Human Resource Management: November 2016

Sunday, November 6, 2016

Enron, Ethics, and Organizational Culture

For many people, a company called Enron Corp. still ranks as one of history's classic examples of ethics run amok. During the 1990s and early 2000s, Enron was in the business of wholesaling natural gas and electricity. Enron made its money as the intermediary (wholesaler) between suppliers and customers. Without getting into all the details, the nature of Enron's business—and the fact that Enron didn't actually own the assets—meant that its profit statements and balance sheets listing the firm's assets and liabilities were unusually difficult to understand.

It turned out that the lack of accounting transparency enabled the company's managers to make Enron's financial performance look much better than it actually was. Outside experts began questioning Enron's financial statements in 2001. In fairly short order, Enron collapsed, and courts convicted several of its top executives of things like manipulating Enron's reported assets and profitability. Many investors (including former Enron employees) lost all or most of their investments in Enron. In Enron's case this breakdown is perhaps more perplexing than usual. As one writer said,

Enron had all the elements usually found in comprehensive ethics and compliance programs: a code of ethics, a reporting system, as well as a training video on vision and values led by [the company's top executives].'³⁵

Experts subsequently put forth many explanations for how a company that was apparently so ethical outwardly could actually have been making so many bad ethical decisions without other managers (and the board of directors) noticing. The explanations ranged from a "deliberate concealment of information by officers," to more psychological explanations (such as employees not wanting to contradict their bosses) and the "surprising role of irrationality in decision-making."'

But perhaps the most persuasive explanation of how an apparently ethical company could go so wrong concerns organizational culture. The reasoning here is that it's not the rules but what employees feel they should do that determines ethical behavior. For example (speaking in general, not specifically about Enron), the executive director of the Ethics Officer Association put it this way:

[W]e're a legalistic society, and we've created a lot of laws. We assume that if you just knew what those laws meant that you would behave properly. Well, guess what? You can't write enough laws to tell us what to do at all times every day of the week in every part of the world. We've got to develop the critical thinking and critical reasoning skills of our people because most of the ethical issues that we deal with are in the ethical gray areas.

Questions

Based on what you read in this chapter, summarize in one page or less how you would explain Enron's ethical meltdown.
It is said that when one securities analyst tried to confront Enron's CEO about the firm's unusual accounting statements, the CEO publicly used vulgar language to describe the analyst, and that Enron employees subsequently thought doing so was humorous. If true, what does that say about Enron's ethical culture?
This case and chapter had something to say about how organizational culture influences ethical behavior. What role do you think culture played at Enron? Give five specific examples of things Enron's CEO could have done to create a healthy ethical culture.

Striking for Benefits

A few years ago, the strike by Southern California grocery workers against the state's major supermarket chains was almost 5 months old. The main issue was employee benefits, and specifically how much (if any) of the employees' health-care costs the employees should pay themselves. Based on their existing contract, Southern California grocery workers had unusually good health benefits. For example, they paid nothing toward their health insurance premiums, and paid only $ 10 co-payments for doctor visits. However, supporting these excellent health benefits cost the big Southern California grocery chains over $4 per hour per worker.

The big grocery chains were not proposing cutting health-care insurance benefits for their existing employees. Instead, they proposed putting any new employees hired after the new contract went into effect into a separate insurance pool, and contributing $1.35 per hour for their health insurance coverage. That meant new employees' health insurance would cost each new employee perhaps $ 10 per week. And, if that $10 per week weren't enough to cover the cost of health care, then the employees would have to pay more, or do without some of their benefits.

It was a difficult situation for all involved. For the grocery chain employers, skyrocketing health-care costs were undermining their competitiveness; the current employees feared any step down the slippery slope that might eventually mean cutting their own health benefits. The unions didn't welcome a situation in which they'd end up representing two classes of employees, one (the existing employees) who had excellent health insurance benefits, and another (newly hired employees) whose benefits were relatively meager, and who might therefore be unhappy from the moment they took their jobs and joined the union.

Questions

Assume you are mediating this dispute. Discuss five creative solutions you would suggest for how the grocers could reduce the health insurance benefits and the cost of their total benefits package without making any employees pay more.
From the grocery chains' point of view, what is the downside of having two classes of employees, one of which has superior health insurance benefits? How would you suggest they handle the problem?
Similarly, from the point of view of the union, what are the downsides of having to represent two classes of employees, and how would you suggest handling the situation?

Source: Based on "Settlement Nears for Southern California Grocery Strike," Knight-Ridder/Tribune Business News, February 26, 2004, item 04057052.

GYC Financial Advisory Pte. Ltd.

GYC (Grow Your Capital) Financial Advisory Pte. Ltd. is a leading provider of financial services in Singapore. GYC was started in the late 1980s by Goh Yang Chye, and has now grown into a one-stop financial services center for both companies and individuals.

GYC has a flexible reward system designed specifically for its four types of staff: the support staff, business development staff, partners and practices, and portfolio executives. The support staff receive monthly salaries and yearly bonuses, with their bonuses being calculated based on three factors: their personal performance, the company's performance, and the industry's performance. The business development staff are those who are responsible for servicing the clients, as well as securing business for the company. They are paid a basic monthly salary, as well as "on-target earnings" that are paid based on a percentage of the revenue from new clients that they bring into the company beyond a certain agreed-upon target. Business development staff also receive discretionary bonuses, which are paid based on a percentage of any recurring fees GYC receives from the clients that they bring to the company.

GYC's partners are experienced individuals, who bring with them a pool of clients. These individuals are in great demand in the financial services industry and often do not wish to be full-time employees of any firm. Upon joining GYC as partners, they receive a percentage of the revenue they help secure for GYC. Practices are similar to partners, except that they have grouped themselves into teams. Some practices are formed internally by partners who joined GYC as individuals. Other practices join GYC as preexisting teams. Like partners, practices are paid a percentage of the money they make for GYC.

Portfolio executives are independent advisors or consultants to GYC. They provide professional advice to GYC on various issues. They are paid regular monthly fees called retainers, and are managed by predefined deliverables. This arrangement works well for GYC as it is able to get good advice and insights from these portfolio executives without having to pay them on a full-time basis. It also ensures that they maintain objectivity in the advice they give to the company.

GYC's reward system also includes nonmonetary benefits like flex- hours and shorter working days in order to attract and retain selected talented staff. This is because some of the staff value flexibility more than financial rewards. There is a need to fine-tune the reward system at GYC. For example, the income of some of the business development staff at GYC can be very significant in good years. Past experience indicates that business development staff are prone to leaving the company after receiving the large windfall. Further, they may actually not want all the money to be paid out in that year because they will be taxed very highly. Another challenge that GYC faces is that there is a tendency for business development staff to take undue risks when their rewards are directly linked to the revenue they bring to the company.

Questions

How do GYC's remuneration packages relate to the various motivation theories?
What are strengths and weaknesses of GYC's remuneration packages?
Portfolio executives are paid based on retainer fees. Is this effective? What else can be done to reward portfolio executives?
What advice would you give to Goh Yang Chye to overcome the remuneration challenges GYC faces?

Source: This case is based on an interview with the managing director, Gol Yang Chye.

Carter Cleaning Company

The New Pay Plan

Carter Cleaning Centers does not have a formal wage structure nor does it have rate ranges or use compensable factors. Wage rates are based mostly on those prevailing in the surrounding community and are tempered with an attempt on the part of Jack Carter to maintain some semblance of equity between what workers with different responsibilities in the stores are paid.

Carter does not make any formal surveys when determining what his company should pay. He peruses the want ads almost every day and conducts informal surveys among his friends in the local chapter of the laundry and cleaners trade association. While Jack has taken a "seat-of- the-pants" approach to paying employees, his salary schedule has been guided by several basic pay policies. Although many of his colleagues adhere to a policy of paying minimum rates, Jack has always followed a policy of paying his employees about 10% above what he feels are the prevailing rates, a policy that he believes reduces turnover while fostering employee loyalty. Of somewhat more concern to Jennifer is her father's informal policy of paying men about 20% more than women for the same job. Her father's explanation is, "They're stronger and can work harder for longer hours, and besides they all have families to support."

Questions

Is the company at the point where it should be setting up a formal salary structure based on a complete job evaluation? Why?
Is Jack Carter's policy of paying 10% more than the prevailing rates a sound one, and how could that be determined?
Similarly, is Carter's male-female differential wise? If not, why not?
Specifically, what would you suggest Jennifer do now with respect to her company's pay plan?

Salary Inequities at AstraZeneca

More than 50 years after passage of the Equal Pay Act, women in America still earn about 80 cents for every dollar earned by a man. That adds up to a loss for the average female worker of about $380,000 over a lifetime.

Recently, the U.S. Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) entered into an agreement with AstraZeneca, a large international pharmaceuticals firm, for the company to pay some of its female sales associates a total of $250,000."AstraZeneca had a contract valued at over $2 billion with the U.S. Department of Veterans Affairs to provide drugs to hospitals around the country. That made it subject to Executive Order 11246, which aims to ensure that employees of U.S. contractors and subcontractors with federal contracts pay their employees fairly without regard to sex, race, color, religion, and national origin.

After conducting a compliance review, the OFCCP concluded that AstraZeneca violated Executive Order 11246 by failing to ensure certain women employees were paid fairly. According to the OFCCP lawsuit, an AstraZeneca Business Center had routinely paid some of its female "primary care" and "specialty care" level III pharmaceutical sales specialists an average of $1,700 less than men with the same positions.

Because of the company's pay secrecy policies, many of the women didn't know they were being paid less. In addition to the financial settlement, AstraZeneca and OFCCP will review records of the firm's female employees in 14 states. If they find additional statistical evidence of wage discrimination, the company must remedy it.

Questions

AstraZeneca has brought you in as a compensation consultant. Here are the questions they would like you to answer for them:

11-19. Although the case with OFCCP is closed, we wonder if there are any less discriminatory explanations possible for why our women sales reps on average earned less than men. If so, what are they?

11-20. Our own company now uses a point method to evaluate jobs for pay purposes, and each resulting job class also has a rate range associated with it. Sales associates are now paid a salary that is not based on incentive pay. List three specific things we can do to ensure that a similar problem (inequitable pay based on gender) does not arise again, assuming they continue using the point plan.

11-21. What sort of compensation plan would you recommend for us, and why?

Thursday, November 3, 2016

GYC Financial Advisory Pte. Ltd.

Questions

12-22. How do GYC's remuneration packages relate to the various motivation theories?

12-23. What are strengths and weaknesses of GYC's remuneration packages?

12-24. Portfolio executives are paid based on retainer fees. Is

this effective? What else can be done to reward portfolio executives?

12-25. What advice would you give to Goh Yang Chye to overcome the remuneration challenges GYC faces?

Source: This case is based on an interview with the managing director, Goh Yang Chye.

Salary Inequities at AstraZeneca

Recently, the U.S. Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) entered into an agreement with AstraZeneca, a large international pharmaceuticals firm, for the company to pay some of its female sales associates a total of $250,000.¹¹⁹AstraZeneca had a contract valued at over $2 billion with the U.S. Department of Veterans Affairs to provide drugs to hospitals around the country. That made it subject to Executive Order 11246, which aims to ensure that employees of U.S. contractors and subcontractors with federal contracts pay their employees fairly without regard to sex, race, color, religion, and national origin.

Questions

AstraZeneca has brought you in as a compensation consultant. Here are the questions they would like you to answer for them:

11-19. Although the case with OFCCP is closed, we wonder if there are any less discriminatory explanations possible for why our women sales reps on average earned less than men. If so, what are they?

11-20. Our own company now uses a point method to evaluate

jobs for pay purposes, and each resulting job class also has a rate range associated with it. Sales associates are now paid a salary that is not based on incentive pay. List three specific things we can do to ensure that a similar problem (inequitable pay based on gender) does not arise again, assuming they continue using the point plan.

11-21. What sort of compensation plan would you recommend for us, and why?

Goelectrix

Today, France has a minimal "hire-and-fire" culture. The French government strengthened the entrepreneurial relationship between employers and employees by enacting new legislation. Self-employment is possible without red tapism or financial constraints, like paying fixed taxes based on previously declared incomes. Such an individual is "L'autoentrepreneur"— self-employed entrepreneur, or "SEE." Goelectrix, a small start-up in the south of France, began as a response to a potential increase in demand for electric vehicles. In April 2011, electric car sales in France were up to 187 registrations. Goelectrix imports cars from Italy; small, off-road vehicles from Spain; and scooters from the Netherlands and China, with exclusive rights to market them in southern France.

Goelectrix employs five to ten people a year, including a sales force of four. The salespersons are compensated according to the number of direct sales and potential accounts within the regional business community. The main advantage in using SEEs: being able to respond quickly when matching qualified individuals with seasonal demand, when numerous clients have to manage an increasing number of customers. It reduces administrative costs accrued because SEEs invoice their services but manage their own pay.

Questions

10-24. To what extent do SEEs in small companies, like Goelectrix, reduce full-time employee engagement? Justify.

10-25. Can a small company manage talent in a difficult economic context? Referring to this chapter, explain how.

Wednesday, November 2, 2016

Appraising the Secretaries at Sweetwater U

Rob Winchester, newly appointed vice president for administrative affairs at Sweetwater State University, faced a tough problem shortly after his university career began. Three weeks after he came on board in September, Sweetwater's president, Rob's boss, told Rob that one of his first tasks was to improve the appraisal system used to evaluate secretarial and clerical performance at Sweetwater U. The main difficulty was that the performance appraisal was traditionally tied directly to salary increases given at the end of the year. Therefore, most administrators were less than accurate when they used the graphic rating forms that were the basis of the clerical staff evaluation. In fact, what usually happened was that each administrator simply rated his or her clerk or secretary as "excellent." This cleared the way for them to receive a maximum pay raise every year.

But the current university budget simply did not include enough money to fund another "maximum" annual raise for every staffer. Furthermore, Sweetwater's president felt that the custom of providing invalid feedback to each secretary on his or her year's performance was not productive, so he had asked the new vice president to revise the system. In October, Rob sent a memo to all administrators, telling them that in the future no more than half the secretaries reporting to any particular administrator could be appraised as "excellent." This move, in effect, forced each supervisor to begin ranking his or her secretaries for quality of performance. The vice president's memo met widespread resistance immediately—from administrators, who were afraid that many of their secretaries would begin leaving for more lucrative jobs, and from secretaries, who felt that the new system was unfair and reduced each secretary's chance of receiving a maximum salary increase. A handful of secretaries had begun picketing outside the president's home on the university campus. The picketing, caustic remarks by disgruntled administrators, and rumors of an impending slowdown by the secretaries (there were about 250 on campus) made Rob Winchester wonder whether he had made the right decision by setting up forced ranking. He knew, however, that there were a few performance appraisal experts in the School of Business, so he decided to set up an appointment with them to discuss the matter.

He met with them the next morning. He explained the situation as he had found it: The current appraisal system had been set up when the university first opened 10 years earlier. A committee of secretaries had developed it. Under that system, Sweetwater's administrators filled out forms similar to the one shown in Table 9-2. This once- a-year appraisal (in March) had run into problems almost immediately, since it was apparent from the start that administrators varied widely in their interpretations of job standards, as well as in how conscientiously they filled out the forms and supervised their secretaries. Moreover, at the end of the first year it became obvious to everyone that each secretary's salary increase was tied directly to the March appraisal. For example, those rated "excellent" received the maximum increases, those rated "good" received smaller increases, and those given neither rating received only the standard across-the-board cost- of-living increase. Since universities in general—and Sweetwater, in particular—have paid secretaries somewhat lower salaries than those prevailing in private industry, some secretaries left in a huff that first year. From that time on, most administrators simply rated all secretaries excellent in order to reduce staff turnover, thus ensuring each a maximum increase. In the process, they also avoided the hard feelings aroused by the significant performance differences otherwise highlighted by administrators.

Two Sweetwater experts agreed to consider the problem, and in 2 weeks they came back to the vice president with the following recommendations. First, the form used to rate the secretaries was grossly insufficient. It was unclear what "excellent" or "quality of work" meant, for example. They recommended instead a form like that in Figure 9-4. In addition, they recommended that the vice president rescind his earlier memo and no longer attempt to force university administrators to arbitrarily rate at least half their secretaries as something less than excellent. The two consultants pointed out that this was unfair, since it was quite possible that any particular administrator might have staffers who were all or virtually all excellent—or conceivably, although less likely, all below standard. The experts said that the way to get all the administrators to take the appraisal process more seriously was to stop tying it to salary increases. In other words, they recommended that every administrator fill out a form as in Figure 9-4 for each secretary at least once a year and then use this form as the basis of a counseling session. Salary increases would have to be made on some basis other than the performance appraisal, so that administrators would no longer hesitate to fill out the rating forms honestly.

Rob thanked the two experts and went back to his office to ponder their recommendations. Some of the recommendations (such as substituting the new rating form for the old) seemed to make sense. Nevertheless, he still had serious doubts as to the efficacy of any graphic rating form, particularly compared with his original, preferred forced ranking approach. The experts' second recommendation—to stop tying the appraisals to automatic salary increases—made sense but raised at least one very practical problem: If salary increases were not to be based on performance appraisals, on what were they to be based? He began wondering whether the experts' recommendations weren't simply based on ivory tower theorizing.

Questions

9-34. Do you think that the experts' recommendations will be

sufficient to get most of the administrators to fill out the rating forms properly? Why? Why not? What additional actions (if any) do you think will be necessary?

9-35. Do you think that Vice President Winchester would be better off dropping graphic rating forms, substituting instead one of the other techniques we discussed in this chapter, such as a ranking method? Why?

9-36. What performance appraisal system would you develop for the secretaries if you were Rob Winchester? Defend your answer.

The Mentorship Program at TVH

Group Thermote & Vanhalst—TVH—is a global organization that specializes in constructing and repairing forklift trucks. The organization's expansion presents Paul Sanders, HR director at TVH, with a tough problem: TVH doesn't have a system to capture, store, and leverage employees' knowledge. There is a massive inflow of young people who lack technical know-how, and specialized knowledge is lost when older employees leave the company. In order to deal with this problem, Paul Sanders introduced a mentorship program. This program helps older employees transmit their knowledge and know-how to younger employees.

Paul realizes that the transition to the mentoring system has not gone smoothly when he gets a letter from Freddy Jacobs, one of his most respected employees. Freddy challenges him with the following:

"Lately we are doing nothing but explaining work processes to the young guys. Our own work has to be put aside, and why? Moreover, the young guy at pre-packing has never seen a forklift truck in his life, but he started off in charge of three older people. We have worked together successfully for more than 30 years, and I hope that you will deal correctly with this situation." After Paul finished reading the letter, he frowned. Experienced workers were putting a lot of effort into teaching newcomers the tricks of the trade, but the older workers were now becoming upset because of the career opportunities given to the newcomers. Paul believes that an insufficient transfer of knowledge is at the heart of many issues at TVH. How can he optimize his system to manage knowledge efficiently?

Questions

8-29. If you were Paul Sanders, how would you deal with the issues raised in the letter?

8-30. What would make the mentoring program a success? How would you define success, and failure?

8-31. Under what circumstances would you choose these training processes?

Nurse Recruitment at Gulf Hospital

Gulf Hospital (GH) is one of the leading hospitals in the country, known for providing quality healthcare services at affordable prices. Its vision is to become a national healthcare center, providing better, faster, and friendlier care. Its internal strategy focuses on continuously improving service quality and achieving higher customer satisfaction. However, both doctors and patients have recently complained about the impatience of some nurses, their lack of cooperation, and their lack of relevant experience. The nurses have been accused of creating a bad atmosphere in some departments due to their inability to get along with each other. Nurse turnover has been increasing over the last 2 years, reaching 20%. With current plans to enlarge the Pediatrics Department, there is a need to recruit and select 25 new nurses over the next few months.

Most nurses at GH are recruited internally: 70% of the applications come from referrals, 10% from the hospital's Web site, and the rest are spontaneous applications. Only 5% of the nurses are recruited externally, using classified ads in the local newspaper. Since publication of the job opening 4 weeks ago, Hussam, the HR director, has received 250 resumes. After screening for education and experience, he is left with 100 candidates. Hussam wants to improve the selection process. The following are the elements that give Heba, the new HR assistant, a headache.

Hussam insists on interviewing the nurses himself, because he believes that doctors and supervisors do not have the HRM background to do it effectively on their own. Since they are disappointed with the behavior of the newer nurses, the directors of the three different recruiting departments (pediatrics, trauma, and maternity) also want to interview personally those nurses who will work in their departments.

Finally, the nursing director also wants to be included in the job interviews. But the nursing director, the department heads, and the nurses themselves have regular arguments about the role of nurses! And all of them want to interview the nurses because they have quite different beliefs about the way nurses should be selected. All these people are very busy, so Hussam has decided to carry out panel selection interviews. Each candidate will be interviewed by the HRM director, the nursing director, and the potential department head. Some of the nurses are considered for two different departments.

From the job description, Heba assembled the job specifications:

(1) nursing degree in the country of origin and necessary licenses from the local government;

(2) minimum of 2 years of experience in the specialized nursing field;

(3) flexibility and willingness to learn new skills (GH is not a big hospital, so nurses will be asked to perform multiple tasks in some situations);

(4) positive attitude, enthusiasm, and helpfulness; and

(5) fit with the team. GH wants a family-like environment that helps patients feel better during their stay.

Questions

Assume you are Heba. Hussam has asked you to organize the panel interviews. The panel interviewers are Hussam, the department heads, and the nursing director; the department heads and the nursing director have never conducted selection interviews before.

7-23. What are the challenges or potential pitfalls in this situation?

7-24. What sequential steps should be followed to design and conduct effective job interviews in this situation?

7-25. Would you conduct a crash seminar on interviewing skills for the doctors and the director of nursing? Why or why not? What would you teach them?