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Human Resource Management,
Class 2
Strategy in Human Resource Management
Organization/Individual Relations and Retention
Pcs,
2013. 12 February
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Concepts and learning objectives Explain strategic HR management and how it is linked to
organizational strategies. Identify ways HR professionals can support organizational
strategies for quality, growth, efficiency, and internationaloperations.
Define HR planning and outline the HR planning process. Identify why HR metrics must consider both strategic and
operational HR measures.
Identify the changing nature of the psychological contract.
Discuss how motivation is linked to individual performance.
List the five major drivers of retention and activities related tothem.
Describe different kinds of absenteeism and turnover.
Explain ways to measure absenteeism and turnover.
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Strategic Human Resource Management
Definitions:SHRM: organizational use of employees to gain
or keep a competitive advantage against
competitors, resulting in greater organizationaleffectiveness.
Core competency: a unique capability thatcreates high value and that differentiates the
organization from its competitionThe source of an organizations sustainable
competitive advantage
Organizational culture: the shared values and
beliefs of a workforce
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StrategicHR Management Process
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Strategic Success with HR Practices
Recognized HR Best Practices
Employment security
Selective recruiting
High wages/incentives
Information sharing/participation
Training/cross training
Promotion from within
Measurement
50%higher
marketvalue!
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FIGURE 2-2 Common Areas for HR
Strategies
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Operationalizing HR Strategy
ThinkingStrategically
Understand
the business
Focus on key
business goals
Know what
to measure
Prepare for
the future
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FIGURE 2-3 Possible HR Areas for Core
Competencies
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HR As Organizational Contributor
HR Contributions toOrganization Effectiveness
Organizationproductivity
Customer serviceand quality
Financialcontributions
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Organizational Productivity
Productivity
Measure of the quantity and quality of work done,considering the cost of the resources used.
Metrics example: employee wages +benefits
sales
Unit labor cost
Computed by dividing the average cost of workers by
their average levels of output.High wages can be competitive if people produce high
levels of output!
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2-4 Approaches to Improving
Organizational Productivity
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HR Effectiveness and Financial
Performance
Effectiveness
The extent to which goals have been met.
Efficiency
The degree to which operations are done in an
economical manner.
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Organizational Effectiveness and
Financial
Contributions of HR
Return on Investment
(ROI)Difficult to determine
returns for HRcontributions which affectmany facets of the business
Former view of HR as acost center
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Human Resource PlanningHuman Resource (HR) Planning
The process of analyzing and identifying the need
for and availability of human resources so that the
organization can meet its objectives.
HR Planning Responsibilities
Top HR executive and subordinates gather
information from other managers to use in the
development of HR projections for topmanagement to use in strategic planning and
setting organizational goals
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Purpose of HR Planning
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Typical Division of HR Responsibilities:
HR Planning
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Small Businesses and HR Planning
HR PlanningIssues in Small
Businesses
Attracting andretaining qualified
outsiders
Managementsuccession between
generations of owners
Family relationshipsand HR policies
Evolution of HRactivities as thebusiness grows
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FIGURE 2-7 HR Planning Process
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HR Planning Process 2HR Strategies
The means used to anticipate and manage the
supply of and demand for human resources.
Provide overall direction for the way in which HR
activities will be developed and managed.
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Overall
Strategic Plan
Human ResourcesStrategic Plan
HR Activities
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Benefits of HR Planning
Better view of the HR dimensions of businessdecisions
Lower HR costs through better HR
management.More timely recruitment for anticipate HR
needs
More inclusion of protected groups throughplanned increases in workforce diversity.
Better development of managerial talent
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Scanning the External Environment
Environmental ScanningThe process of studying the environment of the
organization to pinpoint opportunities and
threats.
Environmental Changes Impacting HR
Governmental Influences
Economic conditions
Geographic and competitive concerns
Workforce composition
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Assessing the Internal Workforce
Jobs and Skills Audit
What jobs exist now?
How many individuals are performing each job?
What are the reporting relationships of jobs?
How essential is each job?
What jobs will be needed to implement future
organizational strategies?
What are the characteristics of anticipated jobs?
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Assessing the Internal Workforce 2Organizational Capabilities Inventory
HRIS databasessources of information about
employees knowledge, skills, and abilities (KSAs)
Components of an organizational capabilities
inventoryIndividual employee demographics
Individual employee career progression
Individual job performance data
Creates a profile of the current organizational
workforce
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Forecasting HR supply and demand 1
Forecasting:definition: use of information from the past and
present to identify expected future conditions
combination of quantitative methods and
subjective judgment
Methods:
judgmental
mathematicalPeriods:
short, intermediate, long
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?
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Judgmental methods
JudgmentalEstimatesasking managers opinions, top-down or
bottom-up
Rules of thumbusing general guidelines
Delphi techniqueasking a group of experts
Nominal groupsreaching a group consensus in open
discussion
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Mathematical methods
Statistical regression analysis
Simulation models
Productivity ratios
Staffing ratios
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Forecasting HR supply and demand 2
Forecasting Periods
Short-termless than one year
Intermediateup to three years
Long-rangemore than three years
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HR Forecasting
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Forecasting the demandfor human
resources
Organization-wide estimate for total demand
Unit breakdown for specific skill needs by number
and type of employeeDevelop decision rules (fill rates) for positions to be filled
internally and externally.
Develop additional decision rules for positions impacted by
the chain effects of internal promotions and transfers.
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Forecasting the supplyof human
resources 1
External supply
government labor force population estimates
individual demographics
changing workforce composition and patternsmigration!
industrial trends
economic forecasts
technological developments
actions of competing employers
government regulations and pressures
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Forecasting the supplyof human resources 2
Forecasting Internal HR Supply
Effects of promotions, lateral moves, and
terminations
Succession analysis
Replacement charts
Succession planning
The process of identifyinga longer-term plan for the
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Estimating Internal Labor Supply for a Given
Unit
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Workforce realignment
Layoff:in response to shortfall in demand for products
employees are put on unpaid leaves of absence
Laid - off employees may be rehired if demandbecomes stronger!
Downsizing: planned elimination of large
number of personnel with the goal ofenhancing the organizations competitiveness- workers are not rehired!
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Downsizing 1Objectives:
reducing costs
replacing labor with technology
mergers and acquisitions
moving to more economical locations
Effects:
not all positive!
Does not generate additional revenue - cuts costs only
in the short runremaining employees are overburdened and
demoralized
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Downsizing 2
Attrition:people who quit, die, or retire are notreplaced
in addition companies use hiring freezes
Early retirement buyouts
encouraging more senior workers of the organizationto leave early
needs additional financial resources, but saves moneyon the long run
humane workforce reduction technique
problem: those may leave whom you would like tohave!
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Downsizing 3
How to?
Investigate alternatives to downsizing
involve people necessary for success in the
planning for downsizing
develop comprehensive communication plans
nurture the survivors
outplacement pays off
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Outplacement servicesDefinition:
a group of services provided to displaced employees togive them support and assistance
personal career counselingresume preparation
typing servicesinterviewing workshopsreferral assistancespecial severance pay arrangementsmedical benefit coverageretraining for different jobsestablishing on-site career centerscontacting other employers for job placement
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Making Downsizing More Effective
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Managing a Shortage of Employees
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Use overtime
Add contingent workers
Bring back recent retirees
Outsource work
Reduce turnover
HumanResourceShortage
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HR Planning in Mergers and
Acquisitions
Cultural Compatibility
The extent to which such factors as decision-
making styles, levels of teamwork, information-
sharing philosophies, and the formality of the twoorganizations are similar.
HRs Role in Mergers and Acquisitions
Communicating decisionsRevising the organization structure
Merging HR activities
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Measuring HR Effectiveness
Using HR Metrics 1
HR Metrics
Specific measures tied to HR performance
indicators.Development and use of metrics that can better
demonstrate HRs value and track its performance.
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Measuring HR Effectiveness
Using HR Metrics 2
Characteristics of good HR metrics:
Accurate data can be collected.
Measures are linked to strategic and operational
objectives.Calculations can be clearly understood.
Measures provide information expected byexecutives.
Results can be compared both externally andinternally.
Measurement data drives HR management efforts.
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Examples of Strategic and Operational
HR Metrics
Strategic Operational
Revenue generated per FTE
Net income before taxes per FTE
Ratio of managers to non-
managers Labor costs as percentage of
total operating costs
ROI of human capital
expenditures
HR department expenses aspercentage of total expenses
Payroll/benefits costs as
percentage of revenues
Annual turnover rate
Benefits costs as percentage of
payroll
Training expenditures per FTE Average time to fill openings
Workers compensation costs per
FTE
Number of applicants per opening
Absenteeism by employee
level/department
Note: An FTE is a measure equal to one employee working full-time for oneyear.
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Measures of Strategic HR Effectiveness
1
Return on Investment (ROI)Calculation showing the value of expenditures for HR
activities.
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A = Operating costs for a new or enhanced system for the time periodB = One-time cost of acquisition and implementation
C = Value of gains from productivity improvements for the time period
BA
C
ROI
M f S i HR Eff i
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Measures of Strategic HR Effectiveness
2
Economic Value Added (EVA)
A firms net operating profit after the cost of capital(required return) is deducted.
Cost of capital is the benchmark for returns for all HRactivities.
HR and the Balanced Scorecard
Financial
Internal business processesCustomer
Learning and growth
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The balanced scorecard
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HR Measurement and BenchmarkingBenchmarking
Comparing specific measures of performanceagainst data on those measures in other bestpractice organizations
Common BenchmarksTotal compensation as a percentage of net income
before taxes
Percent of management positions filled internally
Dollar sales per employee
Benefits as a percentage of payroll cost
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Assessing HR effectivenessRECORDS!
Must be kept current and properly organised
Important documentation if legal problems occur
Basis for research
Examples:
HR expense per employee
Compensation as a percent of expenses
HR dept. expense as a % of total expenses
Cost of hires
Turnover rate
Absence rate
Workers compensation cost per employee
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HR audit
Definition:
A formal research effort that evaluates the current state ofHR management in an organisation
Legal compliance
Current job descriptions and specifications
Valid recruiting and selection processes
Wage/salary and benefits systems
Absenteeism and turnover control measures
Training and development effort
Performance management system
Employee handbook policies
Health, safety and security issues
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Web pages
http://www.ilo.org/public/english/bureau/stat/http://epp.eurostat.ec.europa.eu/portal/page/portal
/eurostat/home/
http://www.bls.gov/
http://www.kormany.hu/hu
http://www.ksh.hu/
http://www.fedstats.gov/
http://www.oecd.org/statistics/
Zsuzsanna Vitai HRM 2013 spring
I di id l/O i ti l
http://www.ilo.org/public/english/bureau/stat/http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/http://www.bls.gov/http://www.kormany.hu/huhttp://www.ksh.hu/http://www.fedstats.gov/http://www.oecd.org/http://www.oecd.org/statistics/http://www.oecd.org/statistics/http://www.oecd.org/statistics/http://www.oecd.org/statistics/http://www.oecd.org/http://www.fedstats.gov/http://www.ksh.hu/http://www.ksh.hu/http://www.kormany.hu/huhttp://www.kormany.hu/huhttp://www.bls.gov/http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/http://www.ilo.org/public/english/bureau/stat/7/29/2019 Hr m Class 2 Strategy and Retention
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Individual/Organizational
Relationships
The Psychological ContractThe unwritten expectations employees and employers
have about the nature of their work relationships.
Affected by age of employee and changes in economic
conditions.Focuses on expectations about fairness that may not be
defined clearly by employees.
Psychological Ownership
When individuals feel that they have some control andperceived rights in the organization, they are morelikely to be committed to the organization.
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C t f th P h l i l
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Components of the Psychological
Contract
Employers provide:
Competitive compensationand benefits
Flexibility to balance work
and home life
Career development
opportunities
Employees contribute:
Continuous skill improvementand increase productivity
Reasonable time with the
organization
Extra effort when needed
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F Aff i J b S i f i d
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FIGURE 3-1 Factors Affecting Job Satisfaction and
Organizational Commitment
J b S ti f ti L lt d
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Job Satisfaction, Loyalty, and
CommitmentJob Satisfaction
A positive emotional state resulting from evaluatingones job experience.
Work, pay, promotion opportunities, supervision, co-workers
Organization Commitment (Loyalty)
The degree to which employees believe in andaccept organizational goals and desire to remain
with the organization.Continuance commitment: the likelihood that an
individual will stay with rather than withdraw fromthe organization.
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Individual Employee Performance
Individual Performance Factors1. Individual ability to do the work
2. Effort level expended
3. Organizational support
Performance (P) = Ability(A) x Effort (E) x Support(S)
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FIGURE 3-2 Components of Individual Performance
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Individual MotivationMotivation
The desire within a person causing that person to actto reach a goal.
Management Implications for Motivating
Individual PerformanceBroad-based strategies and tactics to address
individual employee concerns about:
Consistency in organizational rewards
Organizational support for employee efforts
Accurate measurement of employee performance
Desirability of rewards by employees
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Repetition: MotivationDefinition:
the desire within a person causing that person to
act
Content and process theories explain it
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Content theoriesAbraham Maslows need hierarchy
Clayton Alderfer ERG theory
Frederick Herzberg - motivation-hygiene
David McClelland achievement motivation
Emphasis on what motivates individuals
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Process theoriesCognitive evaluation theory
Equity theory
Expectancy theory
Goal setting theoryReinforcement theory
Focus is on the motivational
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Process theories of motivationEquity theory - Stacy Adams
Explanation of behaviour on perceptions ofsocial comparisonsThe theory is based on the perception of
inequityWe are motivated to act in situations which we
perceive to be inequitable or unfairEquity situation:
my rewards your rewardsmy effort and contrib. = your effort and contrib.
The perceived fairness of what the person does
compared with what the person receives
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Overreward vs Underreward Inequity
YouComparison
Other
Outcomes
Inputs
Outcomes
Inputs
Underreward
Inequity
Outcomes
Inputs
Outcomes
Inputs
Overreward
Inequity
OutcomesOutcomes
InputsInputs
Equity
condition
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Th l h i f it th
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The causal chain of equity theory
Perception of experience motivation to
inequity of tension resolve
action to resolve
equity restored
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Strategies for Reducing Inequity
Alter outcomes (e.g. ask for pay increase)
Adjust inputs (e.g. reduce effort andperformance)
Acting on the comparison other (changing thecomparison persons inputs or outcomes)
Changing the comparison other (compare with
someone else)Changing perceptions - rationalize the inequity
Leaving the field
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Vrooms expectancy theory 1
The expectancy equation:
F = (V x I x E)
V =the strength of preference for the outcomeI =the individuals perceived likelihood that good
performance will lead to valued rewards
E =the subjective probability or expectation
that effort will lead to good performance
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Vrooms expectancy theory 2Effort - Performance Expectations
refer to employees beliefs that working harder will
lead to performance
Performance -Reward Linkage
considers individuals expectations that high
performance actually will lead to rewards
Value of Rewards
how valuable the rewards are to the employee
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Retention of Human Resources
Myths About Retention1. Money is the main reason people leave.
2. Hiring has nothing to do with retention.
3. If you train people, you are only trainingthem for another employer.
4. Do not be concerned about retention
during a merger.
5. If solid performers want to leave, the
company cannot hold them.
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Retention of Human ResourcesWhy People Stay or LeaveLinks, Fit, and
Sacrifice
Culture and values
Positive, distinctive company that is well-managed, andoffers exciting challenges.
Attractive job
Freedom and autonomy, exciting challenges, andcareer advancement and growth
Compensation and lifestyleDifferentiated pay package, high total compensation,
geographic location, and respect for lifestyle
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Drivers of Retention
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FIGURE 3-3 Drivers of Retention
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FIGURE 3 4 Some Characteristics of People and Jobs
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FIGURE 3-4 Some Characteristics of People and Jobs
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Employee AbsenteeismAbsenteeism
Any failure to report for work asscheduled or to stay at work whenscheduled.
Involuntary absenteeism
Unavoidable with understandable cause(e.g., actual illness)
Voluntary absenteeismAvoidable without justifiable
cause (e.g., feigning illness)
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FIGURE 3 5 Reasons for Unscheduled Absences
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FIGURE 3-5 Reasons for Unscheduled Absences
Source: Based on data from 2006 CCH Unscheduled Absence
Survey, CCH, Inc., October 26, 2006,
www.cch.com/press/news/2006. All Rights Reserved. Reprinted
with permission.
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Controlling Absenteeism
Disciplinaryapproach
Positivereinforcement
Combinationapproach
Paid time-off(PTO)
No fault
policy
ControllingAbsenteeism
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FIGURE 3 6 Employee Absenteeism Control Actions
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FIGURE 3-6 Employee Absenteeism Control Actions
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Employee TurnoverTurnover
The process in which employees leave an
organization and have to be replaced.
Impact of TurnoverInability to achieve business goals
Loss of image to attract other individuals
High costs of turnover and replacement
Churnhiring new workers while laying off others
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Types of Turnover
Turnover
Involuntary
Voluntary
Functional
Dysfunctional
Uncontrollable
Controllable
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HR Metrics: Measuring Absenteeism
Measuring Absenteeism
U.S. Department of Labor formula:
100days)workof(Numberemployees)ofnumber(Average
periodduringabsencejobghlost throusperson-dayofNumber
Other Measures of Absenteeism:
Incidence rateabsences per 100 employees each day
Inactivity ratepercentage of time lost to absenteeism
Severity rateaverage time lost per absent employee during
a specified period of time
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HR Metrics: Measuring TurnoverComputing the Turnover Rate:
100midmonthatemployeesofnumberTotal
monththeduringsseparationemployeeofNumber
Costs of TurnoverSeparation costs
Replacement costs
Training costs
Hidden costs
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HR Metrics: Measuring Turnover
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HR Metrics: Measuring Turnover
(contd)Ways to Measure Turnover:
Job and job levels
Department, units, and location
Reason for leaving
Length of service
Demographic characteristics
Education and training
Knowledge, skills and abilities
Performance ratings/levels
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FIGURE 3-7 Simplified Turnover Costing
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Model
20,000
8,000(40%)
28,000
20
3
3,500
70,000
Teller
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FIGURE 3-8
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Managing
Retention
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FIGURE 3-9 Possible Retention Interventions
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FIGURE 3 9 Possible Retention Interventions
Spot cash awards for good work
Develop profiles of successfulemployees and hire to the profile
Learning bonuses
Focus groups on employee issues
Voluntary job sharing
Realist job avenues
Excellent employee development
Payback agreement for moving
expenses
Clear goals
Accurate performance appraisals
Competitive benefits
Career counseling
Mentoring
Diverse workplace
Sabbatical leaves
Facilitate promotion/transfer
Reward managers with low turnover
Fair pay
Fulfilling work
Avoid hiring those with a history of
turnover
Tuition reimbursement and
promotion for education
Retention bonuses
Subsidized child/elder care
Retrain for promotion/transfer
Pay tied to performance
Telecommuting
Recognize good work
Good working conditions
Friendly work culture/co-workers
Considerate supervisors
Improved Retention
Zsuzsanna Vitai HRM 2013 spring
Summary and implications for future
7/29/2019 Hr m Class 2 Strategy and Retention
83/83
Summary and implications for future
HR specialists
HR planning should be tied closely with the overallprocess of strategic planning of the organization
HR planning involves analyzing and identifying thefuture needs for and availability of human resources ofthe organization
Individual performance components include individualability, effort expended and organizational support
Absenteeism and turnover are expensive but they can
be controlled with various interventions.Handling the retention management process well pays
off the organization.