• UK Commission on Racial Equality, http://www.cre.gov.uk
• Hong Kong Equal Opportunity Commission http://www.eoc.org.hk
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Figure 3-12 Employee Rights When Working for Multinational Employers
As the workplace grows more global and mobile, increased numbers of employers have international operations, resulting in more
international assignments of their employees. The following provides general guidance concerning employees’ rights under the United
States’ equal employment opportunity laws (U.S. EEO laws) when working for multinational employers.
WORK IN THE UNITED STATES AND U.S. TERRITORIES
All employees who work in the U.S. or its territories—American Samoa, Guam, the Commonwealth of the Northern Mariana Islands,
Puerto Rico, and the U.S. Virgin Islands—for covered employers are protected by EEO laws, regardless of their citizenship or work
authorization status. Employees who work in the U.S. or its territories are protected whether they work for a U.S. or foreign employer.
Example:
Kim is a Chinese citizen working in the Commonwealth of the Northern Mariana Islands for a Chinese manufacturer of women’s attire.
Kim’s manager threatens Kim with losing her job if she does not comply with his sexual demands. Kim is protected by U.S. EEO laws
because she works in a U.S. territory. The employer can be held liable for sexual harassment.
WORKING FOR NON-U.S. EMPLOYERS IN THE U.S.
The only exception to the rule that employees working in the U.S. are covered by federal EEO laws occurs when the employer is not a
U.S. employer and is subject to a treaty or other binding international agreement that permits the company to prefer its own nationals for
certain positions.
Example:
ABC Communications is an Egyptian company doing business in the U.S. Under a “friendship, commerce and navigation treaty” (“FCN”)
between the U.S. and Egypt, Egyptian companies operating in the U.S. are authorized to hire Egyptian citizens for executive positions.
Thomas, a U.S. citizen, alleges that he was subjected to national origin discrimination when he was denied a position as Vice President of
Legislative Affairs in favor of Menkure, who is an Egyptian citizen. ABC Communications admits that it favored Menkure because he is an
Egyptian citizen and can successfully assert the FCN treaty as a defense.
However, if Menkure were not an Egyptian citizen but a citizen of the U.S. or a third country, ABC would not have the treaty as a defense
because the treaty authorizes a preference only for Egyptian citizens.
WORK OUTSIDE THE UNITED STATES
Individuals who are not U.S. citizens are not protected by U.S. EEO laws when employed outside the U.S. or its territories. Consult your
embassy to determine whether EEO laws for other countries exist and whether they apply to your situation.
U.S. citizens who are employed outside the U.S. by a U.S. employer—or a foreign company controlled by an U.S. employer—are protected
by Title VII, the ADEA, and the ADA.
Example:
Isaac is an African-American U.S. citizen working in Africa for a U.S. employer as a customer service manager. Isaac alleges race
discrimination after he was transferred to a less desirable and less public position. The new position involved a loss of pay and lack of
upward career mobility opportunities. The employer admitted that it transferred Isaac because its predominantly white customers did not
want to deal directly with nonwhites. Customer preference is never a defense to violations of U.S. EEO law. The transfer violates Title VII.
Whether a Company Is a U.S. Employer or Controlled by a U.S. Employer
An employer will be considered a U.S. employer if it is incorporated or based in the United States or if it has sufficient connections with
the United States. Several factors help determine whether a company has sufficient connections with the U.S., including the company’s
principal place of business and the nationality of its dominant shareholders and management. Whether a foreign company is controlled by
a U.S. employer will depend on the interrelation of operations, common management, centralized control of labor relations, and common
ownership or financial control of the two entities. For more information, see http://www.eeoc.gov/docs/threshold.html#2-III-B-3-c .
Foreign Laws Defense
U.S. employers are not required to comply with the requirements of Title VII, the ADEA, or the ADA if adherence to that requirement
would violate a law of the country where the workplace is located.
Example:
Sarah is a U.S. citizen. She works as an assistant manager for a U.S. employer located in a Middle Eastern Country. Sarah applies for the
branch manager position. Although Sarah is the most qualified person for the position, the employer informs her that it cannot promote
her because that country’s laws forbid women from supervising men. Sarah files a charge alleging sex discrimination. The employer would
have a “Foreign Laws” defense for its actions if the law does contain that prohibition.
An American employer cannot transfer an employee to another country in order to disadvantage the employee because of race, color,
sex, religion, national origin, age, or disability. For example, an employer may not transfer an older worker to a country with a mandatory
retirement age for the purpose of forcing the employee’s retirement.
What EEO laws apply to an American working for a foreign company operating in the
United States or in another country? Figure 3-12 presents a summary of these rights. In
general, all three laws apply to the American company and protect the American worker.
However, an American working for a foreign company on foreign soil is not protected.
HRM specialists working in these various contexts must be well aware of the various laws
and their applications. A great resource is the global forum of the Society of Human Re-
source Management ( www.SHRMglobal.org ).
What Are Employee
Rights When Working
for Multinational
Employers?
(Continued)
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WHAT U.S. EEO LAWS COVER
The federal EEO laws enforced by the EEOC are Title VII of the Civil Rights Act of 1964 (Title VII), the Age Discrimination in Employment
Act (ADEA), the Americans with Disabilities Act (ADA), and the Equal Pay Act (EPA). These laws prohibit covered employers from
discriminating on the bases of race, color, sex, national origin, religion, age, and disability. Examples of conduct prohibited include:
• Discriminatory employment decisions —Title VII, the ADEA, and the ADA prohibit discrimination in all aspects of the employment relation-
ship, including recruitment, hiring, assignment, transfer, firing, layoffs, and other conditions or privileges of employment.
• Discrimination in compensation and benefits —Title VII, the ADEA, and the ADA prohibit discrimination in compensation based on race,
color, sex, national origin, religion, age, and disability. In addition, the EPA prohibits pay discrimination between men and women who
are performing substantially equal work. Although the EPA does not apply outside the United States, such claims are covered by Title
VII, which also prohibits discrimination in compensation on the basis of sex.
• Harassment —Title VII, the ADEA, and the ADA also prohibit offensive conduct that creates a hostile work environment based on race,
color, sex, national origin, religion, age, and disability. Employers are required to take appropriate steps to prevent and correct unlawful
harassment and employees are responsible for reporting harassment at an early stage to prevent its escalation.
• Retaliation —Title VII, the ADEA, the ADA, and the EPA prohibit employers from retaliating against employees because they have op-
posed unlawful discrimination or participated in a discrimination related proceeding.
FILING A CHARGE
If you believe that you have been discriminated against, you may file a charge with the EEOC. An individual alleging an EEO violation
outside the U.S. should file a charge with the district office closest to his or her employer’s headquarters. However, if you are unsure
where to file, you may file a charge with any EEOC office. For information on filing a charge of discrimination see How to File a Charge of
Employment Discrimination. Charges may be filed in person, or by phone, mail, or facsimile.
Example:
Isaiah is a U.S. citizen working in Canada for a U.S. employer that is headquartered in New York and has an office in Detroit, Michigan.
Isaiah alleges a failure to accommodate his religious beliefs. Although the charge will be processed by the New York District Office because
it is closest to his employer’s headquarters, Isaiah may file the charge in any convenient EEOC office.
American women have equal opportunity legal protection regarding expatriate assign-
ments. While things are clearly improving, the “glass border” still exists where women are
victims of discrimination for important overseas assignments. 84
FUTURE TRENDS IN EEO
The issue of affirmative action may be at the forefront of litigation and legislation in the
years to come. With the plaintiffs’ successes in much-publicized cases and the huge jury
verdicts and settlements, an increasing number of EEO class-action lawsuits are likely,
although the 2011 Supreme Court decision in Wal-Mart Stores, Inc. v. Dukes does place
constraints on the ability of plaintiffs to successfully argue for class certification in some
situations. The number of ADEA class-action cases should increase in the years ahead
due to the aging of the workforce (more workers over 39 years of age) and downturn in
the economy (resulting in more terminations) and because of the Supreme Court rulings in
Smith v . Jackson and Meacham v. Atomic Power allowing “disparate impact” theory and
putting more of the burden of proof on the employer in “disparate impact” cases.
Employment practices liability insurance should become even more common in the years
ahead although premiums already have increased substantially because of the increased risk of
large jury verdicts. A growing area of business-related insurance, some policies make stipula-
tions about how HRM should be practiced as a condition of coverage. Providing training in
EEO laws is often one such condition. Requiring alternative dispute resolution as a condition
of employment is another recommended HRM policy that has gained in popularity.
One trend with regard to management reaction to increased legislation and litigation is in
the area of alternative dispute resolution. As discussed earlier, many large employers
have entered mediation agreements with the EEOC in an effort to expedite the resolution
of employment disputes. Some companies have adopted mandatory arbitration to settle
all claims related to employment. They cite the provisions of the Civil Rights Act of 1991
that allow alternative dispute resolution as an alternative to litigation. Although mandatory
arbitration is controversial, and is opposed by the EEOC, many companies have neverthe-
less adopted this policy. The policy is almost always imposed after a process of mediation.
Alternative Dispute
Resolution: An
Employer Reaction to
Increased Litigation
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Mandatory arbitration requires employees and job applicants to sign a contract in which
they agree to binding arbitration in order to resolve virtually any dispute related to their
employment. With mandatory arbitration, the employee forfeits the right to litigate the
complaint. So, let’s say you feel you were a victim of gender discrimination. With the man-
datory arbitration policy, and after exhausting internal processes, you must submit your
charge to the American Arbitration Association for a hearing and binding decision. If
you refused to sign an arbitration agreement, a company could decide to not hire you and,
in most states, could fire you if you refused to sign a newly imposed policy.
The courts have, in general, supported arbitration as an alternative to litigation in set-
tling employment disputes. Given the likely increases in most forms of EEO litigation,
mediation followed by arbitration may prove to be advantageous to all concerned.
Forced and binding arbitration (as a condition of employment) has been challenged in
court for several reasons related to due process, and some agreements have been thrown
out because they were deemed to be unfair or “unconscionable.” Antonio Jackson filed a
racial discrimination lawsuit against Rent-A-Center Inc. in Nevada. But Mr. Jackson had
signed an arbitration agreement so Rent-A-Center moved to have the complaint dismissed.
As is fairly standard, the arbitration agreement stipulated that any question of whether the
arbitration was enforceable would be decided by an arbitrator. The Supreme Court took up
the question of who has the authority to decide whether a mandatory arbitration agreement
is “unconscionable.” In the 5-4 decision in Rent-A-Center, West, Inc. v. Jackson, the Court
ruled in favor of Rent-A-Center. Writing for the majority, Justice Antonin Scalia con-
cluded that as long as the arbitration agreement designates the decision regarding unfair-
ness to an arbitrator, it should be the arbitrator rather than the court who decides whether
an arbitration clause is unfair or conscionable. 85
A 2011 Supreme Court decision also appears to put constraints on what states may do
regarding the details of arbitration agreements. In AT&T Mobility LLC v. Concepcion, a
5-4 majority decided that the Federal Arbitration Act preempts states from conditioning the
validity of arbitration provisions on the inclusion of specific procedures, including class
arbitration. 86 Thus, parties with unequal bargaining power (e.g., job applicants) may be
limited in their ability to seek judicial review at either the state or the federal level.
ATT v. Concepcion
Despite the confusing array of laws and regulations on EEO, the underlying principle
should be clear. EEO simply means that individuals should be given an equal opportunity
in employment decisions. EEO does not mean preferential treatment for one individual
over another because of race, color, sex, religion, national origin, age, or disability. For in-
stance, white males have won racial and sex discrimination suits against organizations that
have violated Title VII by hiring less-qualified minorities or women. The EEO laws clearly
state that treatment at work and opportunity for work should be unrelated to the race, sex,
age, religion, national origin, and other personal characteristics of individual workers that
are not job related.
Remember that this chapter discusses only federal EEO law and that there are numerous
other state and local laws and labor regulations that can be the bases of a lawsuit. In fact,
the trend is toward more state and local laws that regulate the workplace. In the applicable
chapters, other laws are discussed that affect whom an employer hires (i.e., immigration
laws), labor relations and collective bargaining, workers’ compensation, unemployment
compensation, wages, overtime pay, health and safety issues, whistleblower’s protection,
retirement, employee benefits, rights of privacy, protection against unjust dismissal, and
other issues related to the workplace.
SUMMARY
One Implication of
Increased Litigation:
Better HRM Practices
While the trend of increasing litigation can create competitive problems for U.S.
employers in a global economy, many of the regulations and guidelines for HR practice,
particularly EEO laws, actually encourage more effective HRM practices and underscore
the need for HRM expertise. One large retailer specified that applicants for a district
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manager job for certain regions had to have a minimum of 5 years’ experience as a
district manager from some other retailer. This job specification created a disadvantage
for women and minorities who may have been denied opportunities throughout the retail
industry and thus could not have accumulated the required experience. This is an illustra-
tion of the “glass-ceiling effect,” which refers to invisible barriers for women that serve
as obstacles to moving up the corporate ladder. In addition, an internal study showed
that years of previous experience was unrelated to performance as a district manager.
The company was thus vulnerable to a lawsuit and, based on its own study, would have
great difficulty proving that the 5-year specification was related to job success. The
specification also forced the company to compensate the district manager job at a higher
rate and made it much more difficult to recruit. This combination of facts seems to lead
to a simple conclusion: change the job specification and reduce the number of years of
experience required to be considered for the job. Many times, EEO laws and regulations
and effective HR practices go hand in hand.
The point is that the legality of human resource practices is often related to the effective-
ness of human resource practices as well. Remember that the use of a “validated” selection
model and procedures are “high-performance work practices.” Validated means the pro-
cedures actually predict what the employer intends for them to predict. This is essentially
what EEO law requires regarding the burden on an organization after adverse impact (e.g.,
80 percent rule) is established.
Organizations thus would do well to evaluate all of their HR policies and practices in the
context of the laws and case law and adjust those practices accordingly after their internal
assessment. The result just might be more legally defensible and more effective HR poli-
cies. The old adage, an ounce of prevention is worth a pound of cure, really applies to the
legal issues related to HR.
While the implications of HR-related litigation may be confusing, there can be no ques-
tion that managers will be on relatively safer ground if they adhere to the following strategy
with regard to employment practices: (1) monitor personnel decisions to ensure there is
no evidence of disparate treatment or adverse impact caused by particular personnel prac-
tices; (2) if there are disparities, determine whether the practices causing the disparity are
essential for the business and/or are job related; and (3) eliminate the practices if they are
not job related or replace them with practices that do not cause such a disparity or less of a
disparity. Not only will such a strategy protect managers from EEO claims, it also will lead
to better and more cost-effective personnel decisions. HRM specialists have the expertise
to assist organizations to pursue these strategies.
In general, most would agree that EEO legislation has had positive effects on the oc-
cupational status of minorities and females. An additional benefit is that EEO laws and the
threat of EEO litigation have helped to get managers to “clean up their act” with regard to
personnel policy and practice. While the paperwork may be voluminous and the compli-
ance requirements may seem ominous, there can be little question that EEO laws and regu-
lations have fostered a fairer system of employment opportunity and a more systematic and
valid process for personnel decisions. The efforts of managers in this regard are critical to
organizational effectiveness and their mistakes can be extremely costly. Personnel prac-
tices may be the most heavily regulated area of organizational life today. HRM specialists
in staffing issues cannot learn too much about this vital area.
In the following chapters, there will be much more to say about labor legislation and
employment practices. The importance of EEO issues for virtually all HRM activities
cannot be overstated. Students should consider the implications of the Civil Rights Act,
GINA, the ADEA, the PDA, the ADA, and the myriad of other federal, state, and local
laws when specific HR functions are covered such as job analysis and design (Chapter 4),
planning and recruitment (Chapter 5), personnel selection (Chapter 6), performance ap-
praisal (Chapter 7), training and development (Chapter 8), compensation (Chapter 10), and
incentive pay (Chapter 11).
The content of this chapter is more likely to go out of date faster than any of the others
in this book. In the volatile area of EEO, current, state-of-the-art knowledge is a com-
petitive advantage for any organization. Make sure your knowledge in this area is indeed
current.
Glass-ceiling effect
Legal HR practices are
often the most effective
and valid
EEO laws have fostered
a fairer system
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1 / Human Resource Management and the Environment
Discussion Questions
1. In terms of EEO, how can customer requirements or preferences be used in the
process of hiring people?
2. Given the great economic incentives for plaintiffs’ attorneys today, why is the
EEOC even necessary? Why can’t a person simply be allowed to sue without the
involvement of the EEOC?
3. Describe the procedures required to file a discrimination lawsuit under the
disparate impact and disparate treatment theories. How is adverse impact
determined? Provide a scenario illustrating evidence of adverse impact in an
employment decision.
4. Based on your reading of the major EEO laws, what information should an
employer include in a personnel policies and procedures manual given to all
employees?
5. What has been the impact of the 2008 ADA Amendments Act? Explain your
answer.
6. What steps would you take to prevent ADEA cases after a major restructuring or
reduction in workforce?
7. Would you be less likely to join an organization that required you to agree to
binding arbitration regarding labor disputes and to waive your right to a jury
trial?
8. Should Title VII of the Civil Rights Act be amended to include sexual
orientation? Justify your position.
96
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ber29163_fm_i-xvi
HRMMBA_Unit1Read
ber29163_ch01_001-032
ber29163_ch02_033-058
ber29163_ch03_059-096

<< /ASCII85EncodePages false /AllowTransparency false /AutoPositionEPSFiles true /AutoRotatePages /None /Binding /Left /CalGrayProfile () /CalRGBProfile (sRGB IEC61966-2.1) /CalCMYKProfile (U.S. Web Coated \050SWOP\051 v2) /sRGBProfile (sRGB IEC61966-2.1) /CannotEmbedFontPolicy /Error /CompatibilityLevel 1.4 /CompressObjects /Off /CompressPages true /ConvertImagesToIndexed true /PassThroughJPEGImages true /CreateJobTicket true /DefaultRenderingIntent /Default /DetectBlends true /DetectCurves 0.0000 /ColorConversionStrategy /LeaveColorUnchanged /DoThumbnails true /EmbedAllFonts true /EmbedOpenType false /ParseICCProfilesInComments true /EmbedJobOptions true /DSCReportingLevel 0 /EmitDSCWarnings false /EndPage -1 /ImageMemory 524288 /LockDistillerParams true /MaxSubsetPct 100 /Optimize false /OPM 1 /ParseDSCComments true /ParseDSCCommentsForDocInfo true /PreserveCopyPage true /PreserveDICMYKValues true /PreserveEPSInfo true /PreserveFlatness true /PreserveHalftoneInfo true /PreserveOPIComments false /PreserveOverprintSettings true /StartPage 1 /SubsetFonts true /TransferFunctionInfo /Remove /UCRandBGInfo /Preserve /UsePrologue false /ColorSettingsFile (None) /AlwaysEmbed [ true ] /NeverEmbed [ true ] /AntiAliasColorImages false /CropColorImages true /ColorImageMinResolution 150 /ColorImageMinResolutionPolicy /OK /DownsampleColorImages false /ColorImageDownsampleType /Average /ColorImageResolution 300 /ColorImageDepth 8 /ColorImageMinDownsampleDepth 1 /ColorImageDownsampleThreshold 1.50000 /EncodeColorImages true /ColorImageFilter /FlateEncode /AutoFilterColorImages false /ColorImageAutoFilterStrategy /JPEG /ColorACSImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >>
/ColorImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >>
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/JPEG2000ColorImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >>
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/GrayImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >>
/JPEG2000GrayACSImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >>
/JPEG2000GrayImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >>
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/MonoImageDownsampleType /Average
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/MonoImageDownsampleThreshold 1.50000
/EncodeMonoImages true
/MonoImageFilter /CCITTFaxEncode
/MonoImageDict << /K -1 >>
/AllowPSXObjects false
/CheckCompliance [
/None
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/PDFX1aCheck false
/PDFX3Check false
/PDFXCompliantPDFOnly false
/PDFXNoTrimBoxError true
/PDFXTrimBoxToMediaBoxOffset [
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/PDFXSetBleedBoxToMediaBox true
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/PDFXOutputIntentProfile (None)
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/PDFXTrapped /False
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>> setdistillerparams
<< /HWResolution [2400 2400] /PageSize [612.000 792.000] >> setpagedevice

<< /ASCII85EncodePages false /AllowTransparency false /AutoPositionEPSFiles true /AutoRotatePages /None /Binding /Left /CalGrayProfile () /CalRGBProfile (sRGB IEC61966-2.1) /CalCMYKProfile (U.S. Web Coated \050SWOP\051 v2) /sRGBProfile (sRGB IEC61966-2.1) /CannotEmbedFontPolicy /Error /CompatibilityLevel 1.4 /CompressObjects /Off /CompressPages true /ConvertImagesToIndexed true /PassThroughJPEGImages true /CreateJobTicket true /DefaultRenderingIntent /Default /DetectBlends true /DetectCurves 0.0000 /ColorConversionStrategy /LeaveColorUnchanged /DoThumbnails true /EmbedAllFonts true /EmbedOpenType false /ParseICCProfilesInComments true /EmbedJobOptions true /DSCReportingLevel 0 /EmitDSCWarnings false /EndPage -1 /ImageMemory 524288 /LockDistillerParams true /MaxSubsetPct 100 /Optimize false /OPM 1 /ParseDSCComments true /ParseDSCCommentsForDocInfo true /PreserveCopyPage true /PreserveDICMYKValues true /PreserveEPSInfo true /PreserveFlatness true /PreserveHalftoneInfo true /PreserveOPIComments false /PreserveOverprintSettings true /StartPage 1 /SubsetFonts true /TransferFunctionInfo /Remove /UCRandBGInfo /Preserve /UsePrologue false /ColorSettingsFile (None) /AlwaysEmbed [ true ] /NeverEmbed [ true ] /AntiAliasColorImages false /CropColorImages true /ColorImageMinResolution 150 /ColorImageMinResolutionPolicy /OK /DownsampleColorImages false /ColorImageDownsampleType /Average /ColorImageResolution 300 /ColorImageDepth 8 /ColorImageMinDownsampleDepth 1 /ColorImageDownsampleThreshold 1.50000 /EncodeColorImages true /ColorImageFilter /FlateEncode /AutoFilterColorImages false /ColorImageAutoFilterStrategy /JPEG /ColorACSImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >>
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/JPEG2000ColorACSImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >>
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/JPEG2000GrayImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >>
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/MonoImageDownsampleThreshold 1.50000
/EncodeMonoImages true
/MonoImageFilter /CCITTFaxEncode
/MonoImageDict << /K -1 >>
/AllowPSXObjects false
/CheckCompliance [
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/PDFX1aCheck false
/PDFX3Check false
/PDFXCompliantPDFOnly false
/PDFXNoTrimBoxError true
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/PDFXOutputIntentProfile (None)
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/PDFXTrapped /False
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>> setdistillerparams
<< /HWResolution [2400 2400] /PageSize [612.000 792.000] >> setpagedevice

<< /ASCII85EncodePages false /AllowTransparency false /AutoPositionEPSFiles true /AutoRotatePages /None /Binding /Left /CalGrayProfile () /CalRGBProfile (sRGB IEC61966-2.1) /CalCMYKProfile (U.S. Web Coated \050SWOP\051 v2) /sRGBProfile (sRGB IEC61966-2.1) /CannotEmbedFontPolicy /Error /CompatibilityLevel 1.4 /CompressObjects /Off /CompressPages true /ConvertImagesToIndexed true /PassThroughJPEGImages true /CreateJobTicket true /DefaultRenderingIntent /Default /DetectBlends true /DetectCurves 0.0000 /ColorConversionStrategy /LeaveColorUnchanged /DoThumbnails true /EmbedAllFonts true /EmbedOpenType false /ParseICCProfilesInComments true /EmbedJobOptions true /DSCReportingLevel 0 /EmitDSCWarnings false /EndPage -1 /ImageMemory 524288 /LockDistillerParams true /MaxSubsetPct 100 /Optimize false /OPM 1 /ParseDSCComments true /ParseDSCCommentsForDocInfo true /PreserveCopyPage true /PreserveDICMYKValues true /PreserveEPSInfo true /PreserveFlatness true /PreserveHalftoneInfo true /PreserveOPIComments false /PreserveOverprintSettings true /StartPage 1 /SubsetFonts true /TransferFunctionInfo /Remove /UCRandBGInfo /Preserve /UsePrologue false /ColorSettingsFile (None) /AlwaysEmbed [ true ] /NeverEmbed [ true ] /AntiAliasColorImages false /CropColorImages true /ColorImageMinResolution 150 /ColorImageMinResolutionPolicy /OK /DownsampleColorImages false /ColorImageDownsampleType /Average /ColorImageResolution 300 /ColorImageDepth 8 /ColorImageMinDownsampleDepth 1 /ColorImageDownsampleThreshold 1.50000 /EncodeColorImages true /ColorImageFilter /FlateEncode /AutoFilterColorImages false /ColorImageAutoFilterStrategy /JPEG /ColorACSImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >>
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/MonoImageDict << /K -1 >>
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>> setdistillerparams
<< /HWResolution [2400 2400] /PageSize [612.000 792.000] >> setpagedevice

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/GrayACSImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >>
/GrayImageDict << /QFactor 0.15 /HSamples [1 1 1 1] /VSamples [1 1 1 1] >>
/JPEG2000GrayACSImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >>
/JPEG2000GrayImageDict << /TileWidth 256 /TileHeight 256 /Quality 30 >>
/AntiAliasMonoImages false
/CropMonoImages true
/MonoImageMinResolution 1200
/MonoImageMinResolutionPolicy /OK
/DownsampleMonoImages false
/MonoImageDownsampleType /Average
/MonoImageResolution 1200
/MonoImageDepth -1
/MonoImageDownsampleThreshold 1.50000
/EncodeMonoImages true
/MonoImageFilter /CCITTFaxEncode
/MonoImageDict << /K -1 >>
/AllowPSXObjects false
/CheckCompliance [
/None
]
/PDFX1aCheck false
/PDFX3Check false
/PDFXCompliantPDFOnly false
/PDFXNoTrimBoxError true
/PDFXTrimBoxToMediaBoxOffset [
0.00000
0.00000
0.00000
0.00000
]
/PDFXSetBleedBoxToMediaBox true
/PDFXBleedBoxToTrimBoxOffset [
0.00000
0.00000
0.00000
0.00000
]
/PDFXOutputIntentProfile (None)
/PDFXOutputConditionIdentifier ()
/PDFXOutputCondition ()
/PDFXRegistryName ()
/PDFXTrapped /False
/CreateJDFFile false
>> setdistillerparams
<< /HWResolution [2400 2400] /PageSize [612.000 792.000] >> setpagedevice