HRM Guide PDF

Human resource management
J. Coyle-Shapiro, K. Hoque, I. Kessler,

A. Pepper, R. Richardson and L. Walker
MN3075
2013
Undergraduate study in
Economics, Management,
Finance and the Social Sciences
This subject guide is for a 300 course offered as part of the University of London
International Programmes in Economics, Management, Finance and the Social Sciences.
This is equivalent to Level 6 within the Framework for Higher Education Qualifications in
England, Wales and Northern Ireland (FHEQ).
For more information about the University of London International Programmes
undergraduate study in Economics, Management, Finance and the Social Sciences, see:
www.londoninternational.ac.uk
This guide was prepared for the University of London International Programmes by:
J. Coyle-Shapiro, PhD, Professor of Organisational Behaviour and Head of Employment
Relations and Organisational Behaviour, LSE.
K. Hoque, Bsc (Econ), PhD, Professor of Human Resource Management, Warwick Business
School, Univeristy of Warwick.
I. Kessler, BA, MA, PhD, Professor of International Human Resource Management, King’s
College London.
A. Pepper, DBA, Professor of Management Practice, LSE.
R. Richardson, BSc, MA, PhD, Formerly Deputy Director, Reader in Industrial Relations, LSE.
L. Walker, MA, Seear Fellow, LSE.
This is one of a series of subject guides published by the University. We regret that due
to pressure of work the authors are unable to enter into any correspondence relating to,
or arising from, the guide. If you have any comments on this subject guide, favourable or
unfavourable, please use the form at the back of this guide.
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Contents
Contents
Introduction ............................................................................................................ 1
Structure of the guide .................................................................................................... 2
Activities ....................................................................................................................... 2
Style of the guide .......................................................................................................... 2
Aims ............................................................................................................................. 2
Learning outcomes ........................................................................................................ 2
Syllabus......................................................................................................................... 3
Using this subject guide ................................................................................................. 3
Essential reading ........................................................................................................... 4
Further reading.............................................................................................................. 4
Online study resources ................................................................................................... 5
How the reading is listed ............................................................................................... 6
Examination advice........................................................................................................ 7
Chapter 1: Human resource management: theories, models, policies
and practices ........................................................................................................ 11
1.1 Introduction .......................................................................................................... 11
1.2 What is HR management? ..................................................................................... 12
1.3 Why are HR policies, programmes and plans so important?..................................... 13
1.4 How do HR policies, programmes and plans work?................................................. 16
1.5 The difference between academic study and the practice of HR management .......... 20
1.6 A reminder of your learning outcomes .................................................................... 21
Chapter 2: Recruitment and selection .................................................................. 25
2.1 Introduction .......................................................................................................... 25
2.2 The importance of recruitment and selection .......................................................... 26
2.3 Recruitment........................................................................................................... 28
2.4 Selection ............................................................................................................... 36
2.5 Is there an ideal, or ‘one best way’ approach to final selection? .............................. 41
2.6 A reminder of your learning outcomes .................................................................... 43
2.7 Test your knowledge and understanding ................................................................ 43
Chapter 3: Training and development .................................................................. 45
3.1 Introduction .......................................................................................................... 45
3.2 Definitions of training and development ................................................................. 47
3.3 Why is training and development important? ......................................................... 48
3.4 Considerations in the design of training programmes. What are the major stages
involved in designing a training programme? ............................................................... 51
3.5 Implementing training ........................................................................................... 52
3.6 Learning methods .................................................................................................. 55
3.7 Barriers to learning ................................................................................................ 56
3.8 Learning theories ................................................................................................... 57
3.9 Vocational education ............................................................................................. 58
3.10 A reminder of your learning outcomes .................................................................. 59
3.11 Test your knowledge and understanding .............................................................. 59
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MN3075 Human resource management
Chapter 4: Individual performance: attitudes and behaviour ............................. 63

4.1 Introduction .......................................................................................................... 63
4.2 What is performance? ............................................................................................ 65
4.3 Conceptualisation of performance.......................................................................... 66
4.4 Task and contextual performance ........................................................................... 67
4.5 Organisational citizenship behaviour as contextual performance ............................. 68
4.6 Consequences of OCB ........................................................................................... 70
4.7 Antecedents of OCB .............................................................................................. 72
4.8 Social exchange constructs .................................................................................... 72
4.9 Commitment ......................................................................................................... 74
4.10 Summary ............................................................................................................. 77
4.13 Sample examination question .............................................................................. 78
Chapter 5: Psychological contracts ...................................................................... 79
5.1 Introduction .......................................................................................................... 79
5.2 Definitions of psychological contracts ..................................................................... 82
5.3 Social exchange theory .......................................................................................... 83
5.4 With whom does an employee have a contract? ..................................................... 84
5.5 Categorising employer relationships with employees .............................................. 85
5.6 Types of contracts .................................................................................................. 86
5.7 How are transactional and relational contracts related?.......................................... 88
5.8 Measurement of psychological contract.................................................................. 89
5.9 The key features of the psychological contract ........................................................ 91
5.10 Creation and management of the psychological contract ...................................... 91
5.11 Development of contract breach and violation ...................................................... 93
5.12 Consequences of the psychological contract breach.............................................. 96
5.13 Human resource practices and psychological contracts ......................................... 98
5.14 Are psychological contracts changing? ................................................................. 98
5.15 Summary ........................................................................................................... 100
5.16 A reminder of your learning outcomes ................................................................ 101
5.17 Test your knowledge and understanding ............................................................ 101
Chapter 6: Reward systems and motivation ...................................................... 103
6.1 Introduction ........................................................................................................ 103
6.2 Definitions and classifications .............................................................................. 105
6.3 Selecting a pay scheme ........................................................................................ 108
6.4 Pay schemes in operation..................................................................................... 112
6.5 Reward outcomes ................................................................................................ 114
6.6 Principal–agent theory ......................................................................................... 114
6.7 Motivation theory ................................................................................................ 115
6.8 Process theories – how are people motivated? ..................................................... 117
6.9 Pay, attitudes and behaviours............................................................................... 118
6.12 Sample examination question ............................................................................ 121
Chapter 7: Performance management................................................................ 123
7.1 Introduction ........................................................................................................ 123
7.3 Selecting an approach ......................................................................................... 126
7.4 Design features ................................................................................................... 130
ii
Contents

7.7 Sample examination question .............................................................................. 137
Chapter 8: Job design and redesign ................................................................... 139
8.1 Introduction ........................................................................................................ 139
8.2 Taylorism and scientific management ................................................................... 141
8.3 Job enlargement .................................................................................................. 142
8.4 Herzberg and job enrichment ............................................................................... 143
8.5 Hackman and Oldham’s job characteristics model................................................. 144
8.6 Teamworking ....................................................................................................... 148
8.7 Management teams............................................................................................. 154
Chapter 9: Employee involvement and participation......................................... 161
9.1 Introduction ........................................................................................................ 161
9.3 Approaches to employee involvement and participation........................................ 170
9.4 Employee participation: objectives and patterns at the micro and macro levels ...... 171
9.5 Changing patterns of employee involvement and participation ............................. 172
9.6 Employee involvement and participation in practice .............................................. 174
9.7 Impact and outcomes .......................................................................................... 177
Chapter 10: Organisational justice ..................................................................... 181
10.1 Introduction ...................................................................................................... 181
10.2 Different conceptualisations of justice ................................................................ 183
10.3 Procedural justice .............................................................................................. 186
10.4 Why does procedural justice matter? .................................................................. 188
10.5 Outcomes of justice ........................................................................................... 189
10.6 Procedural justice applied to motivation ............................................................. 191
10.7 Organisational justice and HR practices .............................................................. 192
10.8 Organisational justice and performance appraisal ............................................... 194
10.9 Summary ........................................................................................................... 195
10.10 A reminder of your learning outcomes ............................................................. 195
10.11 Test your knowledge and understanding ......................................................... 196
10.12 Sample examination question .......................................................................... 196
Chapter 11: Diversity and equal opportunities .................................................. 197
11.1 Introduction ...................................................................................................... 197
11.2 What is the current position of women in the labour market? ............................. 200
11.3 How can we explain the disadvantaged position faced by women?..................... 203
11.4 Equal opportunities policies ............................................................................... 206
11.5 The business argument for equal treatment ........................................................ 208
11.6 The role of the government in promoting equality of opportunity ........................ 212
11.7 The role of trade unions ..................................................................................... 214
11.8 Self-employment ............................................................................................... 215
11.10 Test your knowledge and understanding .......................................................... 215
Chapter 12: Labour economics ........................................................................... 219
12.1 Introduction ...................................................................................................... 219
12.2 The standard economic theory explaining the firm’s demand for labour ............... 220
iii
12.3 Refinements to the standard theory ................................................................... 222

12.4 Internal labour markets...................................................................................... 227
12.5 The HR implications of ILMs ............................................................................... 230
12.6 Summary ........................................................................................................... 231
12.9 Sample examination question ............................................................................ 232
Chapter 13: HR strategies and high performance work systems ...................... 233
13.1 Introduction ...................................................................................................... 233
13.2 Human resource strategies................................................................................. 234
13.3 What is an HR strategy?..................................................................................... 235
13.4 Is there one best HR strategy? ........................................................................... 237
13.5 High performance work practices or high commitment practices ......................... 237
13.6 Possible contingencies ....................................................................................... 239
13.7 Comment .......................................................................................................... 241
13.8 The changing context of HR decisions................................................................. 241
13.9 The growing importance of HR strategies ........................................................... 243
13.10 Greater HR flexibility and the implication for HR strategy .................................. 248
13.11 A reminder of your learning outcomes .............................................................. 250
13.12 Test your knowledge and understanding .......................................................... 250
13.13 Sample examination question .......................................................................... 250
Chapter 14: Studying HR management .............................................................. 253
Appendix 1: Full list of further reading for the course ...................................... 255
Books........................................................................................................................ 255
Journal articles .......................................................................................................... 256
Appendix 2: Sample examination paper ............................................................ 259
Appendix 3: Guidelines for answering sample examination questions ............. 261
Chapter 4 .................................................................................................................. 261
Chapter 6 .................................................................................................................. 261
Chapter 7 .................................................................................................................. 262
Chapter 10 ................................................................................................................ 262
Chapter 12 ................................................................................................................ 263
Chapter 13 ................................................................................................................ 264
iv
Introduction
Introduction
This subject guide is about human resource management (HRM). This is the
management activity taken by commercial firms, state owned enterprises
and other organisations to recruit, retain and motivate their employees. In
other words HRM is the bundle of policies, programmes and plans which
organisations adopt with the objective of making full use of the people they
employ. These include everything from recruitment and selection techniques
(which initiate the relationship between firm and employee), to the mass of
rules that determine how people are treated as current employees, and all
the way to policies on separation (which determine whether, and in what
circumstances, an employee is to be let go).
This guide takes, as its organising framework, a model of strategic
HRM advanced by Boxall and Purcell in their book Strategy and human
resource management (Palgrave Macmillan, third edition, 2011). They
conceptualise workforce performance as a function of capabilities (the
knowledge, skills and aptitudes which employees need to carry out their
work), motivation (the incentives which employees require to encourage
them to perform to the best of their abilities) and work organisation
(the way that work and organisations are structured so as to allow
employees to perform well). To this we add employment relations (the
policies, programmes and practices which govern the relationship between
employees and employers) on the basis that employee relationship
management is a key responsibility of the HRM function. See Figure 1.
The guide follows the perspective adopted in most HRM textbooks and
looks at the subject from an organisational point of view, but it also
acknowledges that a range of other factors shape the use of HRM policies
and practices, including government and regulatory frameworks.
Capabilities
Motivation Employment
relations
Work organisation
Figure 1: Organising framework
1
Structure of the guide

The guide is divided into 14 chapters, each focusing on a different topic.
Every chapter includes a number of features:
• the Learning outcomes for the chapter
• the Essential and Further reading lists
• a list of References cited in the chapter
• an Introduction to the topic of the chapter
• a chapter Summary or Conclusion section at the end of each chapter
• a range of Sample examination questions to help you to test what you
have learnt. (See Appendix 3 for feedback).
Activities
In addition to these key features of every chapter, Activities have been
provided throughout the guide to help you engage and interact with the
material you are studying. Although these are not assessed, it is strongly
recommended that you complete these Activities as you work through
the course. Taking an active role from the beginning of this course and
developing this throughout, will give you confidence in your knowledge,
ability and opinions.
Style of the guide

The study of HRM is multidisciplinary drawing upon ideas from business
strategy, economics, psychology, sociology and industrial relations. What
this means is that you will receive a range of viewpoints on the subject
as a whole. You may also notice a difference in approach from chapter to
chapter.
Aims
The aims of this course are to:
• give students an introduction to the key elements of human resource
management
• demonstrate how the social sciences can assist in understanding the
management of human resources; and to examine and evaluate human
resource policies and practices of organisations
• help students to examine the different theories which try to explain the
relationship between HRM and organisational performance
• develop students’ ability to analyse and critically evaluate HR policies
and practices.
Learning outcomes
By the end of this course, and having completed the Essential reading and
Activities, you should be able to:
• describe the relationship between HRM and organisational
performance and be able to critically evaluate the empirical evidence
• critically evaluate alternative perspectives on HR practices
• analyse the relationship between HR practices and their outcomes for
the individual and the organisation
2
Introduction
• evaluate the effectiveness of different HR practices

• comment upon the limitations of the theories covered.
Syllabus
The syllabus uses as its organising framework a model of HRM built
around four areas of activity: capabilities, motivation, employment
relations and work organisation.
‘Capabilities’ include recruitment and selection, as well as learning
and development. ‘Motivation’ covers individual performance and the
psychological contract, reward systems, performance management
and job design. ‘Employment relations’ include employee involvement
and participation, organisational justice and diversity. Finally, ‘work
organisation’ covers labour markets, high performance work systems and
the state of HRM in contemporary organisations.
The syllabus examines current theoretical perspectives on the relationship
between human resource practices and organisational performance.
These include strategic HRM, organisational behaviour and employment
relations frameworks, which offer different explanations of how HRM
practices impact on organisational performance. The relationship between
motivation, organisational commitment (defined as an individual’s
emotional attachment to an organisation) and both individual and
corporate performance is central to understanding the effects of HRM
practices on employees.
The skills demonstrated by students are expected to go beyond knowledge
and comprehension. As well as demonstrating that they know and
understand the major HRM policies and practices, theoretical frameworks
and supporting empirical evidence, students are expected to be able to
explain the relationship between different human resource policies and
practices and the underlying theoretical frameworks (for example, by
describing the relationship between performance management and goal
setting theory, or pay strategy and different theories of motivation). These
theoretical frameworks will then provide the basis for analysing and
evaluating whether HRM practices are more or less likely to achieve their
hypothesized outcomes. The potential limitations of each theory and the
subsequent implications for organisational practice will also be considered.
Using this subject guide

This subject guide presents a basic introduction to the main topics in the
study of human resource management. As with any guidebook, this subject
guide is designed to help you find your way around the subject matter. It
seeks to outline, explain and clarify the central concerns of the study as
well as provide information about studying for your examinations.
On the other hand, because it is a guide, it cannot go into detail and there
are bound to be omissions and over simplifications. Wider reading is,
therefore, essential. You should not just treat this subject guide as your
textbook. If you place too much emphasis on the subject guide without
doing additional reading, you will find it exceedingly difficult to pass the
examination.
You should also develop your own set of notes as you work through the
subjects, which will help you engage with the material in a critical way.
3
Essential reading
Your Essential reading for this course comes from three places: textbooks,
journal articles and one chapter of a textbook available in the virtual
learning environment (VLE).
Textbooks
Three textbooks are recommended for this course. These are general
textbooks that are useful for most chapters in this guide. You should buy,
or have regular access to, these textbooks as a number of the Essential
reading are taken from them. Please remember that the more you read,
the better your understanding of the subject area will be.
Bratton, J. and J. Gold Human resource management: theory and practice.
(Basingstoke: Palgrave, 2012) fifth edition [ISBN 9780230580565].
Kramar, R. and J. Syed Human resource management in a global context.
(Basingstoke: Palgrave, 2012) first edition [ISBN 9780230251533].
Torrington, D., L. Hall, S. Taylor and C. Atkinson Fundamentals of human
resource management. (Harlow: Financial Times Prentice Hall, 2009) first
edition [ISBN 9780273713067].
Detailed reading references in this subject guide refer to the editions of the
set textbooks listed above. New editions of one or more of these textbooks
may have been published by the time you study this course. You can use
a more recent edition of any of the books; use the detailed chapter and
section headings and the index to identify relevant readings. Also check
the VLE regularly for updated guidance on readings.
In addition, the following lists specific chapters for Essential reading:
Bach, S. Managing human resources. (Oxford: Blackwell, 2005) fourth edition
[ISBN 9781405118514] Chapter 15 ‘Direct participation’.
Claydon, T. and J. Beardwell Human resource management: a contemporary
approach. (Harlow: Prentice Hall, 2007) fifth edition [ISBN
9780273707639] Chapter 14 ‘Employee participation and involvement’.
Folger, R. and R. Cropanzano Organizational justice and human resource
management. (Thousand Oaks, CA: Sage, 1998) [ISBN 0803956878]
Chapter 1 ‘Equity and distributive justice as outcome fairness’, Chapter 2
‘Process as procedural and interactional justice’, Chapter 4 ‘Organisational
justice and staffing decisions’ and Chapter 5 ‘Organisational justice and
performance evaluation’.
Torrington, D., L. Hall, S. Taylor and C. Atkinson Human resource management.
(Harlow: Financial Times, 2011) (ISBN 9780273756927] Chapter 7
‘Recruitment’ and Chapter 8 ‘Selection methods and decisions’.
Journal articles
As part of your Essential reading, you also need to access a number of
journal articles from the Online Library. To help you read extensively, all
International Programmes students have free access to the University of
London Online Library where you will find the full text or an abstract of
some of the journal articles listed in this subject guide.
Further reading
Please note that as long as you read the Essential reading you are then free
to read around the subject area in any text, paper or online resource. You
will need to support your learning by reading as widely as possible and by
thinking about how these principles apply in the real world. To help you
read extensively, you have free access to the VLE and University of London
Online Library (see below).
4
Introduction
A full list of all Further reading for this course is given in Appendix 1.
Other useful texts for this course include:
Baron, J.N and D.M. Kreps Strategic human resources: frameworks for
general managers. (John Wiley & Sons, Inc. 1999) third edition [ISBN
9780471072539].
Boxall, P. and J. Purcell Strategy and human resource management.
(Basingstoke: Palgrave, 2011) third edition [ISBN 9780230579354].
Boxall, P., J. Purcell and P. Wright (eds) The Oxford handbook of human
resource management. (Oxford: Oxford University Press, 2007) [ISBN
9780199282517].
Storey, J. Human resource management: a critical text. (London: Thomson
Learning, 2007) third edition [ISBN 9781844806157].
Journals
The following journals are also particularly useful and a number of
readings are taken from them. They are available in the Online Library:
• British Journal of Industrial Relations (Business Source Premier)
• Human Resource Management Journal (ABI Inform and Business Source
Premier)
• Human Resource Management Review (Business Source Premier)
• International Journal of Human Resource Management (Business Source
Premier).
Online study resources

In addition to the subject guide and the Essential reading, it is crucial that
you take advantage of the study resources that are available online for this
course, including the VLE and the Online Library.
You can access the VLE, the Online Library and your University of London
email account via the Student Portal at:
https://my.londoninternational.ac.uk.london/portal/
You should have received your login details for the Student Portal with
your official offer, which was emailed to the address that you gave
on your application form. You have probably already logged in to the
Student Portal in order to register! As soon as you registered, you will
automatically have been granted access to the VLE, Online Library and
your fully functional University of London email account.
If you have forgotten these login details, please click on the ‘Forgotten
your password’ link on the login page.
The VLE
The VLE, which complements this subject guide, has been designed to
enhance your learning experience, providing additional support and a
sense of community. It forms an important part of your study experience
with the University of London and you should access it regularly.
The VLE provides a range of resources for EMFSS courses:
• Self-testing activities: Doing these allows you to test your own
understanding of subject material.
• Electronic study materials: The printed materials that you receive from
the University of London are available to download, including updated
reading lists and references.
• Past examination papers and Examiners’ commentaries: These provide
advice on how each examination question might best be answered.
5
• A student discussion forum: This is an open space for you to discuss

interests and experiences, seek support from your peers, work
collaboratively to solve problems and discuss subject material.
• Videos: There are recorded academic introductions to the subject,
interviews and debates and, for some courses, audio-visual tutorials and
conclusions.
• Recorded lectures: For some courses, where appropriate, the sessions
from previous years’ Study Weekends have been recorded and made
available.
• Study skills: Expert advice on preparing for examinations and
developing your digital literacy skills.
• Feedback forms.
Some of these resources are available for certain courses only, but we
are expanding our provision all the time and you should check the VLE
regularly for updates.
Making use of the Online Library

The Online Library contains a huge array of journal articles and other
resources to help you read widely and extensively.
To access the majority of resources via the Online Library you will either
need to use your University of London Student Portal login details, or you
will be required to register and use an Athens login:
http://tinyurl.com/ollathens
The easiest way to locate relevant content and journal articles in the Online
Library is to use the Summon search engine.
If you are having trouble finding an article listed in a reading list, try
removing any punctuation from the title, such as single quotation marks,
question marks and colons.
For further advice, please see the online help pages:
www.external.shl.lon.ac.uk/summon/about.php
How the reading is listed

The reading for each of the chapters in this subject guide is divided into
Essential reading, Further reading and References cited.
Essential reading
For each chapter you are required to do some reading that is essential. This
Essential reading is listed at the start of each chapter. It is also listed in this
Introduction. It is from this material that the majority of your knowledge
will be gained, so it is important that you read as much of it as you can.
Most of the time, you should read the subject guide chapter first, then move
on to the Essential reading. However, please note that in some chapters you
will be advised to do the reading at certain points in the chapter.
Further reading
At the beginning of each chapter, a list of possible Further readings will
be offered. A selection is always offered, but none of them is compulsory.
You can select from the list for each chapter if you wish to. Therefore, you
should not be worried about the length of this list as this is only to give
you a choice should you want one! You may find it helpful to look at the
Further readings if you are particularly interested in a specific subject.
However, we do encourage you to do as much reading as possible.
6
Introduction
References cited
Books and journals that have been referred to in this subject guide are
listed at the start of each chapter. You do not need to read these materials
unless you wish to; they are there for reference purposes only.
Examination advice
Examination format
Important: the information and advice given in the following section
are based on the examination structure used at the time this subject guide
was written. Please note that subject guides may be used for several
years. Because of this we strongly advise you to check both the current
Regulations for relevant information about the examination, and the VLE
where you should be advised of any forthcoming changes. You should also
carefully check the rubric/instructions on the paper you actually sit and
follow those instructions.
The assessment for this course is through a three-hour unseen written
examination. You will be expected to answer four questions from a choice
of eight questions. Questions are generally structured in three parts. The
first part (‘Define’) asks for the definition or explanation of a concept or
construct and is primarily a test of knowledge. The second part (‘Describe’)
asks for applications of the concept or construct and is primarily a test of
understanding and application. The third part (‘Discuss’) is a short essay
in which you will be expected to analyse and critically evaluate an issue
related to the concept or construct which is the subject of the previous two
parts of the question. These shorts essays need to present an argument
that expresses a view on the subject. They should not repeat the notes
written in this subject guide. Instead the essays should show independent,
reflective and critical thought about the issues involved.
Remember, it is important to check the VLE for:
• up-to-date information on examination and assessment arrangements
for this course
• where available, past examination papers and Examiners’
commentaries for the course which give advice on how each question
might best be answered.
Examiners’ commentaries
The Examiners’ commentaries, which are provided annually, are a very
good resource. The reports provide you with two sources of information:
• how students have performed in the previous year’s examination
• what the Examiners are looking for in the answers.
A consistent comment in the last few Examiners’ commentaries, is that
answers to examination questions were generally far too descriptive. The
analysis, if any, was left to the last paragraph, but more commonly the
argument was only stated in the last sentence.
A significant proportion of candidates tend to reproduce theories relating
to the topic of the question regardless of what the question is asking.
Some candidates, on seeing a familiar word or concept, write everything
they know about that word or concept and do not address the terms
of the question asked. Overall, too many candidates are trying to fit a
revised ‘standard’ answer into the question asked. The consequences are
that candidates are giving strong signals to Examiners that they do not
7
know what the question is asking for. A critical learning point from the
Examiners’ commentaries is that describing particular theories is not what
the question is looking for – the key is to use the theories, recognising their
strengths and limitations to help address the issues raised by the question.
Ensure that you refer to the Examiners’ commentaries frequently
throughout your study. As you cover topics, you should attempt to answer
previous examination questions and understand the Examiners’ comments
on those particular examination answers. Take time to attempt to fully
understand the Examiners’ comments and the mistakes made by previous
students. This should be done topic by topic, and you should not progress
from one topic to the next until you have:
a. attempted to answer a previous examination question on that topic
b. read the Examiners’ comments on that question
c. thought about ways in which you could improve your own answer.
8
Part 1: Introduction
Part 1: Introduction
9
Notes
10
Chapter 1: Human resource management: theories, models, policies and practices
Chapter 1: Human resource management:

theories, models, policies and practices
1.1 Introduction
This chapter starts with an introduction to the field of HR management in
which four questions are posed:
• What is HR management?
• Why are HR policies, programmes and plans so important?
• How do HR policies, programmes and plans work?
• What is the difference between academic study and the practice of HR
management?
1.1.1 Aims of the chapter

• The aim of this chapter is to introduce students to the study of human
resource management.
1.1.2 Learning outcomes

By the end of this chapter, and having completed the Essential reading and
• describe what is meant by HR management
• explain why HR policies, programmes and plans are key to an
organisation’s success
• discuss the difference between academic study and the practice of HR
management.
1.1.3 Essential reading

There is no truly Essential reading for this chapter. It will, however, be very
useful to help your understanding of the first section if you could look at
the following texts:
(Basingstoke: Palgrave, 2012) first edition [ISBN 9780230251533] Chapter
1 ‘Contextualizing human resource management’ and Chapter 2 ‘A critical
perspective on strategic human resource management’.
edition [ISBN 9780273713067] Chapter 1 ‘Introducing human resource
management’.
1.1.4 Further reading
Books
(Basingstoke: Palgrave, 2012) second edition [ISBN 9780805838626]
Chapter 1 ‘The nature of contemporary HRM’.
Journal articles
Huselid, M. ‘The impact of human resource management practices on turnover,
productivity, and corporate financial performance’, Academy of Management
Journal 38(3) 1995, pp.645–70.
11
1.1.5 References cited

Dessler, G. Human resource management. (Pearson, 2007) eleventh edition.
Hellriegel, D., S. Jackson, J. Slocum and G. Staude Management. (Oxford
University Press, 2009) third edition. Chapter 13 ‘Managing human
resources’ [ISBN 9780195982169].
1.1.6 Synopsis of chapter content

In this chapter we define what is meant by HR management, explain why
HR policies programmes and plans are so important, and consider the
relationship between HR management and productivity. We examine the
difference between the academic study of HR management and practice,
and explain why theory is important.
1.2 What is HR management?

In 1937 Ronald Coase, a Noble Prize winning economist, explained how
some economic activities are most efficiently coordinated within firms,
while others are most efficiently coordinated by markets. ‘Management’
can therefore be defined as the art and science of coordinating activities
within a firm, via a process of managerial decision-making, including areas
such as finance, operations, sales and marketing, and human resources.
HR management can in turn be defined as:
‘The process of analysing and managing an organisation’s human
resource needs to ensure satisfaction of its strategic objectives’
(Hellriegel, Jackson, Slocum and Staude, 2009)
and
‘The policies and practices involved in carrying out the “people”
or human resources aspects of a management position, including
recruitment, screening, training and appraising’ (Dessler, 2007).
Important themes to note in these definitions, which will be picked up
again during the course of the subject guide, are:
• the role of analysis as well as management
• the connection between HRM and achieving an organisation’s strategic
goals
• the importance of HR policies and practices; and specific HR activities
such as recruitment, selection, learning and education, and
• performance management
to which we might add other things, such as reward, job design,
employment (or ‘manpower’) planning, diversity management, equal
opportunities and employment relations.
The history of HR management can be dated back to the 19th century,
when some enlightened industrial companies in the US and Europe
employed welfare officers to look after the wellbeing of workers, especially
women and children. In the 1920s and 1930s companies employed labour
managers to handle pay, absence, recruitment and dismissal. By the late
1940s labour management and welfare work had been integrated under
the banner of ‘personnel administration’. As the importance of people to
the success of firms was increasingly recognised throughout the 1970s
and 1980s, personnel administration became ‘personnel management’ and
eventually ‘human resource management’. Today some companies refer
simply to the ‘people’ function and call their most senior HR executive the
‘chief people officer’.
12
More information about the history of HR management can be found on the

website of the UK’s Chartered Institute of Personnel and Development at:
www.cipd.co.uk/hr-resources/factsheets/history-hr-cipd.aspx
1.3 Why are HR policies, programmes and plans so

important?
The effective management of an organisation’s employees (i.e. its human
resources) is arguably the single most difficult, most complex, most
ambiguous, yet most important task that managers face. It is an area of
management policy-making that is not characterised by rigorous globally
accepted professional standards. This is true for at least four reasons:
• HR policies refer to human behaviour, which is complex, often conflict-
ridden, and culturally dependent.
• There are many different HR policy instruments and practices.
• The success or otherwise of different HR policies, programmes and
plans is difficult to evaluate.
• Many managers believe that people management is just common sense.
1.3.1 HR policies refer to human behaviour

Because HR policy deals with managing people, it involves human
behaviour and relationships that are inherently complex, potentially
conflictual and sometimes problematic. Machines or money markets are so
much easier to deal with than people, so that (contrary to much popular
opinion) being a production engineer or a finance officer is arguably
far easier and more straightforward than being responsible for ‘people
management’.
In order to understand HR policy properly, whether as an analyst or as a
practitioner, you need to acquire many skills. You need to know how and
why organisations make the choices they do and behave the way they do;
this means you need a theory of the firm.1 But you also need to know how 1
In this guide we
and why workers behave and react in the ways they do, whether as will use the terms
‘firm’ and ‘company’
individuals or in groups; and you need to be able to judge how they might
interchangeably,
behave and react if circumstances (e.g. the HR policies) were to alter; this reflecting American and
means, among other things, that you need effective theories of motivation. British usage.
These are formidable requirements, and they imply that you need to blend
together the different social science disciplines, for example, economics,
industrial relations and organisational behaviour. HR policy is therefore
inherently multidisciplinary, which might make it more interesting for
some but definitely makes it more difficult for everyone.
You also need to know more than just the theory; you need to know the
empirical work too. This requires a grasp of research design, a store of
complex information, and the ability to manipulate and interpret that
information, which is why statistical expertise is becoming part of the HR
professional’s job description. So, to understand and design HR policies
properly is not a trivial intellectual task.
1.3.2 Many HR policy instruments and practices

A second reason why HR policy is hard to get right comes from its
multiplicity of policy instruments. Policy-makers in all fields have policy
instruments. One problem for HR policy-makers is that there are so many
HR instruments available to them: hiring policy, induction policy, training
policy, employee development policy, pay and rewards policy, job design
decisions, career or promotion policies, and so on.
13
Adding to the complexity, each area of HR policy is likely to have some

impact on the others. This means that it is unwise to analyse any single
policy in isolation from the others. One should instead see it in the context
of the whole, which means having a sense of possible ‘HR strategies’, or
groups of policies. The very multiplicity of policies makes the whole subject
ambiguous.
1.3.3 HR policies, programmes and plans are difficult to evaluate

A third reason why HR policy is so difficult is that HR policies,
programmes and plans are very hard to evaluate properly, so that
managers cannot easily establish whether their policy choices are wise.
Neither can outside analysts easily find out whether a firm’s policies, or
those of a set of firms, are working optimally.
HR managers often distinguish between policies (local sets of rules or
codes established help coordinate people management activities within
an organisation), programmes (interventions designed by HR managers
to achieve specific objectives such as a change programme following a
merger or redundancy programme resulting from a prolonged decline
in sales) and plans (specific instruments or tools such as an incentive
plan). These three active forms of intervention can be contrasted with HR
practices, which are informal rules or codes – ‘the way things are done
around here’. These are helpful distinctions to use when evaluating HR
activities.
Natural scientists can conduct controlled experiments to assess the full
consequences of a course of action. Social scientists cannot usually do this,
and when they can it is normally possible only in the artificial environment
of the social science laboratory. Running controlled experiments in the real
world of work is exceedingly hard, and very rare. So HR policy evaluations
have to be done indirectly, and with much less precision. The result is that
no one can be at all confident that managers are in fact doing the right
thing, even if their HR policy choices look plausible by the standards of
common sense or some theory.
1.3.4 ‘People management is just common sense’

The fourth reason why HR is so hard to get right is the prejudice shared
by so many managers that people management can be done by almost
anyone, and requires common sense rather than special training. It seems
that everyone has an opinion on HR issues. HR is sometimes seen as an
area of management that should be done by those who are not quite good
enough to do other more demanding management tasks.
1.3.5 The important of getting HR policies, programmes and plans

right
Having suggested some reasons why HR management is complex, we now
want to explain why it is nevertheless very important to get it right, and
from there to consider the principal objectives or purposes of HR policy.
We need to consider three linked questions:
• What leads to organisational success?
• What is the role of HR?
• What is the underlying objective of HR policy?
1.3.6 What leads to organisational success?

Commercial success depends on many things, central among which is
that a firm must offer to the market the right products on the right terms.
14
This requires a range of competencies, for example, sensible product

development, the right choice of production technology and shrewd
marketing. But it also requires the right cost structure. Firms that do not
control their costs in the long run tend to fail.
Cost control is obviously necessary in highly competitive activities.
Globalisation and more extensive international trade have almost certainly
increased competitive pressures, so cost control is arguably becoming ever
more important. International competition confined to manufacturing
industries. There is intense international rivalry in services too, for
example in banking, professional services, consultancies and tourism. Nor,
with the coming of privatisation and the reality of widespread pressures on
public sector budgets, is cost consciousness confined to the private sector.
If a government agency has its budget squeezed, it is put under greater
pressure to meet its statutory obligations by increasing its efficiency. This
is just another way of saying that it must control its cost base ever more
stringently.
1.3.7 The special role of labour costs

So far we have emphasised the importance of controlling costs, but which
costs are central? There are many sources of costs, for example the costs of
labour, the costs of capital, and the costs of components or supplies. All of
these are worth controlling, but labour costs are worth special attention,
for at least two main reasons.
First, for many firms, they are the largest single element of costs. This is
most obviously true for many firms in the service sector, where labour
costs can comprise 80 per cent or more of total costs.
Second, even where labour costs are not the largest cost element, they are
often the largest element over which the firm has much potential control.
So, for example, a manufacturing firm may spend a lot of money on
buying in components, but so too will most of its competitors and all will
generally face more or less the same component prices. The implication
is that the costs of components will be surprisingly similar across the rival
firms and be something over which they have only limited control. The
situation is often different with respect to labour costs. It is here that each
firm can institute distinctive policies which reduce its costs and give it a
durable competitive advantage.
1.3.8 Labour costs and productivity

The meaning of the term labour costs can best be seen by an example.
Assume a firm has the following situation:
• It produces a total output of 10,000 units per week.
• It employs 100 workers.
• It pays each worker $400 per week.
In this firm, therefore
• Labour productivity (or output per worker) is 100 units per week,
(10,000/100).
• Total labour costs are $40,000 per week ($400 100), and most
interestingly,
• Unit labour costs are $4.00 ($400/100).
It is this last notion of unit labour costs that we mean when we talk
about controlling labour costs. Fundamentally, the firm is interested in
minimising its unit labour costs for each level of output, so the focus is on
15
both costs and productivity. Managing long term unit labour costs is one of
the main underlying objectives of HR policy.
Activity
Are there any other objectives of HR policy apart from controlling unit labour costs?
Make notes on your own thoughts before reading further.
Answer
Some commentators focus on other aspects of commercial success, for
example innovation, and see one of the HR function’s key roles as helping
to foster a culture of creativity and innovation within an organisation.
There is certainly something in this, and a school of strategic thinking
based around the resource-based view of the firm has developed alongside
strategies which focus on cost advantages. Nevertheless, in the long run
cost control remains of great importance.
There may also be other general societal objectives for HRM. For example,
some organisations feel that it is important to be, in some sense, ‘a good
employer’. This means that they choose to act to a degree in the interests
of their employees even if this does not minimise labour costs. Some
organisations choose to act paternalistically. In principle, this might be
seen by the corporations themselves as a way to reduce unit labour costs;
in practice, they surely also reflect some degree of ethical concern over
the interests of the employees. No one can deny that such concerns exist
and influence many aspects of HR policy. It is true, however, that in the
long run they are nearly always subordinate to sustaining commercial
success.
1.4 How do HR policies, programmes and plans work?

If the core HR policy objective is to control unit labour costs in the long
run, how can this be achieved? To answer this we will recall the definition
of unit labour costs and contrast attempts to reduce wages and to enhance
productivity. We shall then look at how productivity can be enhanced.
1.4.1 Controlling wages

For many people, the obvious way to control unit labour costs is to keep
wages down; as an alternative the firm can also attack fringe benefits
(like holiday entitlements or private pension arrangements). In fact,
wage cutting is rarely central to HR policy in reality. This is not to suggest
that firms are indifferent about wage levels, nor to deny that some firms
choose to locate their activities in places where they think wages are low.
But most firms realise that their success is not generally based on driving
wages down.
All firms operate in labour markets which generate typical wage rates for
the different kinds of labour they might want to hire. Within any local
or occupational labour market there is normally a range of wage rates
for any grade of labour and that range is often relatively narrow. A firm
offers a wage from within that range but it faces certain consequences
of its choice. If it chooses to pay, say, in the top 25 per cent of the wage
distribution it will tend to attract somewhat better applicants (i.e. people
who will normally be more productive on the job). Similarly, if it chooses
to offer a wage from the lower part of the distribution it will tend to
attract rather poorer quality labour.
16
So any cost gain from the choice of paying lower wages will have to be
balanced against the resulting loss of performance from the less effective
labour; and a cost burden from the high wage choice will produce an
offset from the better performance of the better quality labour. It is an
empirical question as to where the best choice lies (and it may depend
on how important labour quality is to the firm’s more general business
strategy), but choosing the lowest wage is not always beneficial. More
generally, firms have limited room for manoeuvre on the wage front.
1.4.2 Raising productivity

If wages were all that mattered, all the world’s production would gravitate
to low-wage countries in the developing or underdeveloped world. This
is not what we observe, which means that their low-wage advantage is
offset by something else. The obvious offset is their low level of labour
productivity.
This takes us on to the second and much more important route by which
low-unit labour costs might be secured, that of raising output per worker.
The higher the output per worker, the lower the unit labour costs. Most
HR policies can be understood as ways of trying to reduce labour costs by
raising output per worker.
Thus, better hiring policies offer the prospect of finding more suitable,
more productive workers; effective appraisal schemes can raise
productivity by providing better feedback; performance-related pay can
improve performance through better incentives; and so on. Another way to
express this is to say that value-for-money HR policies result in lower unit
labour costs.
This interpretation, that HR policy is basically about controlling unit
labour costs by raising labour performance, is controversial. Many think it
is out of date and that we should pay more attention to newer emphases,
say, on innovation or learning. In our view, that is to misunderstand what
is being said. Innovation and learning are, of course, important. From the
firm’s point of view their prime importance is that they make the employee
more productive (and hence reduce labour costs and improve the firm’s
competitive position). They can also raise the quality of the product,
whether it is a tangible product or a service. Expressed another way, this
means that the firm can produce higher quality at a lower cost. So these
other ways of looking at the task of HR policy are not in conflict with our
view – rather, they are particular ways by which the fundamental objective
can be reached.
1.4.3 How can productivity be raised?

Most studies of productivity growth at the level of the overall economy
conclude that it stems mainly from ‘technical change’ and accumulations
of ‘human capital’. This seems to leave little role for HR policy. That may
be deceptive, but let us start with these two arguments.
Technical progress means that new inventions and new technology are
embodied in new capital equipment and are beginning to be used in
production processes. The obvious example from the past 20 years is the
growing use of computers throughout most economies. Human resource
issues are rarely the cause of new technology, but new technology
often carries implications for HR policy. For example, new processes
will frequently change the kind of labour a firm wants to hire, or the
amount of training it wishes to provide, or the way in which it organises
its production. HR policy is therefore affected by and responds to
17
technological choices, and for new technology to work as it should HR

policies have to be properly integrated into production decisions.
Accumulations of ‘human capital’ refer to the fact that, over time, people
generally have more and more resources invested in them. This is most
obviously true for training and education investments, but it might also
refer to such things as better health levels. These investments clearly raise
people’s average productivity levels and contribute to economic growth.
Some part of it may reflect firms’ HR policy decisions but most of it results
from the choices made by governments or parents or the individuals
themselves.
If these two factors explained all of the growth in labour productivity there
would be much less reason for you to study HR policy. But they don’t.
A neat way to show this comes from the fact that, in the real world, we
observe large differences in productivity even amongst similar workers
employed in a given firm. A common finding is that the best worker on
any given task in a firm is more than twice as productive as the worst. Very
little of this variation is likely to be due to different technology, because all
the firm’s workers will be using the same technology.
We therefore have to consider two other parts of the productivity story,
both of which relate centrally to HR policy:
• the way in which production is organised, which we may call ‘job
design’, and
• policies designed to secure the competence and generate the
motivation of the workforce.
1.4.4 Job design

Every firm has a range of products, and each must choose between
available technologies when producing those products. This involves
combining different types of capital and different types of labour.
Over time, firms have tended to adopt increasingly capital-intensive
technologies, a fact which has complex implications for the firm’s typical
skill mix. Newer, more capital-intensive technologies are often believed to
reduce the demands for some skills and increase the demand for others.
The choice of technology leads on to an equally important one, which
may be called ‘job design’, ‘task specification’ or ‘work organisation’. It is
important to see that, even with a given technology, every firm still has
some choice of job design.
Consider what happens in a university or college. The ‘product range’ is
teaching plus research, the production of which requires the intermediate
output of ‘administration’. The most important ‘input’ into this complex
production process is high-quality labour; our job design issue, therefore,
involves the choice between:
a. specialised researchers plus specialised teachers plus specialised
administrators and
b. staff who each do all three tasks.
In other words, in designing the jobs, or specifying the tasks which the
labour force is expected to do, a decision has to be made on how wide a
range of duties each employee is expected to perform; in HR jargon, we
have to decide on the appropriate degree of functional flexibility. This
decision is likely to affect productivity levels, and the bias in recent years
in many countries and in many industries seems to have been to go for
greater functional flexibility (which means a wider range of tasks and,
therefore, diminished specialisation).
18
Not only does the decision affect productivity, but it also has implications
for the content of a firm’s HR policy. For example, emphasising functional
flexibility will generally change the firm’s hiring decisions because it
means that the firm now wants to hire more able and better educated
workers; and it will usually affect the firm’s training policy, in that the firm
will probably need to organise more training to make functional flexibility
succeed.
The choice of production process and the details of the design of jobs
are therefore important for us, both because they affect productivity and
because they are at the heart of a whole set of HR policies.
1.4.5 Achieving productive potential by harnessing competence

and motivation
Whatever the decision on the production process, it is obviously in the
interests of the firm to capitalise fully on the productive potential of its
workforce. This means that its employees should be both able and willing.
‘Able’ means that they are both competent and aware of what is required of
them. These two requirements have messages for HR policy. Competence
says something about, for example, hiring decisions and training policy;
awareness of what is required says something about policies towards, for
example, supervision, performance monitoring, appraisal, feedback and
goal setting.
Employee ‘willingness’ is even more complex and takes us on to the
critical and mysterious area of motivation. Workers are not automata. The
workplace is a locus of complex psychological and sociological factors
which operate at both the individual and the group level. Even when we
have a situation where a superior can give orders which more or less have
to be obeyed (in the military or police forces, for example), the problem
of ‘morale’ (and with it ‘performance’) remains a real one. For more
typical workplace situations, workers individually or collectively always
have a ‘zone of discretion’, where they can choose to supply more or less
‘effort’, and therefore to be more or less productive. The larger that zone
of discretion the more the firm’s policies should be geared to induce their
willingness to give effort and improve performance.
Managers can adopt a whole range of policies in an attempt to induce
this willingness, or to ‘motivate’ their workforce, and the sensible specific
things to do depend on the context. Broadly, however, the firm can
emphasise:
• ‘extrinsic satisfaction’ and extrinsic rewards
• ‘intrinsic satisfaction’ and intrinsic rewards.
If the firm emphasises extrinsic rewards it will place great weight on its
payment system so as to offer its people appropriate incentives. This is
motivation via money and it rests on the widespread view that money
is a highly effective motivator. Many people believe this. But before you
accept it as the complete solution to the problem of motivation, you might
wonder why so few employees have a large part of their total salary tied to
their immediate and individual performance level. We are not suggesting
that payment systems are unimportant; we are arguing instead that
motivation is much more complicated than many people believe.
It seems clear that many workers are not motivated as powerfully or as
exclusively by material rewards as some think. They might, for example,
have strong professional or occupational standards and values (think of
nurses) or strong personal standards (some people always like to do a
19
good job whatever the situation). For such people the intrinsic satisfaction
of the job is very important and the employer is wise to attend to it
carefully. This leads to the philosophy that the organisation should seek
to secure a more complex relationship with its workforce than just the
money one. This has many possible ramifications. For example, the firm
might design jobs with an eye to improving job satisfaction; or it might
introduce policies seeking to develop a sense of trust, obligation, loyalty
or commitment amongst its workforce. The underlying belief would be
that such feelings would reflect intrinsic satisfaction and, in one way or
another, lead to higher performance levels and greater organisational
success.
We may explore these ideas further by using Walton’s contrast between
‘control’ and ‘commitment’. This refers to the degree to which a firm gives
its employees discretion and power over how things at the workplace are
done. Managers may wish to retain tight control and direct workers (i.e.
‘control’). Alternatively, they might believe that it makes sense to give
employees considerable leeway, because they believe that doing this will
motivate employees to perform better; to this end they might therefore
seek to engender a sense of commitment or loyalty to the firm. In policy
terms, this might lead them to stress the importance of such things as
retaining workers in lean times, engaging in conscious communication
policies, and attempting to generate a particular ‘climate’ or ‘culture’
within the firm. All this would be designed to build up ‘trust’ relations,
which has fundamental implications for HR policy.
1.5 The difference between academic study and the

practice of HR management
We are often asked about the relationship between the academic study
and the practice of HR management. Studying management is not like
studying medicine or law, which require academic credentials as a ‘licence
to practise’. Nor, at the end of your studies of HR management, will you be
able to walk into a company and manage the HR function – practical skills
and experience are also required. Nevertheless, studying HR management
as an academic subject is of immense value to anyone hoping to work
in an executive role in an organisation, as an entrepreneur in their own
business, or in a worker representation role (e.g. in a trade union). By
studying HR management you will acquire knowledge – of the context in
which HR management happens, as well as of specific policy interventions,
employment practices, HR programmes and plans. You will develop a
critical perspective – to help you evaluate and make decisions about issues
which may be presented to you in future in a work situation. And you will
develop an ability to communicate – particularly in writing – which will be
important for your future careers.
This chapter has discussed what is meant by HR policies, programmes,
plans and practices, which categorise different areas of practical activity
for the HR function. In the following chapters we will be introducing a
number of theories and models, which are academic frameworks used to
analyse and evaluate HR activities. Theories and models are key to our
understanding of the world and are therefore of immense practical value
(the famous social psychologist Kurt Lewin once said ‘there is nothing so
practical as a good theory’). Don’t be fooled by people who say that they
don’t want to learn theory, they just want to know how to do HRM.
We hope you will also come to enjoy studying HR management in its
own right. As we said earlier, HR management draws on many different
20
academic disciplines, including economics, sociology, industrial relations

and organisational behaviour, which make it a fascinating area of enquiry.
1.6 A reminder of your learning outcomes

Having completed this chapter, and the Essential reading and Activities,
you should be able to:
• describe what is meant by HR management
• explain why HR policies, programmes and plans are key to an
organisation’s success
• discuss the difference between academic study and the practice of HR
management.
21
Notes
22
Part 2: Capabilities
Part 2: Capabilities
23
Notes
24
Chapter 2: Recruitment and selection
2.1 Introduction
Recruitment and selection is an important issue within human resource
management. In any organisation that views the human resource as a
major source of competitive advantage, attracting, selecting and retaining
the right people to the organisation will be of great importance.
The aim of the following sections is to look systematically at the key areas
of the overall process, these being:
• recruitment
• shortlisting
• final selection.

• The aim of this chapter is to describe and explain the processes of
recruitment and selection, drawing a clear distinction between the
two, to compare and evaluate different methods of recruitment and
selection, and to consider whether there is one universal best-practice
approach.

• explain why recruitment and selection is an important issue,
particularly in relation to issues concerning commitment and attitude
and workforce heterogeneity
• describe the recruitment process, from the point of view of the need
to avoid ‘automatic replacement syndrome’ and the need to compile a
systematic job and person specification
• compare the different methods of recruitment, and ways of evaluating
them
• compare the effectiveness of different methods of selection and make
recommendations as to when they should be used
• outline the key arguments in the debate as to whether there is a ‘one-
best way’ for recruitment and selection.

(Harlow: Financial Times, 2011) eighth edition [ISBN 9780273756927]
Chapter 7 ‘Recruitment’ and Chapter 8 ‘Selection methods and decisions’.

Barclay, J. ‘Improving selection interviews with structure: organisations’ use of
“behavioural” interviews’, Personnel Review 30(1) 2001, pp.81–101.
Barrick, M., M. Mount and T. Judge ‘Personality and performance at the
beginning of the new millennium: what do we know and where do we
go next?’, International Journal of Selection and Assessment 9 (1/2) 2001
pp.9–30.
Capelli, P. ‘Making the most of on-line recruiting’, Harvard Business Review
79(3) 2001, pp.139–48.
25
Dell, D.N. Ainspan, T. Bodenberg, K. Troy and J. Hickey ‘Engaging employees

through your brand’, New York: The Conference Board, 2001.
Keep E. and S. James ‘Recruitment and selection – the great neglected topic’,
SKOPE Research paper No 88 February 2010.
Lucas, R., B. Lupton and H. Mathieson Human resource management in an
international context. (London: CIPD, 2006) [ISBN 9781843981091]
Chapter 6 recruitment and selection.
Tong, D.Y.K. and C.N. Sivanand ‘E-recruitment service providers review.
International and Malaysian’, Employee Relations 27(1) 2005, pp.103–17.
Wolf, A. and A. Jenkins ‘Explaining greater test use for selection: the role of
HR professionals in a world of expanding regulation’, Human Resource
Management Journal 16(2) 2006, pp.193–213.

Anderson, N. and V. Shackleton Successful selection interviewing. (Oxford:
Blackwell, 1993) [ISBN 9780631188738].
Beardwell, I. and L. Holden Human resource management: a contemporary
approach. (Harlow: Financial Times Prentice Hall, 2000) third edition
[ISBN 9780273643169] Chapter 6 (Wright and Storey).
Beardwell, J. and T. Claydon Human resource management: a contemporary
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9780273722854].
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Cascio, W. Applied psychology in human resource management. (New York:
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(London: IPD, 1999) U.-C.
Klehe, U-C. ‘Choosing how to choose: Institutional pressures affecting the
adoption of personnel selection procedures’, International Journal of
Selection and Assessment, 12 2004 pp.327–42.
Merrick, N. ‘Wel.com aboard’, People Management 17 May 2001.
Premack, S.L. and J.P. Wanous ‘A meta analysis of realistic job preview
experiments’, Journal of Applied Psychology 70(4) 1985 pp.706–19.
Saxe, L., D. Dougherty and T. Cross ‘The validity of polygraph testing’, American
Psychologist 40, 1985, pp.355–66.
Webster, E. The employment interview: a social judgment process. (Ontario,
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Whitehead, M. ‘A time for buy-in’, People Management, 3 June 1999.
Wilson, F. Organisational behaviour and work: critical introduction. (Oxford:
Oxford University Press, 1999) [ISBN 9780198782575].

In this chapter we look at how, why and when organisations decide to
employ additional people. We look in detail at why organisations choose to
use specific recruitment methods and selection methods.
2.2 The importance of recruitment and selection

Recruitment and selection is not just important where recruitment to
management or professional positions is concerned. The same principle
holds true for all the jobs in an organisation. For companies that value
the commitment and motivation of all their staff, it makes sense to
recruit each person extremely carefully to make sure they are getting
people with exactly the skills, qualities and attitudes for which they are
looking. If the ‘wrong’ people are recruited, it could prove expensive for
an organisation. First, they might not be able to do the job, so they will add
26
cost to the organisation, second, they may leave and so the whole process of
recruitment and selection will have to be repeated, with the implications for
cost and time. Third, they may have an adverse effect on existing workers.
There are further reasons why recruitment and selection is assuming
greater importance. First, the workforce is becoming increasingly
heterogeneous. This is partly due to globalisation, partly to the willingness
of workers to become ‘expat’ workers and leave their home country to
work abroad, partly the fact that some countries (e.g. Canada), are still
net importers of labour, partly due to more women coming into the labour
force, the increase in flexible working (part-time and tele-working),
aging populations (e.g. in Japan and the UK) and partly due to peoples’
changing attitudes (e.g. towards disabled colleagues). A second reason is
that governments are showing an increasing tendency to intervene in the
labour market by passing legislation. An organisation that failed to keep to
the law could find itself with added costs (e.g. fines) and a reputation that
it treated people unfairly. It may find it difficult to recruit in the future.
Activity
Think about recruitment in your country. What changes have you noticed that are due
to social and political change and what changes have come about because of changes
in the law? If you need help with this, use the website of your government. They usually
have lots of useful information. In addition, you might want to talk to relatives and
friends who are already at work. What changes have they noticed in the last five years?
2.2.1 Factors that should be taken into account when you are
recruiting and selecting
Recruitment is the process of finding and attracting a pool of suitable
candidates for the vacancy. Letting people know there is a vacancy is
essential. Advertising is important here, in terms of selling the company
to the sort of people outside the company that they would ideally wish
to recruit. Advertising can also apply to jobs which are only available
to candidates who already work for the firm (internal labour market.)
Obviously, the advert would be kept internal to the organisation (e.g. on
the company intranet).
Once a pool of candidates has been created, the next phase concerns
shortlisting. The aim at this stage is to either reduce the number of
applicants to manageable proportions or to ensure that all the candidates
have the necessary skill and ability to do the job. This process is carried
out before the more detailed assessment of candidates within the final
selection phase. It is another way of saving time and money.
Before we look more closely at the recruitment and selection processes, it
is worth thinking about what is meant by ‘effectiveness’ from the point of
view of the recruitment and selection process. Recruitment and selection
processes are typically assessed on the following criteria:
1. Cost and budget. As a manager, you will need to keep control of
your costs and keep within a budget. Jobs that are easier to fill and
which have a low impact on the success of an organisation should
not cost as much to recruit as higher level jobs that will have a high
impact on organisational success and may in addition need skills and
knowledge that are scarce in the labour market. Selection methods for
the low-skill, low-impact jobs should be cheaper and less sophisticated
than the high level jobs.
2. Validity. This refers to the extent to which a particular recruitment
27
or selection technique is an accurate or valid predictor of actual

future job performance. Validity is expressed on a scale of 0-1, where
0 means a particular technique has zero predictive validity, and 1
means a technique has perfect predictive validity. Some techniques fall
into the zero category. Most techniques fall in the 0.2 to 0.6 validity
range (in other words, they provide a valid predictor of actual future
job performance between 20 per cent and 60 per cent of the time).
An associated criteria concerns reliability, which concerns how
consistently a particular technique measures what it is supposed to
measure.
3. Fairness. Does any part of the recruitment, initial screening and
final selection process introduce the possibility of bias in terms of age,
gender, race, disability, etc.? You will need to keep records to show that
you have conducted the recruitment and the selection in a fair way.
Your country may have legislation that says you must treat people,
regardless of their personal characteristics (e.g. gender or age) in the
same way.
2.3 Recruitment
2.3.1 Does a vacancy exist?
The first issue to be addressed within the process is to consider whether
or not a vacancy exists. Companies should avoid so-called ‘automatic
replacement syndrome’, by considering, when a member of staff leaves
the organisation, whether it is really necessary to recruit a replacement, or
whether work can be reorganised or rescheduled amongst existing staff.
In addition, a decision must be taken as to whether the vacancy should
be sourced internally, or whether it should be sourced externally. This is a
particularly important issue in instances where companies are looking to
provide their staff with opportunities for career advancement or where it
is the organisation’s policy to operate an internal labour market. This often
applies in the public sector.
If the company decides a vacancy does exist, the recruitment process
then starts. The first step is to determine the type of person or people
the company ideally wishes to fill the job, and how these people can be
encouraged to apply for the vacancy.
2.3.2 Conduct a job analysis

There is some debate over this stage. Traditionally, once the decision
has been made that a job needs filling, the first step is to undertake a
job analysis of the vacancy. The results of this analysis will enable two
documents to be produced:
• a job specification and
• a person specification.
A job specification is, in effect, a description of the job activities, task
components and task elements of the job on offer. The aim of this is to
enable the company to find out exactly what the job entails. They will then
be in a position to develop a person specification, in terms of the skills,
attitudes and knowledge that are needed to be able to perform the job
effectively. The job and person specifications are traditionally the basis of
successful recruitment and selection, as they provide the company with
exact information concerning the type of person required to fulfil the
vacancy on offer.
28
Nowadays, however, companies increasingly emphasise the importance of

flexibility, and as such, they expect their employees to be able to perform a
wide range of job tasks, as and when the workload requires. This is called
functional flexibility. In other companies, particularly those operating
in rapidly changing environments, the nature of the jobs performed by
individual employees can change extremely quickly. Given this, it becomes
impossible to undertake a job analysis, or evaluate the necessary skills to
perform a particular job, as the successful candidate might be expected to
be performing a completely different role in the near future.
As a result, it could be suggested that rather than undertake a traditional
job analysis or person specification, it is better to focus recruitment criteria
on the identification of candidates who are willing to be flexible, and who
have the right attitudes, motivational qualities and level of education,
rather than searching for candidates who have a specific set of skills. Many
employers now seek to employ graduates, but do not specify what subjects
the graduate should have studied.
Whichever approach is adopted, once the decision has been made as to the
type of person or people the organisation wishes to recruit, the next stage
is to plan how to attract sufficient well-qualified candidates who are able
and willing to do the job.
2.3.3 The recruitment strategy

Once the decision has been taken that a company wants to advertise a job
vacancy a decision must be taken as to how the advert will be worded and
where it will be placed. The first decision will be dictated by HR policy.
Will the job be advertised to existing employees only (an internal labour
market) or will the company advertise outside to the external labour
market? If the company decides to keep the advert internet, then they can
use the company intranet, staff magazine or the company noticeboard. The
choice of method depends on the type of vacancy, the extent of the labour
market and the availability of communication methods in the organisation.
As an example, a taxi firm will probably choose a noticeboard in the
‘signing-on room’, so that all the drivers will be able to see the advert.
If, as happens in Singapore, all the drivers have got computers in their
cab, then the firm could safely use email, even though the drivers are
permanently out on the road. If the choice is for an external advert, then
there is a range of recruitment methods that companies can choose from
advertisements in local newspapers or national papers, adverts in specialist
technical journals, recruitment agencies, executive search agencies, or
encouraging current employees to ask friends and relatives to apply (so-
called ‘grapevine’ recruitment). The latest way of advertising is to use
social media sites such as Facebook, and, of course, the internet. Some
newspapers now have associated websites, where jobs are advertised, the
moment that they come in and employers can often pay to advertise in the
newspaper and get the web advert free. A number of dedicated job sites
have also developed such as Monster.com. Any company that does not use
its own website is wasting money. Adverts on the internet are cheap, easy
to arrange, and easy to remove once enough candidates have applied.
Whichever way you decide to advertise you will be influencing how
potential employees see your organisation and more particularly what
they expect of you as an employer. You have begun to influence the
‘psychological contract’. The recruitment process is a marketing exercise,
with the company selling itself to the labour market in order to attract
the candidates it would ideally like to recruit. Companies are increasingly
using the strength of their brands and their reputations in order to
29
broaden their appeal to prospective new employees This process is called

‘employer branding’ (Dell et al. 2001).
Activity
Make a list of five organisations that you would like to work for, and then make a list of five
organisations that you would not like to work for. Why do you think you would like to work
for one company rather than another? Where have your expectations come from?
2.3.4 Which recruitment techniques should a company use?

Torrington et al. (2011, p.166) has a useful list of recruitment methods with
their advantages and disadvantages. In effect they are saying that with all
the possible recruitment techniques available, the company must decide
which technique is going to be most effective for the specific post or posts it
is trying to fill. The approach adopted will depend a great deal on the type
and level of vacancy. For example, internet recruitment will be of particular
interest to new economy and e-commerce companies and those companies
that want to recruit graduates. In terms of the level of the vacancy, different
techniques will be used depending upon whether the company is recruiting
to a managerial or executive job as opposed to a semi-skilled manual job.
The company will also need to consider time constraints, in terms of how
quickly it wants the vacancy to be filled, as some recruitment techniques take
longer to gather together a suitable number of candidates than do others.
Finally, the company will need to take into account cost limitations. Usually,
a company will be willing to invest greater financial resources in terms of
recruiting to vacancies at managerial or professional levels, but may be
more willing to exert greater cost control when recruiting to a semi-skilled
or unskilled post. The greatest cost is likely to be incurred where a company
needs skills and knowledge that are in short supply in the labour market.
Small and medium-sized companies often do not have a specialised HR
team of their own, or where they do the HR team may be only one or two
people. When these organisations want to recruit, they often outsource
the activity to a specialised agency. These recruitment agencies are known
as labour market intermediaries and have been growing in prominence
over the last 10 years. They are used to carry out initial recruitment or
the attraction of candidates who want to work in a particular kind of job.
Frequently the agencies specialise in particular segments of the labour
market (e.g. finance jobs or jobs in the care sector such as nursing home
assistants). Another function carried out by the agency is the shortlisting of
the candidates into a suitable number for the selection process. One criticism
of recruitment agencies is that they rely on commission for payment and
they are in a competitive market. The more candidates that are placed, the
greater the commission. It is possible, therefore that some agencies do not
carry out a very thorough vetting of the shortlisted candidates, and that
they put forward potential staff who are not suitable for selection. The
result is that the employing organisation may waste time and money in
considering candidates who do not have the required competences (skill,
knowledge, attitude). To overcome this shortcoming some organisations set
up an exclusive contract with particular agencies. This enables the agency
to develop an understanding of the employer’s business and the detailed
requirements of the staff that they need. It also saves time in the long run
as the manager responsible for the recruitment can just ask the agency
to send along a suitable shortlist of candidates, without having to spend
time explaining his or her detailed requirements. The advantage of using
agencies is, therefore, to save time in recruitment. The agency probably has
candidates waiting for jobs on its books. This is especially so for specialist
30
agencies as people who want these jobs get to know which agencies to
contact to find a job. Even large firms such as some banks use agencies.
They have downsized their own administration functions, such as Human
Resources, and no longer have the time or expertise to do all the HR
functions themselves. It is also possible that, because of their specialist
nature, recruitment agencies do the job better. Another advantage is that
they enable line managers to do their own recruitment, without needing
the specialist knowledge of an HR professional. In international firms, the
use of a local recruitment agency is a distinct advantage. The central HR
department may not be aware of the labour market in all the countries
where they have staff. They would need help, especially with local
legislation and local customs. The use of an agency in this instance would
be invaluable.
We will now look more closely at e-recruitment. This includes everything
from sourcing or finding candidates to an initial assessment of candidates
over the web through online application forms and online assessment
tests. Companies are increasingly looking at whether e-recruitment has
the potential to become more viable or more effective than traditional
recruitment methods, and whether they will be able to replace their
traditional methods with e-recruitment. Many professional business
service companies such as McKinseys, Bain, PriceWaterhouseCoopers
and Accenture have designed their websites with the deliberate aim of
attracting talented candidates, with hyperlinks to job postings featuring
prominently on their home pages. According to the IPD’s annual
recruitment survey (Institute of Personnel and Development, 1999), 32
per cent of UK employers were recruiting through the internet in 1999 (up
from 14 per cent in 1997), though most companies only use it to recruit
to a limited number of posts. Ninety per cent of large US employers were
already using e-recruitment at the beginning of the century. (Capelli, 2001).
What are the benefits of e-recruitment? They can be enormous. On a typical
Monday (the peak day in the US for job-hunting on the internet) four
million people look for work on Monster.com, the leading US online talent
site. Monster.com also has 18 million employee profiles and CVs available
online (Capelli, 2001). This constitutes a massive resource that HR
departments can utilise in their search for suitable applicants. No company
can afford to ignore this resource in its quest to seek out the best available
talent.
Some companies have also established internet alumni networks. The aim
of these networks is to re-establish contacts with former employees that
have left the company to work for competitor organisations, and potentially
to instigate a rehiring process.
Online recruitment has also been demonstrated to be a quicker method of
recruitment than more traditional techniques. One study (Capelli, 2001)
found that companies took, on average, 43 days to recruit a new member of
staff using traditional techniques. This could be cut by six days by posting
jobs online, by another four days if online application forms were used and
a further seven days if applications were screened electronically. There are
also cost benefits to e-recruitment. Recruitment advertisements in national
newspapers are expensive. These costs can be avoided by advertising
online.
Companies have also found that the quality of applicants recruited online is
higher, as many would-be applicants who would not be successful anyway
are deterred by online application forms (see e-recruitment at British
Airways below).
31
e-recruitment at British Airways

As of 2001, British Airways told graduates hoping to join its ‘Leaders for Business’
management training programme that they could apply via email only. When BA received
5,000 applications instead of the usual 12,000, managers were initially concerned
that the move might have been a mistake. But it soon emerged that the online process
had helped filter out many of the applicants that would probably have been rejected
anyway. ‘We were dealing with a high-quality base,’ says Peter Holloway, BA’s head of
recruitment. ‘We had no trouble filling our places.’
The decision to accept only online applications coincided with the launch of BA’s jobs
website (www.britishairwaysjobs.com). All of its vacancies are posted on these pages
now, although most are also advertised in the more traditional media.
‘The moment people walk through our door they need to use the web,’ Holloway says. ‘So
in the graduate market that is a valid way to screen out people who are not conversant
with web technology.’
(Adapted from: Merrick, N. ‘Wel.com aboard’, People Management, 17 May 2001.)
Advantages of online recruitment

• Quicker. The web operates 24 hours a day, and no one has to wait for
the post.
• Easier administration especially for large numbers. The computer can
be programmed to carry out tasks such as sending acknowledgements
to everyone who applies.
• Cost reduction. See example above, the organisation does not need to
employ someone to write letters and post them.
• Is seen by many potential applicants. Sometimes people search out of
curiosity and not because they are actively looking for a job.
• Gives impression the company is up to date. Imagine if a company did
not use the web. What would you think of them?
• Enables internal vacancies to be advertised regardless of geography and
time zone.
• Advert can be tailored to the specific vacancy and adjusted quickly if
not effective.
• Can include pre-screening assessment. The computer can be
programmed to ‘weed out’ applicants who are not qualified or the
computer can invite all applicants to sit a test before the application is
accepted.
Disadvantages of online recruitment

• Will limit applicants to those people with access to a computer. This
is becoming less of a problem, but may still apply in different labour
markets in different parts of the world.
• Might attract too many applicants. Potential candidates may only need
to post their CV or résumé once on a website, but this may result in a
large number of employers receiving the information. This is good for
candidates, but expensive in admin terms for organisations.
• Ease of application may encourage non-qualified applicants. See above.
• May be discriminatory. Some jobs do not require knowledge and skill
with computers, why then filter all the applicants through the web?
• Gives an impersonal feel to an organisation which may stop some
applicants from applying. How would you feel if you applied for a job
32
online after you had taken ages filling in the application form and the
computer rejected you immediately?
• Technical problems can give a bad impression to candidates or stop
them from applying at all. If an organisation relies on a computer as
the only means of applying and the computer fails…!
• Search engine management needed to make sure that the organisation
is on the ‘first page’. When you search for something, the search
engine decides which information comes first. How many of us look at
information on the fourth or fifth page of results?
The above lists are based on Beardwell and Claydon (2010 pp.171–72).
Measurement
There are several techniques that companies can use when deciding
whether a recruitment method is effective and efficient. These are called
‘source analysis’ (i.e. they analyse the sources of applicants for the job to see
if they are effective). There are essentially three types of source analysis:
• Yield analysis: By examining the records of previous recruitment
campaigns, companies can identify the recruitment methods that in
the past yielded the greatest number of applicants, and the methods
that yielded the highest quality applicants. They can then determine
which method of recruitment is most effective for the particular type of
vacancy it is looking to fill. A systematic yield analysis can also assist in
ensuring fairness, in that it enables the company to calculate whether
certain recruitment methods discriminate against minority groups.
• Time-lapse analysis: By looking at records of previous recruitment
campaigns, the company can evaluate the length of time it took from
the start of a recruitment campaign to a job offer being made. The
company may well find that certain recruitment techniques take much
longer to yield successful applicants than do others. For example,
executive search agencies tend to take a long time, whereas employee
referrals can be very quick (Cascio, 1998). As discussed earlier, some
companies have found that the recruitment process can be speeded up
by advertising online. It is important to take this into account when
considering how quickly the vacancy needs to be filled.
• Cost-per-hire: Where an employer finds out which recruitment
method is most expensive. Executive search agencies tend to be
extremely expensive as the process is very labour intensive and relies
on the recruitment consultant building up networks of potential
employees even when no active searching is being done. ‘Walk-ins’,
where a potential employee phones or goes to the employer’s premises
and asks if there are any jobs are much cheaper. Another cheap way
to attract potential job applicants is to ask existing employees to ask
their friends and family if they want a job. The advantage is that this is
a reasonably quick (and cheap) method, but the disadvantage is that
people tend to recommend people ‘similar to them’ and so there may
be equal opportunity issues. The company may decide that it will utilise
the more expensive techniques only when recruiting to higher level
managerial or professional vacancies.
These techniques enable the recruitment process to be planned
systematically, rather than being based on hunch or intuition. But
remember that technology keeps changing so sometimes you may need to
try something new and not rely only on what you have used in the past.
33
2.3.5 Shortlisting
Once the company has received the applications for the job, it is then in
a position to begin the shortlisting process. The aim here is to reduce the
pool of candidates either because the advert attracted too many applicants
or to ensure that the candidates have the skill and knowledge required to
do the job.
2.3.6 Application form

This is the most popular method of obtaining initial information on
candidates. Often, companies screen candidates using a number of set
criteria, in terms of whether they have the qualifications, skills and
experience required. Some graduate recruiters use a points system. For
example, they will give a candidate an extra five points for each foreign
language spoken, or an extra five points for achieving a first-class honours
degree. If the candidate is successful in achieving a certain point tally,
they are invited to interview. Some application forms simply aim to find
out a candidate’s qualifications, skills and experience. Others are more
ambitious, in that they attempt to evaluate applicants’ likely degree
of loyalty, the extent to which they will be prepared to work unusual
hours, whether they are likely to be disciplined, or whether they possess
leadership skills,. The advantage of application forms is that all candidates
provide the same information so that one candidate can be compared to
another.
Many countries have regulations controlling what can and cannot be
included in application forms. Recent anti-discrimination legislation, for
example, in the UK has resulted in the withdrawal of questions on race,
national origin, and age. A separate sheet can be used for monitoring
purposes. But it must not be sent to the same person as the application
form. Often it is returned in a separate sealed envelope.
Activity
Ask your local lecturer what the law says about recruitment and selection in your country.
Do you think that it is easier or more difficult to select people if you have less information
about them? Why should this be? How do you think that discrimination can be avoided?
2.3.7 Biodata inventories

Candidates are requested to complete a series of multiple-choice
questions relating to biographical data, behaviour and attitudes. Using
psychometric techniques, the answers received can then be compared with
an ideal profile, and candidates displaying the attitudes and behavioural
characteristics that correspond closely with the ideal profile will be
considered for interview. The ‘ideal candidate’ is usually an amalgam of
the characteristics of successful existing employees. The disadvantage
therefore is that an employer will be recruiting similar people to those he
has already. This may not be the best thing to do long term as it may not
stimulate new ideas and innovations.
2.3.8 Job previews

There are a variety of methods that can be used to give candidates
information about the job for which they have applied. The aim is to
set expectations (influencing the psychological contract). Realistic job
previews can be included in interviews, ‘shadowing’ someone at work,
(especially for internal applicants) case studies, job sampling, YouTube
clips or DVD. The aim is to demonstrate to the candidate the tasks
34
involved and the skills required in performing the job they are applying
for, and then to encourage candidates to assess their own suitability for
the job and to self-select themselves out of the process if they feel that
the job is not suitable for them. The evidence suggests that realistic job
previews are successful in lowering candidates’ naïve expectations to
match organisational reality; they are effective in encouraging unsuitable
candidates to self-select themselves out of the process. The research also
shows that successful candidates have higher levels of organisational
commitment, job satisfaction, performance and tenure in instances where
effective realistic job previews have been used (Premack and Wanous,
1985). It is only job preview that enables the applicant to ‘opt out’ of the
job application process. All other shortlisting or pre-screening methods
involve a decision on the part of the employer to reject a candidate.
2.3.9 Drug screening

Approximately 20 per cent of US private sector firms now drug-screen
their applicants (Cascio, 1991). This is considered especially important
when recruiting to jobs for which public safety is an issue. There is
evidence to suggest that drug use predicts poorer job performance. For
example, in the largest study of its kind, the US Postal Service took urine
samples from 5,465 job applicants. When the data were examined six
months to a year later, workers who had tested positively were absent 41
per cent more often and were 38 per cent more likely to be fired. As a
result of the findings of the study, the US Postal service took the decision
to implement pre-employment drug screening nationwide (Cascio, 1998).
2.3.10 Graphology
Handwriting tests are not particularly popular in the UK. It is argued that
their accuracy is unproven, and experts argue that the tests can be ‘beaten’
(Saxe, Dougherty and Cross, 1985). They are, however, popular in France
and so may be used in French companies around the world.
2.3.11 Online tests

Some companies have highly sophisticated psychometric instruments and
tests to screen applicants online. For example, the website at JP Morgan
Chase contains a clever online application for college students: a game
based on job hunting and investment decisions, which elicits information
about applicants’ interests, attitudes and abilities (Capelli, 2001). Online
testing has obvious cost and time-saving benefits, and it is convenient
for applicants as anyone, anywhere in the world, can take the tests from
their own PC. There are several potential problems however, not least the
fact that people complete such tests unsupervised and can therefore quite
easily seek assistance in completing them. Concerns have been raised,
therefore, that tests conducted in a non-controlled and non-supervised
environment, may well be less than rigorous. To counteract this problem,
some companies retest candidates when they attend an interview.
2.3.12 Curriculum vitae or résumé

These are used in similar ways to application forms. An employer can
see whether the candidate has relevant qualifications and what their
job history is like. The disadvantage compared to an application form is
that these documents are designed and written by the applicant who can
include only the information that they want the potential employer to
have. On the other hand if an employer is recruiting for a job that needs
new ideas and innovative thinking, the design, layout and content of the
CV/résumé could provide useful information. Some candidates who are
35
seeking work in the media have been very innovative when it comes to
their CV or résumé. Some have designed video clips, some have paid for
bill board advertising and some have made films about themselves. In an
industry that requires fresh thinking and ideas, it helps if you can show
that you already have this talent.
Activity
Go on the web and search for a job that asks you to do a test before you apply. What
kind of test was it? How do you think that the test would help the employer to shortlist
candidates who are likely to be able to do the job? What was the test testing?
2.4 Selection
Having completed the process of shortlisting in order to narrow down
the pool of candidates, companies are now in a position to carry out final
selection. The objective of any selection method is to obtain evidence
on which to base a decision. The decision is whether the candidate is
likely to be able to do the job. The selection method chosen, therefore,
should be capable of generating evidence that is relevant and reliable.
The only guaranteed way of seeing if someone can do the job is to let
them do it! The next best thing is to give them the opportunity to do some
work sampling. If you want to see a list of selection methods with their
‘predictive accuracy’, then look at the book by Anderson and Shackleton
(1993 p.30). You can also see reference to their work in a variety of text
books such as, for example, Beardwell and Claydon (2010, p.178).
Examples of the final selection techniques available to companies include
interviews, assessment centres, tests and work samples. The techniques the
company decides to use may well depend on the level of vacancy, not least
because many of the techniques, such as assessment centres, are expensive
to administer. The criteria for choosing selection methods varies but will
include:
• the selection criteria for the job to be filled
• acceptability and appropriateness of the methods to the candidates
• qualifications of the staff involved in the selection (e.g. only qualified
staff can administer psychological tests).
This section examines in detail some of the debates and dilemmas
surrounding final selection processes. The first selection method and
the one that will be considered in most detail is interviewing. This is the
most popular method used across the world and, because of its popularity
‘interview’ is often used to mean selection. In this course, however, we
should ensure that there is no confusion. There are a variety of selection
methods and interviewing is just one of them.
2.4.1 Interviewing
Interviews can take a number of different forms. For example:
• Focused interviews: these are interviews within which the discussion
is focused on a pre-planned set of topics or subject areas but the
interviewer has the scope for flexibility to delve into certain issues in
greater depth.
• Structured interviews: these are focused on specific topic areas, with a
standard set of questions being asked to each interviewee. Candidates’
responses to the same questions can then be directly and systematically
compared with each other.
36
• Unstructured interviews: no plans are laid down concerning the topics

to be discussed or the questions asked and no attempt is made to elicit
comparable responses from different interviewees.
Activity
Before reading the next section make a list of what information you think can be obtained
by an interviewer. Then mark with a tick all those bits of information you can guarantee to
be true.
2.4.2 Effectiveness of interviews

There is a lot of controversy over the effectiveness of interviews as a final
selection technique, and a lot of evidence to suggest that their effectiveness
is poor, which is worrying and perhaps surprising, given how widely they
are used and the extent to which companies rely on them.
A great deal depends on the structure of the interview. In particular, the
research suggests that it is only structured interviews that are effective
as predictors of future job performance. Indeed, they rank amongst the
most effective selection techniques with a validity of 0.62. Unstructured
interviews, by contrast, have a much lower validity rating of 0.31 (Anderson
and Shackleton, 1993).
Why are structured interviews so much more effective than unstructured
interviews? A great deal comes down to the fact that it is easier to
objectively compare the responses from a range of candidates when
interviews are structured – they are all asked to respond to the same set of
questions and their responses can all be rated on a standard scale. Where
unstructured interviews are concerned, candidates are not necessarily asked
the same set of questions. Comparing the quality of responses from one
candidate to the next therefore becomes extremely difficult.
Structured interviews are seen as particularly effective when they are
conducted as a behavioural interview (asking, for example, how in the past,
the candidate displayed leadership skills, showed initiative or persuasiveness,
for example) rather than as a situational interview (how the candidate says
they would respond in a certain hypothetical situation) (Barclay, 2001).
The argument here is that it is difficult for a candidate to fake a response
in relation to something they actually did in the past. In the extreme, the
interviewer could verify candidates’ responses with former employers.
By contrast, when interviews are unstructured, it is difficult to assess the
responses given by candidates in any systematic manner. The process
becomes highly subjective, and it is this subjectivity that reduces the validity
of the process. Researchers have found that the subjectivity within the
unstructured interview process takes a number of forms:
• Expectancy effect: interviewers develop an expectancy of the
candidate based on prior information, for example from their application
form. This expectancy, which can either be positive or negative, can
cloud the interviewer’s judgement of the candidate during the interview.
This in turn can introduce ‘confirmatory information-seeking bias’, where
the interviewer deliberately sets out to use the interview to confirm their
prejudgement of the candidate.
• Primacy effect: interviewers tend to be much more strongly influenced
by what the candidate says at the start of the interview than later
on, and they will make decisions on candidates within the first few
minutes of the interview. One study conducted over a 10-year period at
McGill University suggested that interviewers make up their minds on
37
candidates, on average, within the first four minutes of the interview

(Webster, 1982). Interviewers then use the rest of the interview to
confirm the snap judgements made early on.
• Contrast effect: where the previous candidate was exceptional, this
can lead to the following candidate being rated poorly. Conversely,
where the previous candidate was exceptionally poor, this can lead to
the following candidate being given a high rating.
• Quota effect: in some instances, interviewers have to fill a quota
of successful candidates. If this quota is filled early on, candidates
interviewed later on in the process are less likely to be successful,
irrespective of their performance relative to earlier candidates.
• Similar-to-me effect: this refers to the phenomenon of interviewers
preferring candidates who have similar biographical background and
attitudes to themselves. Such a situation leads to the potential for race,
age and gender bias. It can also lead to a situation in which there are
too many like-minded people in an organisation, which in itself can
have negative performance consequences (see ‘Managing diversity at
Marks and Spencer, and British Telecom’ on p.42.)
• Personal liking bias: where an interviewer develops a personal
liking for a candidate on the basis of non-relevant common ground
(sporting interests, for example) irrespective of the candidate’s
suitability for the job.
• Physical cues: for example, wearing glasses is often equated with
intelligence.
• Ability to recall information: in an unstructured interview
situation, interviewers are in the position of having to think up the next
question, while simultaneously attempting to commit to memory the
answer the candidate is giving to their previous question. As a result,
it becomes extremely difficult for interviewers to recall information
once the interview has been completed, particularly in instances where
the interview is conducted on a one-to-one basis. The result of this
information recall problem is that the interviewer will end up making
decisions on candidates on only a fraction of the information imparted.
In sum, unstructured interviewing is seen by recruitment and selection
experts as the hallmark of an incompetent interviewer, and many experts
argue that they should not be used to make final selection decisions.
However, the majority of companies continue to use unstructured one-
to-one interviews as a basis for assessment, despite the fact that they are
so poor a predictor of future job performance. While the vast majority of
companies use interviews of one sort or another, estimates from the US
suggest that only about 35 per cent of companies use structured interviews
(Cascio, 1991) – the implication being that the remaining 65 per cent
of companies rely on unstructured interviewing. It would seem that
recruitment and selection in many companies continues to be carried out
by recruiters who remain unaware of the problems and complexities that
exist within the interview process. This may be because small companies
do not often have HR experts and in any case many line managers are
responsible for selecting their own staff. The continuing use of interviews
may also have something to do with the expectations of candidates. Would
you take a job if an interview were not part of the selection methods?
Interviews enable two-way communication, and candidates can ask
questions as well as answer them.
38
Activity
Consider a formal interview process that you have experienced (or discuss one with a
friend).
a. Do you think the interview was a structured, unstructured or semi-structured
interview?
b. Do you think the interview may have incorporated any of the types of bias outlined
above?
c. What evidence have you to support your views?
2.4.3 Selection tests

As well as interviews, there is a range of selection tests at the company’s
disposal. These include the following:
• Cognitive ability tests: these include numerical and verbal reasoning
tests. Ability tests fall into two categories: first, attainment tests (which
assess the skills a candidate already possesses, such as typing skills),
and second, aptitude tests (which assess the likely ability of candidates
to acquire new skills).
• Work sample tests/job simulation tests: these attempt to evaluate a
candidate’s practical ability. In these tests, the candidate is placed in a
situation they are likely to face in the job itself. For example, they might
be given an in-tray exercise and asked to prioritise the hypothetical
workload in a logical manner, or they might undergo a role-play
exercise where the candidate plays the role of a customer service agent
and the assessor plays the role of a difficult customer. Tests such as this
often assess the methods and processes the candidate utilises rather
than the results they achieve.
• Personality tests: these allow for the quantification of characteristics
that are considered by the company to be important to job performance
and difficult to measure by other methods.
There has been an increase in the use of these techniques. Indeed, it is
estimated that as many as 100,000 psychometric tests are taken every day
in Western countries (Wilson, 1995, p.30). Ability, aptitude and personality
questionnaires are used mainly for managerial posts, while literacy and
numeracy tests are more popular for clerical and secretarial positions
(Beardwell and Holden, 2000). Tests such as these should really be seen as
complementary to interviews, rather than replacing them. The important
question, however, is how and when should these techniques be used, and
just how effective are they?
2.4.4 Effectiveness of tests
Ability, attainment and aptitude tests

Typically, these types of test have been rated as highly valid predictors
of future job performance. Ability tests have been estimated to have a
validity rating of 0.54, while work sample tests have been estimated to
have a rating of 0.55, for example (Anderson and Shackleton, 1993).
However, they have met with criticism from Robert Sternberg, professor
of psychology and education at Yale University in the US (People
Management, 1998). He argues that successful people in the workplace
achieve their success through the balance of three kinds of abilities.
39
These include, first, analytical abilities (which involve the ability to

analyse abstract data problems); second, creative abilities (the ability
to find novel or original solutions to problems); and third, practical
abilities (the solution of real, everyday problems). These abilities do not
necessarily coincide, and a person who is strong in one of these areas will
not necessarily be strong in the others. Therefore, if selection tests are
to be effective, it is necessary that they test for each of these three areas.
However, Professor Sternberg argues that conventional ability tests tend
to focus primarily on the measurement of analytical or abstract skills.
This tends to be the result of the way in which tests have developed over
time. In particular, they derive from tests that were originally designed
to predict academic performance, and as such, they tend, unsurprisingly,
to reflect the kinds of attributes that academics value (for example, the
ability to apply logical thought to narrow and abstract problems). This
means that conventional tests of ability tell us little about a candidate’s
creative and practical abilities. There is a need, therefore, to develop
new measures or tests that evaluate these abilities also. This is not
happening, according to Professor Sternberg, because the organisations
that are responsible for devising such tests – recruitment and selection
consultancies in particular – are worried that if they begin to devise
new tests, this will be tantamount to admitting that their current tests
are flawed, and that this will in turn will impact on the sales of existing
products. As such, recruitment consultancies continue to spend very little
in terms of the research and development of new forms of ability tests.
There does not seem to be a demand from employers to develop different
kinds of tests and employers continue to buy the old style tests.
2.4.5 Personality tests

There is a fairly vociferous debate about the value of personality tests
and whether or not personality can be measured (Beardwell and Holden,
2000). The debate centres around a lack of agreement on four key issues.
These are first, the extent to which personality is measurable; second, the
extent to which personality remains stable over time; third, the extent to
which personality traits can be identified as being necessary or desirable
for a particular job; and fourth, the extent to which the completion of a
questionnaire can provide sufficient information about an individual’s
personality. Personality tests can also suffer from problems relating to
cultural bias. One study found that candidates from different European
countries answered test questions in very diverse ways. For example,
candidates from Sweden tended to score very poorly on questions relating
to need for achievement (which are popular questions when assessing
sales drive), as they prefer to bury any desire to achieve beneath a socially
conscious exterior (Financial Times, 1998). The issue here is that all good
quality personality testing must take these types of cultural differences
into account. The leading HR consultancy firms that deal with personality
testing, such as PA Consulting or SHL for example, have gone to great
lengths to iron out cultural inconsistencies of this type.
Activity
Go on the internet and find a site such as shldirect.com. Try out some of the tests.
2.4.6 Assessment centres

The types of selection tests discussed above are often administered in
assessment centre situations. Participants undertake a variety of tests,
group exercises and interviews, while being observed by a team of
40
multiple assessors who reach a final decision based on pooled information.

They can take several days to complete, and are therefore quite a costly
process, though predictive accuracy is high if they are conducted properly.
Due to their high cost, their use tends to be reserved for management and
graduate selection.
2.4.7 Reference checks

As a final stage within the recruitment and selection process, a reference
request is normally sent to previous or current employers. The information
received rarely adds anything, as most references are written in a
positive light and it is debatable as to how much a referee knows about
the candidate’s on-the-job performance anyway. The principal value of
reference checking lies in the fact that it provides a factual check relating
to the candidate’s qualifications and prior experience.
2.5 Is there an ideal, or ‘one best way’ approach to final

selection?
In this chapter, a range of different recruitment and final selection
techniques have been examined, some of which are more effective than
others. How do we bring all of this information together? Is there a
combination of approaches that constitutes an ‘ideal type’?
It is inevitably the case that the approach taken to recruitment, shortlisting
and final selection will vary depending upon the position being recruited
to (such as whether managerial/professional as opposed to non-
managerial). For example, companies are unlikely to use assessment
centres for lower-level vacancies given the costs involved in carrying
them out. It is clear, however, that, irrespective of the level of the vacancy
being recruited to, companies must carry out the processes of recruitment,
shortlisting and final selection in a thorough, systematic manner. Unless
the company has compiled a person analysis of some form, and has
conducted a source analysis to ensure the right recruitment techniques
are adopted, there will be no guarantee that the pool of candidates
generated will possess the qualities and competencies the company is
looking for.
In terms of final selection, it is certainly the case that tests can be highly
accurate predictors of future job performance, if they are properly
managed and selected appropriately. In fact, they can be extremely
useful in bolstering the accuracy of selection decisions. They are better
measures of ability and personality than interviews, so the argument here
is that tests should be used to assess these qualities, while interviews
should be freed up to assess other issues (speech, poise and appearance,
for example) which can only be evaluated in an interview situation. In
addition, the evidence suggests that interviews are particularly effective
at rating a person’s level of friendliness – ratings in interviews of a
candidate’s friendliness frequently match supervisor assessments of
friendliness in later appraisals. Interviews are also important from a public
relations perspective, or from the point of view of company image, as
it can be disheartening for applicants to be rejected on the basis of test
results alone if they have not been interviewed also. A candidate rejected
today may well be a potential customer in the future, so it makes good
business sense to treat them with courtesy and respect. Do not forget that
interviews also provide an opportunity for the applicant to ask questions
as well as to answer them. It can help the candidate to get enough
information to decide if they want the job after all.
41
As a final point with regard to interviews, however, it is essential that

interviews are structured if they are to prove effective. All of the available
evidence suggests that it is only where interviews are structured, that it
is possible to systematically compare the quality of candidates’ responses
across a range of issues, in a meaningful way.
While on the one hand, however, there are many reasons why recruitment
and selection should have become increasingly important, there is much
evidence to suggest that recruitment practices within many companies
remain highly unsophisticated. There have only been limited advances
in the level of sophistication, and these advances tend to be restricted
to larger companies where specialist human resource staff are available.
Recruitment and selection in many companies often remains haphazard.
Another explanation is that pressures on organisations, such as cost or
legislation, have an effect on the choice of selection techniques. For a more
detailed explanation see U-C. Klehe (2004).
The opposite of recruiting is downsizing or making people redundant. Both
activities are to do with ensuring that an organisation has the ‘right’ number
of people working for it, so that the organisation can meet its objectives
at minimal cost. Making people redundant is not a decision to be taken
lightly. In addition to the costs that will be incurred, there will be human
costs associated and people may well react adversely to being given the
news that they no longer have a job. There are many things to take into
consideration before beginning the process. One of the major factors will be
local legislation and what it says about an employer’s ability to shed staff.
It has been said that one of the reasons that the UK economy fared better
than that in Europe prior to the recession of 2008, is that it was easier to
make staff redundant in Britain compared to the rest of Europe. This lead
to a more flexible workforce in the UK, which made them cheaper to run.
Compared to the United States, however, even the British labour market
is inflexible. In the US, the employment contract is an ‘at will’ contract,
and staff are not covered by redundancy legislation. Another factor that
may influence a decision to make staff redundant is the power of the trade
unions. If the majority of staff are members of a trade union and the union
threatens strike action, then an employer needs to weigh up the cost of
losing all or some production compared to the cost saving of making some
workers redundant. Finally, an employer needs to take time into account
before reaching a decision. If the need to cut cost is short term and an
upturn in business is expected in the near future, then rather than making
staff redundant and losing their skills forever, an employer may decide to
offer part-time working or unpaid leave for a fixed period of time. Some
staff may welcome the opportunity to take time off from a busy job and do
other things (e.g. travel the world). Some may return, but others may not.
An unintended consequence of offering unpaid leave may be a permanent
reduction in head count. Unpaid leave or part-time working may also be the
preferred option for organisations who employ specialist staff, and where
the skills and knowledge are in short supply in the labour market (e.g.
specialist software firms such as the producers of games).
Example of practice: managing diversity at Marks and Spencer, and British

Telecom
Many of the UK’s more progressive organisations are, for good business reasons, consciously
attempting to increase the proportion of their workforces that originate from minority
ethnic backgrounds. The basis of the so-called ‘managing diversity’ argument is that if
companies employ staff from a wide range of backgrounds this will provide them with the
competencies and knowledge to develop products or services that are better suited, or
42
more closely tailored to the needs and tastes of different ethnic groups, which in turn will
enable wider markets to be tapped into. This would especially be the case for companies
operating internationally, where staff possessing a diverse knowledge of different countries
and national cultures will enable products and services to be developed and marketed in a
manner that is sensitive to cultural differences around the globe.
Arguments such as these have been taken on board by Marks and Spencer, the UK
retailing chain, perhaps not surprisingly since the minority ethnic community in the UK is
estimated to have a spending power of £14.9 billion. Marks and Spencer has deliberately
targeted minority ethnic groups in its recruitment campaigns, in an attempt to shed its
white, middle-class image and to attract a more diverse range of customers from all
segments of society (Whitehead, 1999).
British Telecom is another example. Minority ethnic employees are seen as capable
of making a distinctive contribution to the business through their ability to interact
sensitively with customers from their own ethnic background. In addition, they are seen
as better able to identify new marketing opportunities and approaches in terms of the
way in which services are marketed to ethnic minority communities.

• explain why recruitment and selection is an important issue,
particularly in relation to issues concerning commitment and attitude
and workforce heterogeneity
• describe the recruitment process, from the point of view of the need
to avoid ‘automatic replacement syndrome’ and the need to compile a
systematic job and person specification
• compare the different methods of recruitment, and ways of evaluating
them
• compare the effectiveness of different methods of selection and make
recommendations as to when they should be used
• outline the key arguments in the debate as to whether there is a ‘one-
best way’ for recruitment and selection.
2.7 Test your knowledge and understanding

1. a. What is the difference between recruitment and selection?
(5 marks)
b. What is meant by reliability and validity. (5 marks)
c . How should an HR adviser choose which selection technique to
use? (15 marks)
2. a. What is the difference between a job specification and a person
specification? (5 marks)
b. What would influence your use of tests in the selection process?
(5 marks)
c. Is there one best way to recruit and select? (15 marks)
3. a. What is an assessment centre? (5 marks)
b. What processes or procedures would you use to carry out
shortlisting? (5 marks)
c. Discuss why interviews sometimes fail to select the ‘best’ person for
the job. (15 marks)
43
Notes
44
Chapter 3: Training and development
3.1 Introduction
This chapter starts with some definitions of what the terms relating to
training and development means. It goes on to introduce you to ideas as to
why learning at work is important, and asks you to consider who might be
involved in the processes in an organisation. We then look at some of the
theories that influence adult learning, then consider Kolb’s learning cycle
and finally think about what factors influence training and development
activity and what might do so in the future. When you have looked at
training and development in general, you should then find out what
vocational education is and how it is organised in your own country.

• This chapter explains why training and development is such an
important part of organisational activity and the role played by the
human resources function.

• explain the effect that training and development has on workforce
flexibility, customer service and quality, and workforce commitment
• explain how de-layering, new technology, and labour and skills
shortages in the labour market have an influence on training and
development activity
• describe the training cycle and outline the issues that need to be taken
into account concerning the implementation of training programmes
• outline the main theories that influence adult learning
• describe what is meant by vocational education and be able to explain
how it works in your own country.
Books
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development: theory and practice. (Basingstoke: Palgrave Macmillan, 2010)
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management. (London: Routledge, 1989) [ISBN 9780415010411].
45
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the Knowledge Society?’ in J. Storey (ed.) Human resource management:
a critical text. (London: Thomson, 2001) second edition [ISBN
9781861526052].
Beardwell, I. and L. Holden Human resource management: a contemporary
approach. (London: Pearson, 2001) [ISBN 9780273643169].
Bernhard, H. and C. Ingolis ‘Six lessons for the corporate classroom’, Harvard
Business Review 66(5) 1988.
Campbell, J. ‘Personnel training and development’, Annual Review of Psychology
22, 1971, pp.565–602.
Cannell, M. ‘Practice Makes Perfect’, People Management 6 March 1997.
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Cascio, W. Applied psychology in human resource management. (New York:
Prentice Hall, 1998) fifth edition [ISBN 978013834228].
Chartered Institute of Personnel and Development The future of learning and
work. (London: CIPD, 2001).
Collin, A. ‘Learning and development’ in I. Beardwell and L. Holden Human
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1995.
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prescription’, Oxford Review of Economic Policy 4(3) 1988, pp.21–53.
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and Winston, 1977) third edition [ISBN 0030496462].
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Industrial Relations 36(3) 1998 pp.435–57.
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Holden, L. ‘Human resource development: the organisation and the national
framework’ in I. Beardwell, and L. Holden Human resource management: a
contemporary approach. (London: Pearson, 2001) [ISBN 0273643169].
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impact of the Investors in People Standard’, Journal of Management Studies
40(2) 2003 pp.543–71.
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Towers (ed.) The handbook of human resource management. (Oxford:
Blackwell, 1996) [ISBN 0631198512].
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education in the Federal Republic of Germany, the United States and Japan,
MSC/NEDO, 1984.
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New perspectives on human resource management. (London: Routledge,
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Kirkpatrick, D.L. Evaluating training programs: the four levels. (San Francisco,
CA: Nerrett-Koehler, 1988) second edition [ISBN 1576750426]
Kolb, D. Experiential learning experience as a source of learning and development.
(Englewood Cliffs: New Jersey: Prentice Hall, 1984) [ISBN 0132952610]
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programmes: a case study using a four phase approach’, Career Development
International 11(4) 2006 pp.334–51.
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Wiley, J. ‘Employee engagement’, Human Resources 2 2010, pp.29–32.

This chapter defines what is meant by training and development, explains
why it is important to organisations, describes the stages in designing
training and development ‘events’, and looks at different training methods.
It considers barriers to learning and theories about learning.
3.2 Definitions of training and development

A willingness to learn at work and acquire new skills and knowledge is a
form of discretionary behaviour on the part of employees. The willingness
of the employees to learn and the effectiveness of the training and
development can make a difference to the effectiveness and profitability
of organisations. It would be a useful beginning to distinguish between
education, training and learning. Mayo and Lank (1994 as cited in Gold et
al. 2010) have given the following definitions:
• Education is the exposure to new knowledge, concepts and ideas
in a relatively programmed way. It is normally aimed at increasing
knowledge, or modifying attitudes and beliefs.
• Training includes those solutions to a learning need that involve being
taught or shown a way of doing things. It is essentially skill related.
• Learning is employee need centred and starts with the individual as
beneficiary.
Kolb (1984) argues that learning is a knowledge-creating process through
transforming experience and Honey and Mumford (1992) say that you can
tell when learning has taken place when people can demonstrate that they
know something that they did not know before and/or when they can do
something they could not do before. From the above, therefore, you can
see that learning relates to knowledge, skill and attitudes. These three are
47
sometimes referred to as competences.

Training and development can take a variety of forms. Below is a flavour
of some different training and development activities:
• Induction training is undertaken when a new employee joins an
organisation. It is partly an information giving exercise (explaining
how the firm is organised and who works for whom) but it is also part
of the socialisation process, so that new staff begin to learn the rules
and understand ‘how we do things around here’. In other words people
begin to learn the culture of an organisation. The lack of induction
training can encourage employees to leave their new job in the first few
weeks.
• Remedial skills training: this occurs to fill ‘skill gaps’ when an employee
or group of employees lack the skills necessary to perform their
current job task effectively. It is especially important as the pace of
technological change is increasing. It would be pointless to invest in
new machinery and software if the existing workforce could not use it.
• Developmental training: this concerns the acquisition of competencies
(skills, knowledge and attitudes) that the company will find necessary
in the future. This type of training is designed to meet long-term
corporate needs rather than providing training in specific skills required
currently. Developmental training also refers to the preparation given
to employees for promotion or for managerial succession, in which
case it is called management development and is often linked to Talent
Management schemes.
It is also important to bear in mind that skills training can be either:
1. ‘firm specific’, referring to training in skills that will only be of value
within the employee’s particular organisation (e.g. learning how to
drive a train if you work for a mass transit or railway company)
2. ‘transferable’; referring to training in skills that will be of value in
a wide range of employment situations; it might be the case that
employers are less willing to train in ‘transferable’ skills, as they may
fear that other firms will poach their trained staff from them, and as
such, they will then lose investment they have made in their staff (e.g.
bookkeeping or accountancy).
Activity
Before reading the next section, write down all the reasons you can think of as to why
training and development is important for organisations and their success.
3.3 Why is training and development important?

Training has always been an important issue within organisations.
However well a company carries out its recruitment activities, it will
usually be necessary to equip individual employees with the skills
necessary to be able to function fully within the organisation. Also, as
mentioned above, if a company invests in new technology, it will need
to train existing employees. As companies change, individuals have to
be trained and developed in order that they can continue to function
efficiently. There is nothing new in this. However, for a number of reasons,
training has recently become an issue of central concern. Many of the
reasons relate to globalisation and increasing worldwide competition and
the need to control costs.
48
3.3.1 Increasing importance of product and service quality

To try to differentiate their product from that of their competitors many
companies are increasingly focusing on quality of product and service.
Striving for quality generates considerable training needs. For example,
shopfloor employees need to be trained in techniques such as statistical
process control, ‘zero defect’ and ‘right first time’ techniques. If employees
are to become responsible for their own quality, they need the skills
necessary to be able to correct faults, to be trained in problem solving
techniques such as cause-and-effect analysis, for example, Collin (2001).
Equipping employees with the requisite skills to be able to operate in
a quality-oriented environment is important, but so too is ‘attitudinal’
training. Employee commitment to quality and to the ethos of continuous
improvement requires extensive training in corporate values and corporate
culture, in order to instil within the workforce the importance of customer
care, service and product quality. Developing a philosophy of quality,
or a ‘quality culture’, therefore represents a considerable training and
development issue (Mabey and Salaman, 1995).
3.3.2 Flexibility
The environment within which companies are operating is becoming
increasingly turbulent. If organisations are to be able to adapt to their
changing environments, there is a need for employees within the
organisation to be adaptable also. An organisation is only able to take
advantage of an emerging market or move into a new market niche if
its employees possess the skills to be able to operate effectively within
the new market or niche (Crofts, 1995). As such, there is an increasing
emphasis on ‘emergent skills’ that might not be necessary at the current
point in time, but may well be essential in the future. In such a situation,
recruiting employees who are ‘trainable’, and will be willing and able to
learn new skills as the organisation requires, also becomes important. If
the existing workforce is not willing to learn new skills, it may be that
the first step would be to train them to accept change and to change their
attitude to training.
Also, a workforce will be more effective where employees do not just
perform a single job task, but where they are able to move between
different job tasks. This requires employees to be ‘multi-skilled’ (i.e. to be
trained in a wide range of skills). Employees who are fully trained to carry
out all aspects of production can then be moved around as the workload
requires (Hyman, 1996).
3.3.3 New technology

With the growth in advanced technologies, there is a demand for labour
that possesses the requisite knowledge and skill to use the technology
effectively. It will be impossible for companies to take advantage of new
technological developments, or to adapt to new technology, unless the
workforce possesses the relevant skills. It is important for managers to
receive training in new technology also, if they are to be in a position to be
able to disseminate knowledge to their subordinates (Hyman, 1996).
3.3.4 Downsizing and de-layering in lean organisations

In recent times, companies have sought ways to control costs. Sometimes
initiatives include stripping out middle-management layers. For the
remaining managers and supervisors, their ‘span of control’ has increased.
They have become responsible for a wider range of functions and a larger
number of staff. As spans of control increase, managers and supervisors
49
are no longer able to exercise direct control over their subordinates.

Instead, the expectation is that the managers will delegate more and
trust their staff. Equipping managers with the interpersonal and coaching
skills necessary to be able to adopt this style of management is therefore
increasingly important (Hyman, 1996). The most difficult challenge is to
change the attitude of managers so that they do trust their staff.
3.3.5 Employee commitment

There is an increasing realisation that the provision of training, employee
development and long-term education is central in terms of the generation
of employee commitment (Holden, 2001). Studies (Wiley 2010)
have shown that training and development play a part in influencing
the engagement of workers in organisations. This is highlighted in
particular where graduate recruits are concerned. There is an increasing
acknowledgement that new graduates will be unwilling to work for
companies that do not provide them with opportunities to learn new skills
or opportunities for systematic management development (Tulgan 2009).
Employees may view the willingness of the organisation to train them and
to invest in their development as setting up an obligation that needs to be
reciprocated. The employee may then work harder or be prepared to stay
in the organisation. See more on this in 4.8 Commitment.
3.3.6 ‘Spillover effect’

The training of an individual employee may also have a beneficial effect
on all the other employees in that team or section. Better performance
or more skilled working practice may be transferred from the person
who was trained to their co-workers through collaboration and daily
interaction. The organisation benefits by more than the money spent on
one training course. Sometimes managers take a deliberate decision to
send only one worker on the course to learn new skills and expects that
worker to train the others. This is called cascade training. The advantage
is that it is cheaper as only one worker goes on a course. The disadvantage
is that if the trained worker has not fully understood the training, then all
the workers in that section will not be fully trained as a consequence.
3.3.7 Skills and labour shortages

In times when unemployment is low companies cannot expect to find
skilled workers amongst the shrinking pool of unemployed. In such
a situation, if companies need specific skills, it becomes increasingly
necessary to develop them in-house. However the reverse is not true,
that organisations do not need to train when there are large numbers
of unemployed. Most labour markets suffer from skills shortages and so
although there may be many people seeking work, they may not have the
skills and knowledge required by an employer.
If you want to read a case study of how human resource development
(HRD) fits into an organisation and benefits the people and the
organisation, then look at Stephen Gibb’s book Human resource
development (2008 pp.155–59). In this case he sets out how HRD is used
to support the strategy of a bank and how HRD techniques are used in
practice.
50
3.4 Considerations in the design of training programmes.

What are the major stages involved in designing a
training programme?
3.4.1 Determining training needs
The first stage in developing any training programme is to identify the
skills deficiencies that exist within the company and determine which
employees need to undergo training. This stage is the foundation of the
whole process. Unless training needs are properly assessed, the training
programme introduced may be quite different from what is actually
needed. Indeed, one study in the US suggested that vast sums of money
are wasted as a result of the failure of firms to analyse training needs
effectively (Bernhard and Ingolis, 1988). Companies therefore need to
understand the training cycle, which begins with a systematic training
needs analysis. Most studies of training look at a systematic approach to
Evaluate if learning has

taken place
Idenfy learning needed
Enable learner to undertake

the opportunity
Design appropriate
learning opportunity
Figure 3.1: Based on Kolb’s learning cycle.

training. These days it is recognised that not all learning is as the result of
training and people learn while they are working on the job. A systematic
approach to learning and training is outlined by Torrington et al. (2011,
p.398):
• identify learning needed
• design appropriate learning opportunity
• enable learner to undertake the opportunity
• evaluate if learning has taken place.
A training needs analysis comprises a sequential approach – see Figure 3.2
overleaf.
3.4.2 Organisational analysis

The first issue to consider is whether certain parts of the organisation are
experiencing inefficiencies, and if so, whether this inefficiency is the result
of a lack of training.
51
If you want a more detailed model, which outlines the way in which a
Training Needs Analysis (TNA) is built up, then look at the work of Cascio
(1998). He also outlines a systematic approach to TNA, but includes more
detailed factors and highlights where there may be a need for solutions
to problems that provide alternatives to training and development. Here,
as an example, you would find the need to look at the recruitment and
selection processes in an organisation. If the ‘right’ recruits are not being
attracted to the organisation, then no amount of training will solve the
organisation’s problems. Cascio lists the alternative considerations under
the headings: organisational analysis (e.g. are the issues training issues
or something else); demographic analysis (e.g. is it a particular group of
workers who are causing problems, such as managers) task/knowledge,
skills and attitudes analysis (e.g. what particular competencies are the
managers lacking); and person analysis, where individual workers can be
compared to the ideal set of competencies needed for their particular job,
and training used to fill the gap between the ideal and reality.
3.5 Implementing training

Once the training needs analysis has been undertaken, and the company
has identified who needs to be trained, and what they need to be trained
in, it is then necessary to determine how the training programme is to
be implemented. Given that training initiatives can be implemented in a
number of ways, there are several issues that are worthy of consideration
here.
3.5.1 On or off the job?

Training can be either ‘on the job’ or ‘off the job’. A great deal depends
upon what is being taught, for example, whether the training is focusing
on technical as opposed to problem-solving skills or attitudinal training.
Nevertheless, there are advantages and disadvantages in relation to each
approach. ‘On-the-job’ training can be highly effective, and it is argued
that staff learn and retain more of the knowledge imparted by performing
the actual process at the place of work. However, problems emerge if the
trainer has not been trained themselves in training methods. Additionally,
there is the risk that bad or even dangerous working practices can be
passed on (Cannell, 1997). ‘Off the job’ training is important in terms
of theoretical study or in terms of introducing employees to new and
innovative ideas. Problems arise, however, when those ideas do not appear
to relate to the work situation. In summary, ‘on the job training’ is any
activity designed to teach new skills or knowledge that takes place while
the worker is in their normal place of work. An example might be that
when a new telephone system was installed, all the workers who need
to use it would be shown what they needed to do while answering and
making live calls. ‘Off the job’ training is any activity designed to enable a
worker to learn new knowledge, change their attitude or teach them a new
skill which takes place away from the workplace (for example, in a class
room, in a hotel conference room, or in a specialist training situation such
as a simulation of an event that could take place at work). One example of
this is a specialist college for Fire and Rescue staff. This facility will have
buildings (e.g. a shopping mall, an aircraft, houses, oil tanks, etc.) which
are regularly set on fire. The trainees can learn how to put the fires out
safely and prove they have the required skill and attitude to safety before
beginning work in reality.
52
3.5.2 Active versus passive learning

It is generally accepted that active learning (where the learner is actively
involved in the learning process, in activities such as group discussions,
work simulations or role-play exercises), is more effective than passive
learning (where the trainer imparts information and the trainee passively
receives it, as in a class room situation, for example) (Holden, 2001).
3.5.3 The sequencing of learning

The argument here is that the order in which tasks are learned is critical.
If a job involves a logical sequence of tasks, it makes sense for those tasks
to be learned in that order (Campbell, 1971). This then makes it easier to
transfer the learning to the job.
3.5.4 Individual differences – learning styles

Different people have different preferred learning styles. For example,
some people prefer hands-on learning, others prefer a trial by error
approach, while others prefer verbal learning or book learning. As such, it
is important to introduce a range of learning techniques into the training
programme in order for the programme to appeal to as wide an audience
as possible (Cascio, 1998). There is also the opposite view that if people
find learning something more difficult, then when they do learn it, they
are more likely to remember it. A study of work by Honey and Mumford
will give more information about learning styles (Honey and Mumford,
1992).
3.5.5 Group versus individually-based training initiatives

Given that people work in teams, it is increasingly argued that it makes
sense to also train them in teams. As such, not only does the training
initiative teach the participant a new skill, but it also assists in the
development of teamworking skills (such as presentation and coaching
skills) and the interpersonal and communication skills necessary to
interact effectively as a team member (Cannon-Bowers, Tannenbaum,
Salas and Volpe, 1995).
3.5.6 Transfer to the job situation

Very often employees return to their normal work situation after attending
a training course and revert to ‘business as usual’. If skills learned on a
training programme are not applied on a day-to-day basis, they can be
very quickly forgotten. It is necessary, therefore, that training courses
are designed in such a way that the similarity between the training
situation and the job situation is maximised, that jobs are designed so that
individuals have the opportunity to apply their new skills on returning
to work, that individuals have the information necessary to utilise their
skills, or that pay systems are set up to reward workers for putting into
practice the skills learned (Cascio, 1998). Line managers can play a key
role in transferring the learning from the training to the work. If they are
supportive, then the learning is reinforced, but if they begin to ridicule the
training experience, then the learner is less likely to put their learning into
practice.
3.5.7 Evaluating the effectiveness of the training process

Companies spend lots of money every year in training, but very few
engage in a systematic analysis of the effectiveness of their training
programmes, in terms of gauging what has been learned, whether workers
have been able to apply their new skills in their jobs, whether work
53
processes have become more effective, or whether levels of service have

improved as a result of training. If these sorts of issues are left to chance,
as is the case in many organisations, there is no way of knowing whether
the training provided has contributed to organisational effectiveness in
any way, or whether the money spent on training programmes has been
well spent. As such, finding a way to evaluate training programmes is very
important. This could be conducted by eliciting feedback from employees,
either through questionnaires or interviews, through observation (whereby
the employee is observed before and after the training course to evaluate
whether it has had any impact on the way they do their job), or by
using the formal employee appraisal process to consider the value of the
training undergone (Holden, 2001). The most well-known method of
training evaluation was developed by Kirkpatrick in 1959. He continued
to develop it and wrote a whole book (1988) on it. From this you can see
that evaluation is a very important area of training and development. His
original model had four levels of evaluation:
1. initial reaction to the training
2. were the learning objectives met?
3. the immediate change to the trainees’ behaviour on going back to the job
4. the impact of the training on the performance of the organisation.
Hamblin (1974) developed a more detailed model with five levels of
evaluation, including:
1. Evaluating the training by using the post course questionnaire
(sometimes called the ‘happy sheet’ as trainees tend to voice their
opinion on such things as the trainer’s expertise and the quantity of
food served in breaks!) This is not a very useful stage of evaluation, but
it does at least indicate if there were any reasons that stopped a trainee
from learning such as a noisy environment.
2. Evaluating the learning in terms of the immediate impact on the
trainees’ behaviour.
3. Evaluating changes in the performance of the job.
4. Evaluating changes in organisational performance. This is a very
difficult thing to do. How do you know that it was the training that
affected the firm’s performance and not, for example, an upturn in the
economy.
5. Evaluating changes in the wider contribution that the organisation now
makes.
You can see from the description of the models that the evaluation of
training is quite difficult as there are so many other influences in the
environment, both inside and outside the company. Perhaps we should
take the advice of Lingham et al. (2006) and build in evaluation measures
at all stages of the design and delivery of the training. Their research
outlined a system based on agreeing measures that would indicate
whether the training had been successful and building in feedback loops so
that if the training was not successful, it could be changed for subsequent
training courses.
We have talked about finding out what training and development is
needed by an organisation, and we have discussed the importance of
designing evaluation into the learning opportunities, but here we will talk
about what methods are used in training and development. We will then
look at what stops learning from happening. Finally in this section we will
look at some of the more useful theories about how adults learn.
54
3.6 Learning methods

As pointed out by Gold et al. (2010) learning methods are not the same
as training methods. It is hoped that people will learn after attending
training, but that learning can take place by using methods other than
training. In the discussion above we saw that the first part of the learning
cycle is to identify what needs to be learnt (sometimes shortened to TNA
for training needs analysis), then consideration of such things as budgets,
the characteristics of the potential trainees and where the training will
take place comes into play. The next stage is to design the training
(keeping in mind how the training/learning will be evaluated), and finally
the learning experience will be delivered.
We will again draw on Gold et al. (2010) for advice about designing
learning opportunities. They say that:
1. Clear objectives for the learning must be established i.e. the person
designing the learning must say to themselves ‘what will the learner be
able to do, or to know, or how will their behaviour have changed, when
they have had the learning experience?’
2. The learning must be carefully sequenced and structured. Simple
concepts could be taught before more complex ones (e.g. a dancing
teacher teaches the steps first and then puts them into a longer
sequence and then into a whole dance). If the learning sequence
follows that of the activity in the workplace, then the learner will be
able to transfer their learning to the job more easily.
3. There must be feedback to the learners so that they know what they
are doing right and what they need to change. If you have never done
something, then you have no knowledge about it. Feedback begins to
build up your knowledge. Without feedback there is no learning.
4. Rewards and reinforcement help learners to change their behaviour
and to learn. There will be more on this in the section on theory when
we look at the work of Skinner.
5. Learners should be actively involved in their own learning. The use of
all five of our senses gives our brains a better chance of remembering
what we are trying to learn. People learn in different ways, some like
to read, some like to listen, some like to watch a demonstration or a
teacher, some like to try things out for themselves. The sense of taste
is essential for chefs. The sense of smell is also essential for chefs, but
also wine waiters, detectives and custom officers. Any training for them
would therefore have to include the opportunity to use their noses.
6. Understanding is key to learning. Remember back to when you were
small and you were trying to learn something for school. Sometimes
the words or the numbers just didn’t make sense and it was very
difficult to learn. When you had been studying a subject for a time, you
realised that you did understand and that the subject became much
easier because you could understand. From the topics that you did
understand, you were able to build on other topics more easily.
7. Finally learning must be meaningful to people in terms of their jobs.
Think about training people to use a piece of machinery. If the training
involved throwing a ball so that you could hit a target, you might begin
to wonder what you were doing. If, however, it was explained that
the machine needed you to have excellent hand-eye coordination you
might be persuaded that the training was relevant, better still would
be to practice on the machine itself so that you could directly see the
55
usefulness of the training and be able to transfer the learning directly

to the job. We could say then that learning is most likely to happen
if the learners think that what they are doing is relevant, useful and
interesting.
8. Learners should be given respect and treated as equals.
The next decision to take in designing the learning opportunity is to decide
if the appropriate method will be away from the workplace or if it will use
the experience of being at work to enable learning to take place. In the
words of Gold et al. (2010): ‘off-the-job learning options’ and ‘integrated
learning methods’. In their list of learning methods ‘off-the-job’, they include
lectures, discussions, role plays, case studies, e-learning and learning skills
by demonstration and practice. The ‘integrated learning methods’ include
coaching, shadowing, mentoring, ‘sitting with Nellie’, action learning and
job rotation. Each learning method has advantages and disadvantages that
make it more or less suitable for learning different things.
Activity
Make a table containing all the different learning methods you can think of. Put in a
column for advantages and one for disadvantages. Add in a final column for when you
would use each method. Now get together with a friend and fill in the columns. If you
want help, then go to pp.144–48 in Gold et al. (2010) or any textbook that includes
learning methods. If you go straight to the list in the book, remember that learning needs
understanding, so discuss the advantages and disadvantages with your friend. What do
you think? Finally discuss the applications of the methods and try to think of examples of
when you would expect the method to be used.
3.7 Barriers to learning

These can be divided under three main headings: people, resources and the
organisation.
People
1. They can lack motivation to learn.
2. They can be unable to learn (they lack the skills or knowledge).
3. They can react poorly if the learning is given in a way that does not suit
their learning style.
4. They may be better learning in a group than individually.
5. They may not be available at the time the training is being run (i.e.
part-time staff who only work in the evenings).
6. The training method is not appropriate for the subject.
7. The manager forgot to plan in training time for the new system.
8. The learning may not be relevant to the job.
Resources
1. There is insufficient budget to fund the learning.
2. There is no suitable place to learn e.g. the training area may be noisy if
it exists at all.
3. There is no suitable trainer.
4. Additional machinery or software for training may be too expensive.
Organisation
1. The culture of the organisation does not support learning.
2. The culture of the organisation does not encourage change.
56
3. The learning is not integrated into the company strategy.

4. The performance management system does not support learning.
5. Learning is not rewarded or recognised.
Looking at learning from a positive perspective, we can say that people
learn when:
• They have a reason to learn or sense of purpose.
• The learning is relevant to their interests and they are choosing to
learn.
• They are actively involved in doing something.
• They can make mistakes with no consequences, and they will learn
from their mistakes.
• They receive feedback.
• They learn at their own pace. Some people take longer than others.
As can be seen from the above getting anyone to learn is a difficult thing
to achieve. It may be worth mentioning some theories behind learning and
try to answer the question ‘how do adults learn?’
3.8 Learning theories

There are many theories of learning, indeed they range from physiological
(chemical changes in the brain), psychological (behaviourist, cognitive),
sociological (group dynamics, transformative) and just in case a theory
cannot be categorised by the previous models, a category called multi-
disciplinary.
A simple way of looking at learning theories is to be found in Armstrong
(2001 p.532). He says that learning theories can be divided into the
following:
Reinforcement
If learners receive feedback when they are learning and are rewarded
when they demonstrate the ‘correct’ behaviour then they are more likely
to learn. These ideas are based on the work of Watson (1913) and B.F.
Skinner (1974). This theory is sometimes called behaviourism and has
been criticised as being very manipulative and not taking the learner
into account. Nevertheless the theory is used extensively in training and
development.
Cognitive theory
This is based on self-managed learning. It argues that if people have to
find things out for themselves, then they are more likely to learn and
retain that learning. It is used as the basis for participative and case study-
type training. It works if the learner wants to learn and if time is not an
issue. The drawbacks are that it needs a good trainer who is skilled at
giving guidance without seeming to do so. If learners come to the ‘wrong’
conclusion too early, they are reluctant to change.
Experiential learning
This is one of the deepest forms of learning and needs learners to reflect
on their experience, so they can learn what went wrong and why, and as
importantly, learn what went right and why. Managers are especially key
in helping their staff to do this.
57
Stimulus-response
This theory was further developed by Gagné in 1977. He based it on a
combination of factors, including a need to learn (drive), the stimulation
provided by the learning process (stimulus), the development of
appropriate responses by the learner (response) and the use of feedback to
reinforce the learning until the learner gets it right (reinforcement).
Self-efficacy
This relates to Bandura’s theory (again developed in 1977), who said that
people themselves have a belief in their ability to learn and to perform
a task. Guest (1992) noted that a strong feeling of self-sufficiency is
positively related to becoming a better learner.
3.8.1 Kolb’s learning cycle

We have already covered this earlier in the chapter, but it is worth
spending a few moments reflecting on what he said. His ideas revolved
around a circle of learning. Kolb theorised that in order to learn people
must be actively involved in what they are doing. They should not
just passively accept their experiences but actively think about what is
happening and why. The learning cycle goes through the four stages
we noted above, concrete experience, reflective observation, abstract
conceptualising and then to active experimentation. The latter, active
experimentation gives rise to new experiences and the cycle begins again.
Leading on from the learning cycle, Kolb said that learners prefer to learn
in different ways. These ways are based on the learning cycle. People have
an experience, they positively think about the experience (what worked,
what didn’t), they theorise as to why things worked and why they didn’t,
they test out the new ideas to see if they work.
Activity
Draw Kolb’s learning cycle but instead of putting in the theory think of an experience you
have had recently and then fill in the cycle to see what you have learnt.
3.9 Vocational education

One of the most powerful influences on learning in a country is the
government. It is the government which decides on policies for education.
It decides at what age formal education starts and finishes. It decides if the
education is free to citizens and at what level of education the provision of
free education should cease. Once children grow up and join the world of
work (the precise age at which this takes place of course varies across the
world), they need to learn how to do their jobs. Some jobs (e.g. a doctor or
lawyer) will need years of learning and high levels of skill and knowledge.
Often people train for these jobs or professions before they begin to work by
taking qualifications at college and university. Other jobs do not require so
much learning before the employee begins work. A computer programmer
is a very skilled job; it is possible learn while working by taking a series of
courses over several years (although some people do learn how to do the
job by studying at university).
The area of learning that is directly related to jobs is called vocational
education. The attitude of governments across the world varies as to
who should pay for the potential workers to learn the skills, attitudes
and knowledge necessary to do jobs effectively. The discussion seems to
centre on whether employers should pay for the training, whether people
who want to do the work should pay or whether everyone in a country
58
(through the taxation system) should pay. In the first instance it seems
clear that as the employers benefit from having skilled and qualified
people to do the job, then they should pay. However, think about how
an employer would feel if they paid for someone to be trained as a chef,
and that person then left to work for a rival restaurant. In the second
instance, you could argue that the person who wants the work should
pay for the training as they would benefit all their working lives from
the ability to do the job. Think, though about someone who may have
the capacity to be a brilliant surgeon but who cannot afford the years of
training. Think also that potential workers may be put off doing any job
that entailed doing years of unpaid study. After all a junior doctor and a
junior manager earn about the same early on in their career. What about
the third suggestion, that everyone in a society should pay through the tax
system? After all, everyone benefits from having a good medical service
with skilled and knowledgeable doctors. Everyone benefits from having
skilled and knowledgeable nurses when they have to go to hospital. When
you (eventually) want to buy a property, or need to consult a lawyer about
your will, you expect them to be highly skilled and very knowledgeable
about the law. If we can agree that there is some merit in everyone paying
towards the education and training of doctors, then what do we consider
about bus drivers, car mechanics, plumbers or electricians. What about
managers?
Life is not simple. Find out what the position is on vocational education in
your country. There is a useful chapter on public policy on human resource
development in Gibb (2008). In it he discusses the different perspectives
on national HRD and why they might have arisen. He uses the UK as
an example but acknowledges that different countries have different
perspectives.

• explain the effect that training and development has on workforce
flexibility, customer service and quality, and workforce commitment
• explain how de-layering, new technology, and labour and skills
shortages in the labour market have an influence on training and
development activity
• describe the training cycle and outline the issues that need to be taken
into account concerning the implementation of training programmes
• outline the main theories that influence adult learning
• describe what is meant by vocational education and be able to explain
how it works in your own country.

1. a. Describe the training cycle. (5 marks)
b. What kinds of analysis make up the first part of the cycle. (5 marks)
c. Make a case for an organisation to continue to train and develop
even during a recession. (15 marks)
2. a. How can a trainer ensure that learning is successful? (10 marks)
b. What barriers exist to learning and how can they be overcome?
(15 marks)
59
3. a. Explain what needs to be considered before training is designed.

(5 marks)
b. Say why vocational education and training differ from country to
country and give examples to illustrate your answer. (10 marks)
c. Make a case that training and development should be taken seriously
by organisations. (10 marks)
60
Part 3: Motivation
Part 3: Motivation
61
Notes
62
Chapter 4: Individual performance: attitudes and behaviour
Chapter 4: Individual performance:

attitudes and behaviour
4.1 Introduction
Chapter 1 explored the relationship between human resource management
strategies and organisational performance and also, how individual
performance is affected through the mechanisms of competence and
motivation. This chapter explores what is meant by individual performance
and examines employee attitudes and treatment by the organisation as
antecedents to individual contextual performance.

• The aim of this chapter is to examine the impact of attitudes and
behaviours on individual performance.

• discuss the concept of performance through the framework of task and
contextual performance
• describe organisational citizenship behaviour (OCB) and its antecedents
• define organisational commitment and explore its antecedents
• explain how human resource practices might be used to enhance
employee commitment to their employing organisation.

The Essential reading for this chapter is two journal articles that are
available in the Online Library.
Bettencourt, L.A., K.P. Gwinner and M.L. Meuter ‘A comparison of attitude,
personality, and knowledge predictors of service-oriented organizational
citizenship behaviors’, Journal of Applied Psychology 86(1) 2001, pp.29–41.
Podsakoff, P.M., S.B. Mackenzie, J.B. Paine and D.G. Bachrach ‘Organizational
Citizenship Behaviors: a critical review of the theoretical and empirical
literature and suggestions for future research’, Journal of Management
26(3) 2000, pp.513–63.

Bolino, M.C., W.H. Turnley and B.P. Niehoff ‘The other side of the story:
re-examining prevailing assumptions about organizational citizenship
behavior’, Human Resource Management Review 14(2) 2004, pp.229–46.
Li-yun, S., S. Aryee and K.S. Law ‘High performance human resource practices,
citizenship behaviour and organizational performance: a relational
perspective’, Academy of Management Journal 50(3) 2007, pp.558–77.

Barnard, C.I. The Functions of the Executive. (Cambridge, MA: Harvard
University Press, 1938; 30th anniversary edition 1968) [ISBN
0674328035].
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relationship between affect and employee ‘citizenship’’, Academy of
Management Journal 26 1983, pp.587–95.
63
Borman, W.C. and S.J. Motowidlo ‘Expanding the criterion domain to include
elements of contextual performance’ in N. Schmitt and W.C. Borman (eds)
Personnel Selection. (San Francisco, CA: Jossey-Bass, 1993) [ISBN 1555424759]
pp.71–98.
Eisenberger, R., P. Fasolo and V. Davis-LaMastro ‘Perceived organisational support
and employee diligence, commitment, and innovation’, Journal of Applied
Psychology 75 1990, pp.51–59.
Eisenberger, R., R. Huntington, S. Hutchison and D. Sowa ‘Perceived organisational
support’, Journal of Applied Psychology 71 1986, pp.500–07.
Folger, R. and M.A. Konovsky ‘The effects of procedural justice, distributive justice,
and reactions to pay raise decisions’, Academy of Management Journal 32 1989,
pp.115–130.
Graham, J. ‘An essay on organisational citizenship behaviour’, Employee
Responsibilities and Rights Journal 4, 1991, pp.249–70.
Katz, D. and R. Kahn The social psychology of organisations. (New York: Wiley and
Sons, 1978) [ISBN 0471460419].
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Locke, E.A. ‘The nature and causes of job satisfaction’ in Dunnette, M.D. (ed.)
Handbook of Industrial and Organisational Psychology. (Chicago: Rand McNally,
1976) pp.1297–349.
MacKenzie, S.B., P.M. Podsakoff and R. Fetter ‘Organisational citizenship behaviour
and objective productivity as determinants of salespersons’ performance’,
Organisational Behaviour and Human Decision Processes 50 1991, pp.123–50.
MacKenzie, S.B., P.M. Podsakoff and R. Fetter ‘The impact of organisational
citizenship behaviour on evaluations of salesperson performance’, Journal of
Marketing 57 1993, pp.70–80.
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organisational outcomes. Paper presented at the twelfth annual conference of
the Society for Industrial and Organisational Psychology, St Louis (1997).
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International Review of Industrial and Organisational Psychology Vol. 19 2004,
pp.175–228.
Meyer, J. and N. Allen Commitment inthe workplace: theory, research and
application. (Thousand Oaks, CA: Sage, 1997) [ISBN 978076190105].
Moorman, R.H. ‘Relationship between organisational justice and organisational
citizenship behaviours: do fairness perceptions influence employee citizenship?’,
Journal of Applied Psychology 76 1991, pp.845–55.
Moorman, R.H., B.P. Niehoff and D.W. Organ ‘Treating employees fairly and
organisational citizenship behaviour: sorting out the effects of job satisfaction,
organisational commitment, and procedural justice’, Employee Responsibilities
and Rights Journal 6 1993, pp.209–25.
Moorman, R.H. and G.L. Blakely ‘Individualism–collectivism as an individual
difference predictor of organisational citizenship behaviour’, Journal of
Organisational Behaviour Vol. 16 1995, pp.127–42.
Morrison, E.W. ‘Role definitions and organizational citizenship behaviour: the
importance of the employees’ perspective’, Academy of Management Journal 37
1994, pp.1543–567.
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distinguished from contextual performance’, Journal of Applied Psychology 79
1994, pp.475–80.
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and consequences for job performance’, Journal of Applied Psychology 71 1986,
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performance hypothesis’, Academy of Management Review 2 1977, pp.46–53.
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Books, 1985)[ISBN 0669117889].
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Organ, D.W. and M.A. Konovsky ‘Cognitive versus affective determinants of

organisational citizenship behaviour’, Journal of Applied Psychology 74 1989,
pp.157–64.
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Staw, B.M. and L.L. Cummings (eds) Research in Organizational Behaviour. Vol.
12. (Greenwich, CT: JAI Press, 1990) [ISBN 1559380292] pp.43–72.
Organ, D.W. and K. Ryan ‘A meta-analytic review of attitudinal and dispositional
predictors of organisational citizenship behaviour’, Personnel Psychology 48
1995, pp.775–802.
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affect in managerial judgement’, Working Paper, Seoul National University and
Pennsylvania State University (1989).
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and managerial evaluations of employee performance: a review and suggestions
for future research’ in G.R. Ferris and K.M. Rowland (eds) Research in Personnel
and Human Resources Management. Vol. 11. (Greenwich, CT: JAI Press 1993)
[ISBN 155938557X] pp.1–40.
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behaviour and the quantity and quality of workgroup performance’, Journal of
Applied Psychology 82 1997, pp.262–70.
Podsakoff, P.M., S.B. MacKenzie, R.H. Moorman and R. Fetter ‘Transformational
leader behaviours and their effects on followers’ trust in leader, satisfaction, and
organisational citizenship behaviours’, Leadership Quarterly 1 1990, pp.107–42.
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contruct redefinition, measurement, and validation’, Academy of Management
Journal 37(4) 1994, pp.765–802.
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and G. Bigley (eds) Motivation and Work Behaviour. (New York: McGraw-Hill,
1991) [ISBN 007660956X] fifth edition.
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on organisational effectiveness in limited menu restaurants’, Academy of
Management Best Paper Proceedings 1996, pp.307–11.
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as predictors of organizational citizenship behaviour and in-role behaviours’,
Journal of Management 17(3) 1991, pp.601–17.

In this chapter we distinguish between task and conceptual performance and
discuss how why the distinction is important in understanding how individual
performance is conceptualised. We explain the meanings and consider the
importance of constructs such as organisational citizenship behaviours, job
satisfaction, organisational justice, perceived organisational support and
organisational commitment.
4.2 What is performance?

Activity
Think about what ‘performance’ means for the following types of jobs:
a. a teacher
b. a scientist
c. a car assembly worker.
How would you judge their performance?
Since the 1930s, industrial psychologists have attempted to link employee

attitudes with performance. Despite complicated theories and refined
65
measures, the relationship between attitudes and performance was, at

best, very weak. The stimulus for this work stemmed from the Human
Relations School that put forward the proposition that ‘a happy worker
is a productive one’ (that is, there is a relationship between individual
attitudes – in this case, job satisfaction – and how well an individual
performed. However, the empirical evidence did not support such a link.
Turning to the satisfaction performance link, there is a small positive
correlation of 0.14 between satisfaction and performance (correlation
measures the association between two variables, for example, smoking and
cancer, job satisfaction and performance). In other words, there is a very
small positive association between how satisfied an individual is and how
they perform in their job, or to put it another way, there is a very small
tendency for happy employees to be more productive.
In most instances, performance has been narrowly defined in terms of
quantity or quality of output. If you think about it, there are a number
of aspects of performance that are not under an individual’s control (e.g.
raw materials, equipment, rules and procedures) that may have a greater
impact on performance than an individual’s satisfaction.
Activity
Think about the jobs outlined above and give some examples of factors that individuals
may not be able to control but that may affect their performance.
This realisation led to greater scrutiny of how performance was defined

and the recognition that individuals contribute to organisations in ways
other than doing their tasks more efficiently. Hence, an individual’s
performance was conceptualised in a much broader manner to include a
task and contextual component (which will be elaborated on shortly).
An individual’s task performance is influenced by their skills, ability,
experience and training. Constraining factors on an individual’s task
performance may include job design and the effects of technology. Given
the type of factors that affect task performance, it is not surprising that
there is not much of a relationship between an individual’s attitudes
and task performance. However, contextual performance (as you will
see shortly) is discretionary behaviour that is under the control of the
individual and is not subject to the same constraints as task performance.
Consequently, one would expect an individual’s attitudes to affect whether
an individual chooses to engage in discretionary behaviour or not.
4.3 Conceptualisation of performance

What does individual performance mean? How should individual
performance be conceptualised? When we look at how an individual is
performing, what elements are we taking into account?
Katz and Kahn (1978) developed a basic way to partition job performance
into a three-way division:
• joining and staying with the organisation
• dependably meeting or exceeding standards of performance prescribed
by organisational roles (in-role performance)
• innovatively and spontaneously going beyond prescribed roles to
perform such actions as cooperating with others, protecting the
organisation from harm, offering suggestions for improvement and
representing the organisation favourably to outsiders (extra-role
performance).
66
Activity
Think about how the Katz and Kahn’s (1978) conceptualisation of job performance would
be applied to the following:
a. a teacher
b. a scientist
c. a car assembly worker.
4.4 Task and contextual performance

This strand of research was further developed by Borman and Motowidlo
(1993) and Motowidlo and Van Scotter (1994) who attempted to dissect
what constitutes performance. A key aspect of their work is the separation
of performance into two elements: task performance and contextual
performance.
Task performance consists of activities that directly transform raw materials
into goods and services that the organisation produces (e.g. selling
merchandise, teaching in a school, performing surgery in a hospital and
selling newspapers). In addition, it includes other activities that service and
maintain the technical core by replenishing the supply of raw materials,
supervising, coordinating activities and any staff functions that enable the
technical core to function effectively and efficiently (for example, nurses
who look after patients before and after surgery, the school principal
who coordinates and oversees the teachers, or editors who approve what
journalists write before publication). Thus, task performance behaviours
bear a direct relation to the organisation’s technical core by either
executing its technical processes or maintaining and servicing its technical
requirements.
In contrast, contextual performance behaviours do not support the
technical core as much as they support the broader organisational, social
and psychological environment in which the technical core must function.
4.4.1 Five categories of contextual performance

Borman and Motowidlo (1993) identified five categories of contextual
performance:
• volunteering to carry out task activities that are not formally part of the
job
• persisting with extra enthusiasm when necessary to complete own-task
activities successfully
• helping and cooperating with others
• following organisational rules and procedures even when it is
personally inconvenient
• endorsing, supporting and defending organisational objectives.
Therefore, task performance captures proficiency in performing specific
work tasks while contextual performance encapsulates behaviours that
support the ‘broader organisational, social and psychological environment
in which the technical core must function’. (Motowidlo and Van Scotter,
1994, p.476).
Activity
Give an example of what task performance and contextual performance would be in any
job that you are familiar with.
67
4.5 Organisational citizenship behaviour as contextual

performance
Although the historical roots of current Organisational Citizenship
Behaviour (OCB) research can be traced to the work of Barnard (1938),
the Hawthorne Studies and, subsequently, the work of Katz and Kahn
(1978), it was not until the publication of Organ’s (1977) initial essay that
the term organisational citizenship behaviour was used.
The conceptualisation of OCB has evolved over time, based on rather
different starting points. In the main, these include the works of:
• Organ (1988)
• Graham (1991)
• Van Dyne, Graham and Dienesch (1994)
• Williams and Anderson (1991).
Subsequent work on OCB has for the most part drawn heavily from this
foundation.
Organ1 defines OCB as: 1
Organ (1988, p.4).
behaviour that is discretionary, not directly or explicitly

recognized by the formal reward system, and that in aggregate
promotes the effective functioning of the organization…the
behaviour is not an enforceable requirement of the role or the
job description…the behaviour is a matter of personal choice.
In operationalising OCB, Bateman and Organ (1983)2 began by: 2
Organ (1983, p.46).
…enumerating a list of employee behaviours that managers

typically appreciate but are ill equipped to demand…
Thus, a key influencing factor on the conceptualisation of OCB was to fill
the gaps left by traditional performance measures. Although the initial
measure developed by Bateman and Organ (1983) emerged as a uni-
dimensional construct, subsequent work and refinement culminated in a
five-dimensional measure to include:
• conscientiousness – punctuality in attendance, use of work time and
adherence to rules
• altruism – helping others who have been absent or are behind in their
work (any voluntary action that helps another person out at work)
• sportsmanship – putting up with minor inconveniences, or not always
finding fault with the organisation
• courtesy – consulting people who may be affected by a decision or at
the very least informing other people in advance of such actions
• civic virtue – keeping up with developments happening in the
organisation (being constructively involved in the political process of
the organisation).
Organ’s (1988) definition implies that the behaviour is voluntary and
not prescribed as part of an individual’s job responsibilities, is largely
unconstrained by organisational systems, has positive consequences and
the organisation is the beneficiary of such behaviours.
Graham (1991) recognised that one of the challenges of Organ’s definition
is its unequivocal specification of behaviour that is ‘extra-role’. In other
words, Organ’s definition states that citizenship behaviour is voluntary
but who defines what is voluntary or discretionary behaviour? Individuals
68
may vary in whether they see citizenship behaviours as discretionary or

not. Graham (1991) overcomes the problem of defining the boundaries
of in-role and extra-role and presents OCB not as a complement to task
performance but rather as a ‘global measure of individual behaviour at
work’ (p.251). Thus, OCB is conceptualised as a broad range of behaviours
that may otherwise fall through the cracks of defining performance in
narrow terms.
Graham draws on political theory to conceptualise OCB. Research in
political theory has identified active citizenship syndrome as comprising:
• obedience: respect for orderly structures and processes, and obeying
the law
• loyalty: serving the interests of the community as a whole and
volunteering extra effort for the good of the community, and
• participation: active and responsible involvement in community
self-governance: keeping well informed about issues affecting the
community.
Applying this to organisational settings, the authors present the following
dimensions of citizenship behaviour:
• Obedience. This dimension captures an individual’s respect for rules
and policies and includes for example, conscientiousness at work, not
wasting organisational resources.
• Loyalty. Loyalty embodies allegiance to and promotion of the
organisation and includes for example, representing the organisation in
a favourable manner to outsiders and defending the organisation when
employees criticise it.
• Participation, has three dimensions:
1. Social participation involves participation in the form of
interpersonal and social contact. This dimension involves non-
controversial forms of participation such as attending meetings and
interactions with other individuals.
2. Advocacy participation is characterised by innovation and the
challenge of the status quo. Behaviours that involve innovation,
making suggestions for change and reflecting a willingness to be
controversial.
3. Functional participation focuses on activities that involve individual
self-development and work activities that add value to the
organisation.
In contrast to the work of Organ (1988) and Van Dyne et al. (1994),
Williams and Anderson (1991) begin from the position of the target
beneficiary or recipient of citizenship behaviour. They arrive at two broad
categories: organisationally directed citizenship behaviours (compliance
and conscientiousness) that directly benefit the organisation, and
interpersonally-directed behaviour (altruism) that immediately benefits
specific individuals within the organisation. This categorisation is based on
the direct and immediate target of citizenship behaviours and recognises
that while a specific behaviour may directly benefit the organisation, it
may have indirect benefit for individuals and vice versa.
The latter category would include an employee helping out a co-worker or
supervisor who had been absent or who has a heavy workload. Although
this behaviour indirectly is of benefit to the organisation, the direct benefit
is towards the focal individual. Citizenship behaviours directed at the
69
organisation include, for example, working late to finish a job and making
suggestions for improvement. These behaviours are of direct benefit to the
organisation and are not directly oriented towards other individuals.
The implication of the distinction between organisationally and
interpersonally focused citizenship behaviours is that different factors may
predict each category of behaviour.
4.6 Consequences of OCB

There are a number of important consequences of OCB for the individual
and the organisation.
4.6.1 Consequences for the organisation

The driving force behind the interest in OCB is its effect on organisational
or group functioning and its concurrent effect on the individual. The
implications of citizenship-type behaviour for effective organisational
functioning was recognised long before the term OCB was introduced
(Barnard, 1938; Katz and Kahn, 1978). Since then, a number of studies
have examined and confirmed the link between OCB and organisational
effectiveness.
Podsakoff, Ahearne and MacKenzie, (1997) tested whether OCB actually
improved the effectiveness of machine crews in a paper mill. They found
that helping behaviour and sportsmanship had a significant effect on
performance quantity and helping behaviour had a significant effect on
performance quality. Overall, the authors were able to identify that a
quarter of the variance in quantity and one-fifth of the variance in quality
was accounted for by OCB. Another study by Walz and Niehoff (1996)
investigated the relationship between OCB and the effectiveness of fast-
food restaurants. They found that different dimensions of OCB were
positively related to different indicators of organisational effectiveness:
OCB explained 15 per cent variance in operating efficiency, 39 per cent
variance in customer satisfaction and 43 per cent variance in food cost
percentage (the cost of food, taking into account wastage).
Overall, the empirical evidence that exists supports a link between
employees engaging in OCB and workgroup/organisational performance.
However, what has not been empirically explored is why OCB would affect
group or organisational performance. In other words, we know that OCB
affects organisational performance but we don’t know the mechanisms
through which this effect occurs. Below are some potential explanations
of why OCBs may be expected to relate positively to organisational
effectiveness:
• OCBs may help co-worker productivity. When experienced employees
help less experienced employees to solve work-related problems or find
more efficient ways of performing the job, this is likely to enhance the
quantity and quality of the less experienced employee’s performance.
Related to this, helping behaviour may help spread ‘best practices’
throughout the workgroup.
• OCBs may help managerial productivity. If employees exhibit
sportsmanship, it frees the manager from having to spend too much
time dealing with trivial issues. The more willing employees are to
go along with changes in the work environment, the less energy a
manager will need to spend in getting their cooperation thereby freeing
70
up managerial time to be devoted to other activities. Employees who

exhibit conscientiousness require less managerial supervision and allow
the manager to delegate more responsibility to them.
• OCBs may enhance organisational performance. Helping behaviours may
enhance morale and group cohesiveness, which may in turn enhance
group performance. Altruism (helping others who have been absent or
who have heavy workloads) can help reduce the variability, and increase
the stability, of workgroup performance. Conscientious employees are
more likely to maintain a consistently high level of output, thereby
reducing performance variability. Employees who engage in civic virtue
may assist the responsiveness of the organisation to changes in the
external environment.
4.6.2 Consequences for the individual

A number of studies have demonstrated that citizenship-type behaviours
are considered in performance evaluations (MacKenzie, Podsakoff and
Fetter, 1991; Motowidlo and Van Scotter, 1994). Of greater significance are
studies suggesting that OCB accounts for greater variance in evaluation
ratings than occurs as a result of objective measures (Podsakoff, MacKenzie
and Hui, 1993; MacKenzie, Podsakoff and Fetter, 1993). Furthermore, acts
of citizenship behaviour are found to influence whether individuals are
considered for promotion (Park and Sim, 1989). Therefore, the evidence
suggests that an individual’s decision to engage in OCB may affect their
performance rating and also whether they are considered for promotion.
Why might OCBs influence managerial evaluations of performance
evaluation? Some possible factors can be summarised as follows:
• Norm of reciprocity. If OCBs have positive effects for the manager and
the organisation, the manager may repay employees who engage in OCB
by giving them higher performance evaluations.
• OCB behaviours are distinctive. When managers are asked to make
evaluations, they search for distinctive information. As OCB is not
formally prescribed as part of an individual’s job, managers may
remember these behaviours more readily in the evaluation process.
• Association. If a manager implicitly believes that citizenship behaviour
and overall performance are positively related and the manager sees an
employee engage in citizenship behaviour, they may be more likely to
infer that the employee is a high performer.
The above discussion has highlighted the positive consequences of engaging
in OCB both for the organisation and for the individual. The next step is to
explore why individuals engage in OCB?
Activities
Give examples of why OCB might affect organisational performance.
Make sure before continuing that you understand:
a. the difference between contextual and task performance
b. what OCB is.
You must be able to give examples of different types of citizenship behaviour and be able
to present some potential explanations of how OCB affects individual and organisational
performance.
71
4.7 Antecedents of OCB

There are a number of categories of antecedents of OCB. These can be
roughly categorised into the following categories:
• personality/individual differences
• social exchange constructs
• organisational commitment.
4.7.1 Personality/individual differences

To what extent is OCB based on an individual’s personality? Research on
people’s dispositional factors has tended to focus on conscientiousness,
agreeableness, negative and positive affectivity as having an effect on OCB.
Organ and Ryan (1995) found that conscientiousness does have a positive
effect on OCB. Nonetheless, the empirical evidence supporting a link
between personality variables and OCB is at best weakly supported.
One view is that the effect of personality on OCB is not a direct one. In
other words, personality may not lead to employees engaging in OCB
but, rather, personality may affect work attitudes which in turn affect
whether an employee engages in OCB. There is an established link between
personality and work attitudes. In addition, there is empirical support for
the link between work attitudes and OCB. Therefore, personality may affect
work attitudes which in turn affects OCB.
There is some evidence linking individual–collectivism to OCB (Moorman
and Blakely, 1995). Individual–collectivism captures whether individuals
are more oriented toward self-interest and reaching their own goals, or
oriented towards the collective with more of an emphasis on the group than
themselves. Thus, an individualistically-oriented individual would consider
his or her own personal interests to be more important; he or she would
look out for themselves and consider the attainment of their own goals
as being of greater importance. A collectivist would greatly value group
membership, would look out for the group at the expense of their own self-
interest. OCBs are behaviours which help support the group or organisation
and hence collectivists are more likely to put the group’s interest before
their own and engage in behaviours that help the group achieve its goals.
Overall, at present there is some but not a lot of evidence linking
personality to OCB and it could be the case that the ‘right’ personality
dimensions have not been discovered yet. It would seem that the way
personality affects OCB is through work attitudes.
4.8 Social exchange constructs

In operationalising social exchange (for more detail, see Chapter 5,
Psychological contracts) researchers have utilised constructs such as job
satisfaction, organisational justice and perceived organisational support.
4.8.1 Job satisfaction

Job satisfaction is defined by Locke (1976) as a ‘pleasurable emotional
state resulting from the appraisal of one’s job or job experiences’ (p.1300).
Implicitly, job satisfaction derives from comparisons and is inherently
referential (Folger and Konovsky, 1989) reflecting some judgement about
the comparison of actual expectations and met expectations.
Despite numerous studies supporting a link between job satisfaction and
OCB (Bateman and Organ, 1983; Motowidlo, Packard, and Manning 1986;
Organ and Konovsky, 1989), the relationship has been questioned. With
72
this in mind, Organ (1990) argues that the relationship between OCB and
job satisfaction may be heavily affected by the ‘sizable fairness component
in responses to satisfaction scales’ (p.60).
Moorman’s (1991) initial study examined the role of fairness of procedures
and outcomes in relation to job satisfaction in predicting OCB, and
concluded that when perceptions of fairness are measured separately from
job satisfaction, job satisfaction was not related to citizenship behaviour.
Therefore, the conclusion that seems to be emerging from the research is
that job satisfaction is capturing elements of organisational justice and it is
this that is predicting why employees engage in OCB.
4.8.2 Justice3 3
For a detailed
discussion of justice, see
Briefly, justice is conceptualised as an individual’s perceptions of the
Chapter 10.
fairness of outcomes (distributive justice), procedures (procedural justice)
and interpersonal treatment (interactional justice).
There is promising evidence supporting the link between procedural and
interactional justice and OCB, however the results are not altogether
consistent. Depending on which dimension of OCB is being examined,
formal procedural justice is sometimes the stronger predictor while in
other studies, interactional justice is stronger (Konovsky and Pugh, 1994;
Moorman, 1991; Moorman, Niehoff and Organ, 1993).
Some researchers have begun to argue that the effects of fairness vary
depending on the type of justice being investigated. For example, Malatesta
and Bryne (1997) found that procedural justice was a predictor of
citizenship behaviour directed at the organisation whereas interactional
justice was better at predicting citizenship directed at the supervisor. The
conclusion that can be drawn is that both procedural and interactional
justice are important in predicting OCB but that individual significance
may vary dependent upon which dimension of citizenship behaviour is
investigated.
4.8.3 Perceived organisational support

Eisenberger, Huntington, Hutchison and Sowa (1986) developed the
construct of Perceived Organisational Support (POS) to capture an
organisation’s commitment to employees as individuals. In other words,
POS captures an employee’s global beliefs about the extent to which the
organisation employing them values their contributions and cares about
their well-being (Eisenberger et al., 1986).
The following illustrates how POS has been measured. Employees are
asked to indicate the extent of their agreement or disagreement with the
following statements about their organisation:
• My organisation really cares about my well-being.
• My organisation cares about my opinions.
• My organisation values my contributions to its well-being.
• My organisation strongly considers my goals and values.
• My organisation cares about my general satisfaction at work.
• My organisation shows a lot of concern for me.
• My organisation is willing to help me when I need a special favour.
• If I did the best possible job, my organisation would notice.
If an individual agrees strongly with the above statements, this would tell
you that they feel that their organisation supports them.
73
Based on the norm of reciprocity, high levels of POS create a felt obligation
to care about the welfare of the organisation and assist the organisation
in achieving its outcomes. Employees who feel that their organisation
supports them as individuals are likely to reciprocate by increasing their
commitment to the organisation and engaging in behaviours that support
the organisation such as OCB.
There is some empirical evidence demonstrating that when organisations
have human resource practices that show recognition of employee
contributions (practices such as job security, autonomy, training and
payment systems), this is likely to lead to employees perceiving that their
organisation is supportive.
Overall, if employees perceive that their organisation is supportive, they
are likely to repay the organisation by having more positive attitudes and
also by engaging in behaviours that help the organisation.
Activity
If you work or have worked, think about whether you would agree or disagree with the
above statements on organisational supportiveness.
4.9 Commitment
Significant relationships between affective commitment (a psychological
attachment to the organisation) and OCB have been observed in a number
of studies (Moorman, Niehoff and Organ, 1993; Organ and Ryan, 1995).
The argument presented is that employees who feel emotionally attached
to the organisation will have a greater motivation or desire to make a
meaningful contribution to the organisation (Meyer and Allen, 1997).
Thus, it appears the balance of evidence favours the interpretation that
commitment is significantly related to discretionary behaviour. Individuals
who are highly committed to the organisation are more likely to take steps
to contribute to the organisation in meaningful ways.
Another explanation put forward as to why people engage in OCB is
because they have defined those behaviours as part of their role or job.
This explanation starts from the premise that individuals are likely to
vary in how narrowly or broadly they define their jobs. An individual who
defines his or her job in narrow terms is more likely to see behaviours
that are typically assumed to be OCB as falling outside their job, whereas
another individual who views their job in broad terms may be more likely
to see many traditional aspects of OCB as part of their job.
Employees are more likely to perform an activity that they define as in-role
rather then extra-role. Therefore, employees who define their jobs more
broadly are more likely to engage in OCB than employees who define their
jobs in more narrow terms.
Morrison (1994) explores this and empirically finds support for the
proposition that job definition presents an important motivational basis
to understanding why employees engage in OCB. She then looks at
what factors affect how broadly individuals define their job and finds
that organisational commitment causes employees to define their job
responsibilities more broadly and thus committed employees are more
likely to engage in what others may see as OCB.
Overall, the evidence suggests that individuals who are highly committed
to their employing organisation are more likely to engage in organisational
citizenship behaviour regardless of whether they define citizenship
behaviours as in-role or extra-role.
74
4.9.1 Organisational commitment

Walton (1991) presents two approaches to shaping employee attitudes
and behaviour. The control approach aims to reduce direct labour costs
by forcing employee compliance with specific procedures and rules
and rewarding employees based on measurable output criteria. The
commitment approach, in contrast, shapes employee attitudes and
behaviour by forging psychological links between organisational and
employee goals.
In view of the importance of employees’ organisational commitment to
Human Resources Management (HRM) this section focuses on:
• the definition of organisational commitment
• its antecedents
• its consequences.
4.9.2 Definition of organisational commitment

Commitment is viewed as having three forms:
• Affective commitment is an affective orientation towards the
organisation: a psychological attachment to the organisation.
Individuals stay with the organisation because they want to.
• Continuance commitment involves a recognition of the costs associated
with leaving the organisation. Individuals stay with the organisation
because they need to.
• Normative commitment is a moral obligation to remain with the
organisation. Individuals stay with the organisation because they feel
they should.
Of particular importance to HRM is affective commitment and this aspect
of organisational commitment is the most heavily investigated.
The following outlines how commitment has been measured in empirical
studies. Individuals are asked to indicate the extent to which they agree
or disagree with the following statements, giving responses on a 1–7 scale
from ‘strongly disagree’ to ‘strongly agree’. Note that the responses marked
® are reverse scored so that a high score means that an individual is not
committed to the organisation.
Affective commitment:
a. I would be happy to spend the rest of my career in this organisation.
b. I enjoy discussing my organisation with people outside it.
c. I really feel as if this organisation’s problems are my own.
d. I think I could easily become as attached to another organisation as
I am to this one.®
e. I do not feel like ‘part of the family’ at my organisation.®
f. I do not feel ‘emotionally attached’ to this organisation.®
g. This organisation has a great deal of personal meaning for me.
h. I do not feel a strong sense of belonging to my organisation.®
Continuance commitment:
a. I am not afraid of what might happen if I quit my job without having
another one lined up.®
b. It would be very hard for me to leave my organisation right now,
even if I wanted to.
75
c. Too much of my life would be disrupted if I decided I wanted to

leave my organisation right now.
d. It wouldn’t be too costly for me to leave my organisation in the near
future.®
e. Right now, staying with my organisation is a matter of necessity as
much as desire.
f. I believe that I have too few options to consider leaving this
organisation.
g. One of the few negative consequences of leaving this organisation
would be the scarcity of available alternatives.
h. One of the major reasons I continue to work for this organisation is
that leaving would require considerable personal sacrifice; another
organisation may not match the overall benefits I have here.
i. If I had not already put so much of myself into this organisation, I
might consider working elsewhere.
Normative commitment:
a. I do not feel any obligation to remain with my current employer. ®
b. Even if it were to my advantage, I do not feel it would right to leave my
organisation now.
c. I would feel guilty if I left my organisation now.
d. This organisation deserves my loyalty.
e. I would not leave my organisation right now because I have a sense of
obligation to the people in it.
f. I owe a great deal to my organisation.
Activity
If you work or have worked, use the statements above to assess how committed you
were or are to your employing organisation.
4.9.3 Antecedents of organisational commitment

Research has focused on three broad categories of antecedents affecting
the development of organisational commitment:
• organisational characteristics
• person characteristics
• organisational policies and practices.
The chapter by Meyer (1997) reviews the empirical evidence of the link
between HR practices and organisational commitment.
Activity
What does the empirical evidence suggest in terms of the relationship between HR
practices and organisational commitment?
Make sure you think about this question when you read the subsequent chapters that
examine different HR practices. Ask yourself whether there is empirical evidence that
supports a positive relationship between the different HR practices and organisational
commitment.
76
4.9.4 Consequences of organisational commitment

The underlying rationale for studying organisational commitment is that
it has an important influence on employee behaviours. The argument
is that individuals who are emotionally attached to an organisation are
more likely to engage in behaviours that benefit the organisation. These
behaviours can include employee turnover, absenteeism, in-role job
performance and extra-role performance such as organisational citizenship
behaviour.
Chapter 3 by Meyer and Allen (1997) reviews the empirical evidence
on the behavioural consequences of commitment. Individuals who are
highly committed to an organisation are less likely to leave it (this holds
true for affective, continuance and normative commitment). The positive
relationship between affective commitment and attendance at work is
supported; however, no relationship between continuance commitment
and attendance at work has been found and the consequences of
normative commitment on attendance at work has not received much
empirical attention. This chapter reviews the evidence examining
the relationship between the different components of organisational
commitment and in-role performance and OCB.
Overall, the empirical evidence suggests that there is a positive
relationship between organisational commitment and a number of
behaviours. Consequently, organisations may reap benefits from having
affectively committed employees.
Activity
What are the positive consequences of having employees who are highly committed to
the organisation?
4.10 Summary
The distinction between task and contextual performance is important in
terms of understanding how individual performance is conceptualised.
OCB falls into the category of contextual performance and hence is
more under an individual’s discretion. Consequently, there is a greater
relationship between an individual’s attitudes and contextual performance
than task performance.
There are a number of antecedents of OCB. The research suggests that the
direct effect of personality on OCB is weak (individual–collectivism seems
to be an important individual difference). Stronger evidence exists for the
effect of organisational justice and perceived organisational support on
OCB. Finally, highly committed employees are more likely to engage in
OCB.
As highly committed employees are more likely to engage in behaviours
that benefit the organisation, the key issue for organisations is how they
can manage employees’ commitment to the organisation through its
human resource practices.

• discuss the concept of performance through the framework of task and
contextual performance
77
• describe organisational citizenship behaviour (OCB) and its

antecedents
• define organisational commitment and explore its antecedents
• explain how human resource practices might be used to enhance
employee commitment to their employing organisation.

Critically evaluate the relationship between human resource practices and
organisational commitment.
4.13 Sample examination question

What can managers do to increase employees’ citizenship behaviour?
See Appendix 3 for feedback.
78
Chapter 5: Psychological contracts
5.1 Introduction
This chapter explores the employment relationship between employees
and their employers. Employers make promises to employees in return for,
for example, employees being loyal, exerting effort on the organisation’s
behalf and high performance. It is this relationship based on perception of
what has been promised which is called the psychological contract.
When you read through this chapter, you should keep in mind how an
organisation’s human resource practices may affect what employers and
employees contribute to the exchange relationship.
Activity
Think about a time when someone promised to do something for you and did not do it.
a. How did you feel?
b. What did you do?
c. Why did you do what you did?
This chapter explores the above in the context of the employee–employer
relationship. If you work, think about an incidence when your employer
promised you something but did not deliver – how did it make you feel
and did you do anything about it?

• This chapter introduces students to the important concept of ‘the
psychological contract.

• define the concept of the psychological contract
• discuss, citing relevant evidence, whether the employment relationship
is changing
• explain how psychological contracts are created
• discuss how contract breach and violation occur
• explain the consequences of contract breach
• critically evaluate the relationship between HRM practices and
psychological contracts.

This chapter is available to download from the VLE:
Cullinane, N. and T. Dundon ‘The psychological contract: a critical review’,
International Journal of Management Reviews 8(2) 2006, pp.113–29.
Coyle-Shapiro, J.A–M. and L. Shore ‘The employee-organization relationship:
where do we go from here?’, Human Resource Management Review (17)
2007, pp.166–79. (This article is available online from:
http://eprints.lse.ac.uk/)
79

Conway, N. and R. Briner Understanding psychological contracts at work: a
critical evaluation of theory and research. (Oxford: Oxford University Press,
2005) [ISBN 9780199280643]. Chapter 3 ‘What is the psychological
contract? Defining the concept’, Chapter 5 ‘How does the psychological
contract affect behaviour, attitudes and emotion? The importance of
psychological contract breach’.
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‘behaviour’ your search results will not pick up the journals which use US
spelling ‘organizational’ and ‘behavior’.
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breach and violation: a longitudinal study’, Journal of Organizational
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contracts’, Academy of Management Journal 47(3) 2004, pp.350–67.
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breach on performance of IT employees: the mediating role of affective
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investment approach: implications for Human Resource Management’,
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Arnold, J., ‘The psychological contract: A concept in need of closer scrutiny?’,
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the employment relationship: A large scale survey’, Journal of Management
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Csoka, ‘A new employer–employee contract?’, Employment Relations Today
Summer 1995, pp.21–31.
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Hackett, B. ‘What’s new about the new deal?’ in B. Hackett (ed.) The new deal
in employment relationships. (The Conference Board Rep. No.1162-96-CR)
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Herriot, P., W.E.G. Manning and J.M. Kidd ‘The content of the psychological
contract’, British Journal of Management 8 (1997), pp.151–62.
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Diego (1998).
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Miles, R.E. and C.C. Snow ‘Designing strategic human resource systems’,
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Millward, L.J. and P. Brewerton Validation of the psychological contract scale
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publication, 1998).
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commitment’, Journal of Applied Social Psychology 28 1998, pp.16–31.
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of unfulfilled obligations on civic virtue’, Journal of Organisational Behavior
16 1995, pp.289–98.
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Responsibilities and Rights Journal 2 1989, pp.895–922.
Rousseau, D.M. ‘New hire perceptions of their own and their employer’s
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19 1998 pp.679–95.
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McGraw-Hill, 1991) fifth edition [ISBN 007060956X].

Psychological contracts between employers and employees provide an
important foundation for the employment relationship. This chapter
begins by defining what is meant by a ‘psychological contract’, and
explains how contracts are created, maintained, violated and breached.
81
We examine the role of HR policies and programmes in establishing and

maintaining psychological contracts.
5.2 Definitions of psychological contracts

A general description of a contract is the belief in obligations existing
between two parties – an agreement that creates an obligation to do
something or not to do something. The essence of contracts are promises
about the future.
A starting point in thinking about psychological contracts is to look at
employment contracts and, in particular, the gaps and vagueness of
what is written and agreed in the signing of an employment contract.
Most employment contracts can be characterised as incomplete as the
employer cannot specify in advance all the details that the contract might
cover. Employee obligations are only generally described: for example,
at a university, to provide quality teaching and to conduct high-quality
research; or, to a customer service employee, to deliver first-class customer
service. Similarly, how employers will deliver on ‘we provide excellent
training and educational opportunities’ is often left up to them and
employees to figure out later.
The longer employment lasts, the more obvious and inevitable is the
incompleteness of the initial contract and it is not realistic to expect
completeness in such arrangements. The pace of change in industry today,
whether caused by technology, the economy, the law or any other factor,
is increasing. Employees faced with uncertainty fill in the blanks in their
written contract with interpretations, guesses and estimations and it is
these blanks that the psychological contract fills.
Below are some definitions that have been presented by psychological
contract theorists:
• ‘A set of unwritten reciprocal expectations between an individual
employee and the organisation.’ (Schein, 1980)
• ‘An implicit contract between an individual and his organisation which
specifies what each expect to give and receive from each other in their
relationship.’ (Kotter, 1973)
• ‘An individual’s belief regarding the terms and conditions of a reciprocal
exchange agreement between the focal person and another party. A
psychological contract emerges when one party believes that a promise
of future returns has been made, a contribution has been given and
thus, an obligation has been created to provide future benefits.’
(Rousseau, 1989)
In other words, psychological contracts are an individual’s belief regarding
reciprocal obligations: what obligations the employee owes the employer
and employer obligations to the employee. When individuals believe they
are obligated to behave or perform in a certain way and also believe that
the employer has certain obligations towards them, these individuals hold
a psychological contract.
Activity
Think about your your dream job and ask yourself:
a. what do you think your obligations to your employer would be
b. what do you think your employer’s obligations would be to you?
82
As the different definitions show, the emphasis has shifted from

expectations to obligations and fundamentally, psychological contracts
are based on perceived promises where a promise is defined as any
communication of future intent (Rousseau, 1989).
If you want a little help with examples of what others have said their
expectations were, then look at 5.8 Measurement of the psychological
contract. It may help you to understand what is meant in practice.
5.2.1 Expectations and obligations

Think now about expectations and obligations. Do they represent different
levels of engagement of psychological engagement? Is failure to meet
expectations the same as failure to meet obligations?
Activity
In a dictionary, find a definition of expectations and obligations? Think about the
definitions. Is one stronger than the other? Give an example of an obligation and then
give an example of an expectation.
Robinson (1996) argues that expectations come from a variety of sources

and that those expectations only that result from explicit or implicit
promises by the employer are part of the psychological contract. For
example, if a new employee believes they were promised performance-
based pay when they were hired, this creates an expectation but also
an obligation. So, if expectations and obligations are different levels
of engagement, this raises the issue of where expectations end and
obligations begin. Is there a clear demarcation between the two concepts?
The importance of distinguishing between the two concepts lies in their
consequences whereby, in theory, a violation of obligations should produce
a more intense and organisationally detrimental response than unmet
expectations. Robinson (1996) would argue that violations will produce
unmet expectations and their consequences, but that unmet expectations
alone do not reflect the totality of the effects of contract violation.
Obligations are based on perceived promises whereas expectations can
occur for a variety of reasons such as past experience.
5.3 Social exchange theory

The theoretical roots of the psychological contract can be traced to the
work of Blau (1964) and Gouldner (1960). Blau (1964) differentiates
social exchange from economic exchange. Social exchange refers to
relationships that entail unspecified future obligations. Social exchange
(like economic exchange) generates an expectation of a future return for
contributions (‘I do something for you and I expect you to do something
in return for me’), but, unlike economic exchange, the exact nature of
that return is not specified. Economic exchange is based on transactions
and is short term. Social exchange is based on an individual trusting that
the other party to the exchange will fairly discharge their obligations
in the long run. This trust is necessary because, in the short term, there
may be some temporary asymmetries in what one party gives and gets
from the exchange; that is, one party may feel that they have contributed
more to the relationship in the short term and they have to have trust
that the other party will contribute more in the future, so that in the long
term there is some balance in the contributions of the two parties to the
exchange. Consequently, in social exchange relationships, individuals need
to have trust that the other party in the longer term will fairly discharge
their obligations.
83
Underlying social exchange is the ‘norm of reciprocity’ (Gouldner, 1960).

Gouldner (1960) argues that:
a. individuals should help individuals who have helped them, and
b. individuals should not injure people who have helped them.
Consequently, the norm of reciprocity operates so that when one party
benefits another, an obligation is generated on the recipient to reciprocate
and he or she is indebted to the beneficiary until he or she repays that
obligation.
Activity
How do relationships based on social exchange differ from those based on economic
exchange?
Write down some examples of each type of relationship.
5.4 With whom does an employee have a contract?

In a legal contract such as an employment contract it is clear who is
involved in the contract. When it comes to a psychological contract the
situation is not so clear. A psychological contract is held by employees
and represents their beliefs about obligations between them and their
organisation. They do not tend to see any particular person in the
organisation as being responsible. Consequently, the organisation assumes
an anthropomorphic identity for employees; that is, the employee thinks of
the organisation as if it were a person (Levinson, 1965). Levinson (1965)
argues that employees tend to view actions by agents of the organisation
itself as actions of the organisation and this personification of the
organisation is reinforced by the following factors:
a. The organisation has a legal, moral and financial responsibility for the
actions of agents.
b. Organisational precedents, traditions and norms provide continuity and
prescribe role behaviours.
c. The organisation, through its agents, exerts power over employees.
Therefore, in the psychological contract, it is assumed that identifying the
employer is non-problematic. But, who is the employer? In a small, single
entity, there is likely to be no doubt regarding who the employer is but in
large complex multinationals, employees may hold differing views as to
who the employer is. Also, in terms of contractors, while their employer in
the technical and legal sense is the recruitment agency, at a psychological
level, it may be the case that employees think of the host organisation
as the employer, albeit in a temporary sense. Although the organisation
cannot hold a psychological contract, individual managers can perceive a
psychological contract with employees.
The employer’s perspective is important as employers, by and large,
dictate the terms of the employment relationship. They exercise varying
degrees of choice in how they respond to increased competitive pressures
and the associated consequences for the management of the employee–
employer relationship. Managers, as employer representatives, play an
important role in conveying the parameters of the relationship with
employees. While recognising that managers are not exclusive contract-
makers, they have a managerial responsibility to monitor and manage the
exchange relationship. Lewis-McClear and Taylor (1998) argue that: ‘only
by studying the interactions between these two parties, and the way these
interactions evolve over time, can we begin to understand the essence of
84
the employment exchange’.1 Therefore, one contribution of including the 1

Lewis-McClear and
employer’s perspective is that it provides a more complete picture by Taylor (1998).
allowing an investigation of the actions and reactions of both parties to the
exchange.
A second potential contribution of the employer’s perspective is to
assess the degree of mutuality that exists in the relationship. Obtaining
the employee and employer perspectives permits an assessment of the
extent to which there is agreement on the obligations of both parties and
the fulfilment of those obligations. Any disagreement between the two
parties could indicate the potential development of contract breach and
potentially give insight into whether incongruence or reneging is the cause
of contract breach.
Current research generally subscribes to the view that contract breach is a
subjective phenomenon – perceptions matter. An individual who is highly
vigilant may search for confirming evidence that his or her employer has
breached their psychological contract and may be more likely to perceive
a breach at the hint of a transgression. Consequently, it is difficult to
ascertain whether a promise was really broken or whether an obligation
existed. As Robinson and Morrison (2000) note, it is the inherent
subjectivity that makes the examination of contract breach challenging.
Therefore, the inclusion of the employer’s perspective may improve the
accuracy of whether a perceived breach has occurred and the magnitude
of that breach.
5.5 Categorising employer relationships with employees

Tsui et al. (1997) categorise employer relationships with employees
into four types using balance and type of exchange as dimensions. The
balanced relationships include economic and social-based (mutual)
exchanges. The unbalanced exchanges involve relationships where the
type of exchange is incongruent between the employer and employees
(e.g. employer offering social exchange in return for economic exchange
from the employee or the employee adopting a social exchange perspective
in return for an economic exchange offered by the employer). The four
types are illustrated in Figure 5.1 and described in greater detail opposite.
Employee–employer exchanges
Balanced exchanges Unbalanced exchanges
Economic exchanges Mutual exchanges Under-exchanges Over-exchanges
Figure 5.1: Four types of employer–employee relationship.
85
5.5.1 Balanced exchanges
Economic exchange
In this type of relationship, there is balance between the contributions
of the employer and employee but these contributions are exclusively
economic. The employer offers short-term economic inducements in
exchange for specified contributions (e.g. a stockbroker and brokerage
firm). The employee is not expected to help colleagues or be concerned
about the overall performance of the firm and the employer’s obligation
to employees is confined to rewards. Neither party has an obligation to
maintain a long-term relationship. This type of relationship is known as a
quasi-spot contract.
Mutual investment
This type of relationship is based on social exchange and involves long-
term investment and is similar to a high-commitment approach advocated
by Walton (1985).
5.5.2 Unbalanced exchanges
Underinvestment
This type of relationship is characterised by the employee adopting a
social exchange view and the employer adopting an economic view of the
relationship. In other words, employees are expected to undertake broad
and open-ended obligations in return for monetary rewards and no long-
term investment (e.g. in job security, career development and training).
Employers want full commitment from employees but at the same time
they want the flexibility to lay-off employees when necessary.
Overinvestment
This type of relationship is characterised by employees taking an
economic view and employers taking a social exchange view. In this type
of relationship, employers provide long-term job security and employees
receive investments from the employer in terms of training but employees
are not expected to go beyond their immediate job requirements.
Not only will employers differ in terms of the type of relationship offered
to employees, but within organisations, the type of relationship may
vary across employees. Employers may develop different relationships
with different types of employees (e.g. permanent versus temporary).
The authors empirically demonstrate that a balanced social exchange
perspective, or an unbalanced exchange in which the employer offers a
social exchange, are associated with higher levels of performance and
more favourable attitudes than the remaining two relationships.
Activity
What are the consequences of the four different types of exchanges for:
a. employees
b. the employer.
5.6 Types of contracts

In the study of psychological contracts, two types of contracts have
been identified as anchoring opposite ends of a continuum: namely
transactional and relational contracts.
86
Transactional contracts have been characterised by Rousseau as, for

example, hard work (the employee’s obligation) in exchange for high
extrinsic returns (high pay, rapid career advancement) as the employer
obligations. Transactional terms are exemplified by ‘a fair day’s work
for a fair day’s pay’ and one can think of students working during the
summer vacation as having a transactional view of their relationship with
their employer. Similarly, employment agencies offer organisations the
opportunity to create purely transactional agreements with employees.
At the other end of the continuum are relational contracts, which
exchange employee loyalty in return for job security. This type of contract
focuses on the long-term investment between the employee and employer;
it is open ended, containing socio-emotional elements, broad in scope,
governed by values of good faith and fair dealing, and by the motivation
to sustain the relationship over time. These types of contracts characterise
a wide variety of personal relationships, involving an element of trust, a
sense of a relationship and mutual obligations.
Relational and transactional contracts have been distinguished from each
other along a number of dimensions:
1. Focus: To what extent are the incentives for the employment
relationship primarily economic as against economic and emotional?
2. Time frame: Is the relationship perceived to be time-limited or open
ended and infinite?
3. Formalisation: How formal is the specification of performance
requirements?
4. Inclusion: To what extent is the job perceived to be of limited versus
extensive personal involvement (assessing the extent to which the job
overlaps with an individual’s personal life)?
5. Stability: To what extent is the relationship perceived to be static and
unchanging versus dynamic and subject to future change?
Rousseau (1995) describes transactional and relational contracts as follows:
• Transactional:
• short-term exchanges based on money
• specific economic conditions as primary incentive
• limited personal involvement in the job
• specified time frame
• commitments limited to well-specified conditions
• limited flexibility
• use of existing skills
• unambiguous terms.
• Relational:
• open-ended relationship and time frame
• considerable investment by employees and the employer
• high degree of mutual interdependence and high barriers to exit
• emotional involvement as well as economic exchange
• dynamic and subject to change
• pervasive conditions
• subjective and implicitly understood.
87
Millward and Brewerton (1998) found similar things to Rousseau

which forms the basis of the following: as distinct components of the
psychological contracts:
• Transactional:
• transactional orientation: focus on financial gain and on the
fulfilment of contractual and job requirements
• long-term future: not seeing the organisation as a long-term
employer
• absence of the extra mile: lack of involvement in work;
unwillingness to go beyond job requirements.
• Relational:
• Emotional affinity: feeling of organisational membership,
identification with the organisation’s goals
• Professional development: opportunities for training, development
and personal growth
• Equitability: perceptions of just and fair reward for inputs.
The above lists could be seen as distinct components of the psychological
contract.
5.7 How are transactional and relational contracts

related?
Rousseau (1995) proposes that transactional and relational contracts
are opposite ends of a continuum and seen as extremes types. These
anchors correspond to what Miles and Snow (1980) term ‘buy’ and ‘make’.
The former is where organisations buy in employees from employment
agencies or on contract, while the latter organisations develop a long-
term relationship with employees offering long-term job security and
career development in return for loyalty and citizenship behaviour.
Relational contracts can engender feelings of commitment; commitment
from the employee to the employer; and the employer’s commitment
to the employee would take the form of the provision of training and
development, and job security. Transactional type contracts would take the
form of employees being concerned with money and personal benefit, and
the organisation not committing itself to the relationship by providing job
security and investing in training and development.
There can be movement between these types of contracts; some authors 2
If an individual had
propose that as contracts become less relational, employees perceive their either an exclusive
contracts as more transactional in nature. The reverse may also hold true, transactional or
an individual on a temporary contract may hold a transactional view, relational contract with
which may develop into a relational contract as the individual becomes a their employer, one
would expect to find a
permanent employee after a probationary period or a contractor whose
high negative correlation
short-term contracts are continually renewed. However, if relational of –0.80 between
and transactional contracts are bipolar, one would expect a negative both. The correlation of
relationship between the two types of contracts. –0.2/–0.3 suggests that
there is a small positive
An empirical study by Millward and Hopkins (1998) reports a correlation association between
of –0.2 to –0.3 between transactional and relational contracts suggesting transactional and
that the relationship between the two types of contracts may be more relational contracts and
complex.2 Arnold (1996) has suggested that both types of contracts can indicates that individuals
operate concurrently; an organisation implementing high commitment may have relational
and transactional
HRM may provide high pay, pay for performance as well as career
components to their
development and job security. Rousseau (1995) elaborated on the types of psychological contract.
contract to include two additional types:
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• Transitional contracts represent a breakdown in contracts, reflecting

an absence of commitment regarding future employment and little
explicit performance requirements (typical employee experience during
organisational downsizing or a merger), and
• Balanced contracts are open ended and relationship-oriented but
have well-specified performance terms that are subject to change (in
relational contracts, the performance terms are not specified).
Activity
a. How would an HR manager encourage the formation of a relational contract? (Hint:
think about training, think about pay.)
b. What are the advantages of a transactional contract to the employer and the
employee?
5.8 Measurement of psychological contract

As the psychological contract is based on perceptions it might be difficult
to try to measure it. This, however, has not stopped researchers from
trying. For our purposes we will look at content approaches.
5.8.1 Content approaches

This type of research can be either qualitative or quantitative. Herriot et
al. (1997) adopted a qualitative research method using critical incidents.
Using a representative sample, UK employees were asked to think of an
incident or situation where an employee or the organisation went beyond
or fell short of what might be reasonably be expected of them in their
treatment of the other party. In other words, they asked respondents to
report on specific instances where:
• the organisation offered more than it was obligated to
• the employee(s) offered more than they were obligated to
• the organisation offered less than it was obligated to
• employee(s) offered less than they were obligated to.
They asked employees to respond as employees of the organisation and
managers to respond as representatives of the organisation. The following
are the types of obligations that respondents reported:3 3
Source: Herriot et al.
(1997)
• Employee obligations:
• Hours: to work the hours you are contracted to work.
• Work: to do a good job in terms of quality and quantity. For
example, not slowing down to make overtime necessary or night
workers sleeping when they should be working.
• Honesty: to be honest in dealings with clients and the
organisation. For example, not claiming expenses for a journey not
taken.
• Loyalty: staying with the organisation, guarding its reputation
and putting its interests first. For example, not leaking sensitive
information to a tabloid newspaper. Volunteering to take a salary
freeze to help the organisation survive.
• Property: treating the organisation’s property in a careful way.
• Self-presentation: dressing and behaving correctly with
customers and colleagues.
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• Flexibility: willingness to go beyond one’s own job description

especially in an emergency.
• Employer/organisational obligations:
• Training: providing adequate training and induction for
employees.
• Fairness: ensuring fairness of selection, appraisal, promotion and
redundancy procedures.
• Needs: allowing time off to meet personal and family needs.
• Consultation: consulting and communicating with employees on
matters that affect them.
• Discretion: minimal interference with employees in terms of how
they do their job.
• Humanity: acting in a personally and socially responsible
way towards employees; not humiliating employees in front of
customers.
• Recognition: recognising or rewarding special contributions or
long service.
• Environment: provision of a safe and congenial work
environment, for example, banning smoking in open plan offices,
not giving one person all the nasty jobs.
• Justice: fairness and consistency in the application of rules and
disciplinary procedures.
• Pay: equitable pay with respect to market values and consistently
awarded across the organisation; no difference between
departments in terms of what constitutes overtime.
• Benefits: fairness and consistency in the administration of the
benefits system.
• Security: trying to provide what job security the organisation can.
The second content-driven approach is quantitatively driven. Employees
were asked what obligations they felt the employer had to them as
individuals and what obligations they had to their employer. Employees
were asked to indicate the extent to which they believe that their employer
is obligated to provide the following on a 1–5 point scale from ‘not at all’
to ‘highly obligated’:
• rapid advancement
• high pay
• pay based on current levels of performance
• training
• long-term job security
• career development
• support with personal problems.
Employees were also asked to indicate the extent to which they felt
obligated to provide the following to their employer using the same scale:
• work extra hours
• volunteer to do non-required tasks on the job
• protect proprietary information
• give advance notice of taking a job elsewhere.
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The above list gives some good examples of content-based psychological

contracts.
5.9 The key features of the psychological contract

Before considering how a psychological contract can be created and
managed, study the following summary of the key features we have
described above.
• The psychological contract is perceptual, unwritten and hence not
necessarily shared by the other party to the exchange. Psychological
contracts are subjective, residing in the eyes of the beholder. Although
beliefs in mutual obligations comprise a contract, two parties may
not agree for each to believe a contract exists. Thus, employees
and employers may hold different views as to the content of the
psychological contract; for example, excellent training opportunities
may be interpreted differently by employees and employers.
• There is an important distinction made in the literature between
psychological contracts that are transactional in nature and those that
are largely relational.
• The psychological contract is concerned with perceived obligations as
distinct from expectations.
• The creation of a psychological contract may result from implicit means
relying on an individual’s interpretation of actions and events within the
organisation. Thus, two employees hired at the same time into the same
position may develop idiosyncratic views of their psychological contract.
• The exchange relationship is between the individual and the
organisation. In a sense the organisation is personified; employees view
the actions of agents of the organisation as actions of the organisation
itself.
5.10 Creation and management of the psychological

contract
Psychological contracts are created through a variety of mechanisms.
Most explicitly, they begin during the recruitment process through oral
discussions and written documentation including any advertisement.
But words or explicit means are not required to create promises –
organisational actions and the observation of treatment received by other
employees can be construed as promises. Social learning through the
observation of other organisational members may be a powerful factor in
the communication of promises. An old saying is often relevant: ‘a promise
is most given when least is said’.
A number of factors operate in forming the psychological contract: messages
and social cues from the organisation and the individual’s interpretation of
those signals. Messages are conveyed in organisations through a number
of means: overt statements, observation of treatment of others, expression
of organisational policies and social constructions. Organisational leaders
make statements that signal the organisation’s actions and expressed
intentions and this may influence how an individual interprets their
psychological contract. For example a leader may explicitly state that the
organisation can no longer guarantee job security as a consequence of
increased competition; this is likely to affect whether an employee sees job
security as part of the employer’s obligations to them as individuals.
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Observations of how others are treated are a readily available source

of information regarding one’s own relationship with the organisation.
How co-workers are treated can influence employee’s beliefs about what
the organisation owes them. Expressions of policy which may include
documents (e.g. handbooks), compensation systems and promotion
practices all signal to employees what the organisation is willing to offer
as part of the exchange relationship. Social cues from co-workers provide
messages for how the contract is created and shape how individuals
interpret the terms of the contract. All these signals are external to the
individual and in order to understand how individuals interpret these
signals, it is necessary to look at what makes individuals think as they do.
Rousseau (1995) outlines two areas of influence:
1. cognitive biases
2. motives.
Cognitive biases relate to how individuals process information –
individuals have unrealistically positive views of the self, unrealistic
optimism and exaggerated perceptions of personal control. These
tendencies will lead to individuals believing that they have fulfilled their
side of the exchange. An individual’s motives for taking a job (a stepping
stone to another job or a long-term career with the organisation) are
also likely to influence their interpretation of the psychological contract.
Individuals who see their current job as a stepping stone to another job
are more likely to think of their psychological contract as involving high
salary in exchange for hard work, whereas those individuals who see their
current job as a long-term career are more likely to see the exchange as
involving job security in return for loyalty.
See also 5.13 Human resource practuces and psychological contracts.
5.10.1 Change to contracts

Rousseau (1995) also presents several ways in which contracts may
change. Factors that affect change can be internal or external. Internal
change in an individual’s psychological contract occurs without any formal
effort to change the contract (e.g. an individual’s interpretation of their
psychological contract changes as a result of longer tenure within the
organisation; changes in individual’s personal lives may modify how they
view their relationship with their employer).
External change can lead to either:
a. accommodation: making adjustments within the framework of existing
contracts or
b. transformation: a fundamental shift in the nature of the contract
between the two parties.
Successful change through accommodation has the following features
(existing adjustments within an existing contract):
• the change occurs in the context of the existing contract
• there is a positive relationship between the two parties
• the changes affect the non-core elements of the contract (the extras
leaving the core terms of the contract unchanged)
• there is participation in the change by the two parties
• few changes are made.
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Essentially, successful changes take the form of isolated changes (such as

changes in working hours or changes in benefits) so that employees think
the old deal continues or remains largely intact despite the changes.
Transformation (radical forms of change) may include a reduction in pay,
the loss of long-term career ladder, etc.; or a reduction in job security with
an expectation that the employee will now maintain their employability.
Rousseau (1995) outlines a process to try to effect change which involves:
a. challenging the old contract – create need for change and justification
for the change
b. creating credible signs of change
c. contract negotiation – involving people.
Activity
Read Cullinane and Dundon (2006) and make notes on:
a. examples of how a psychological contract may be managed
b. the problems facing organisations in managing employees’ psychological contracts?
5.11 Development of contract breach and violation

Robinson and Morrison (2000) present a useful theoretical model of how
contract violation develops. Breach or perceived breach have been defined
as the perception that one’s organisation has failed to fulfil one or more
obligations comprising the psychological contract. A perceived breach has
occurred when one thinks about what one has received relative to what
one was promised. The important issue is that an individual perceives
a contract breach; in some cases this may arise from a real breach and
in others, it may be less clear whether a real breach has occurred. For
example, a recruiter may make a clear promise to an employee that he or
she will be promoted in three years and, when this does not happen, the
employee perceives a breach of contract. In another situation, the recruiter
may make a vague statement that people in this organisation tend to get
promoted rapidly. When the promotion does not happen, the employee
may perceive a breach of contract.
Activity
Draw up some examples of when employees may think their employer has breached their
The term ‘violation’ suggests a strong emotional experience; feelings

of anger, resentment, bitterness and even outrage resulting from the
perception that one has been betrayed or mistreated. Violation may or
may not result from perceived breach. One can judge that a contract has
been breached yet at the same time not experience the feelings of outrage,
injustice and so on.
Two conditions may eventually give rise to violation: reneging and
incongruence.
5.11.1 Reneging
Reneging occurs when the organisation knowingly breaks a promise to the
employee. This may occur because the organisation is unable to fulfil a
promise or because it is unwilling to do so.
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Inability
The organisation may at one point in time have promised job security to
new recruits but finds itself in a position of not being able to deliver this
due to changes in the external environment.
Unwillingness
The organisation may make a promise with no intention of fulfilling it or
they may have originally intended to keep it but subsequently decided not
to fulfil it. Whether an organisation decides to renege depends on the costs
and benefits associated with reneging. One factor is the power both parties
have; if the employee has critical skills that the organisation is dependent
on, the organisation will be less likely to renege than the situation where
the employee is easily replaceable. A second factor is how well the
employee has fulfilled their contract, the organisation may perceive the
costs to be lower when an employee has not fulfilled their contract rather
than when the employee is seen as fulfilling their contract. The third factor
is the type of contract: the costs of reneging are considered greater when
the contract is viewed as relational and reneging will be less likely.
Taking these three factors together, if the employee has greater power,
is perceived to be fulfilling their contract and the organisation sees
the contract as relational, the costs of reneging will be greater than
the benefits and hence the organisation will be less likely to renege.
However, if the organisation has greater power, the employee is seen
as not adequately fulfilling their contract and the organisation sees the
relationship as transactional, the organisation is more likely to renege as
the benefits outweigh the costs.
5.11.2 Incongruence
Incongruence occurs when an employee has perceptions of a given
promise that differ from the organisation. This may be a consequence of
three factors: different schemata, complexity and ambiguity of obligations,
and communication.
Different schemata
Schemata are cognitive frameworks that help people process data in
order to make sense of events and situations. One schema relates to
the employment relationship, which helps individuals define what a
typical employment relationship entails. How an individual interprets job
security will depend on how job security fits into an individual’s schema
for employment relationships in general. These schemata are heavily
influenced by prior experiences and culture (a Japanese manager may
have a different schema from the one held by an American manager).
Complexity and ambiguity of obligations

The more complex and ambiguous the obligations, the more likely that
different perceptions between the two parties will occur.
Communication
The greater the accuracy and truthfulness of communication, the more
likely there will be agreement between the two parties.
5.11.3 The results of reneging or incongruence

Either reneging or incongruence may lead to a discrepancy between what
an employee was promised and what they received. Does this discrepancy
matter?
94
It depends on:
a. Whether the discrepancy is seen by the employee as important. The
larger the discrepancy, the more important the promise to the employee
and the more vivid the promise in the mind of the employee, the
greater the importance of the discrepancy.
b. The vigilance of the employee (the extent to which the employee
monitors how well the organisation is fulfilling the terms of the
contract). The vigilance of employees will depend on uncertainty (in
situations of uncertainty, such as downturns or lay-offs, employees
will be more vigilant). Employees will also be more vigilant when
the employment relationship is based on a transactional rather than
relational exchange.
Will unmet promises lead to perceived breach? This depends on a
comparison process whereby the employees compare first what he or
she has received to what he or she was promised, and then compares
this to what he or she provides the organisation relative to what he or
she promised to provide. In other words, employees compare how well
they have fulfilled their obligations to the organisation with how well the
organisation has fulfilled their obligations to the employee.
Some key factors affect the likelihood that a breach will occur:
• If the employee perceives that their level of contract maintenance is
greater than the organisation, then perceived breach is likely to occur.
• Employees with low self-esteem are more likely to think that their
contributions have been inadequate and hence are less likely to believe
that an unmet promise represents a breach.
• Individuals differ in how equity sensitive they are. Individuals who are
highly equity sensitive feel that they deserve more than others and they
may consider the slightest discrepancy as an indication that a breach of
contract has occurred.
Will perceived breach lead to perceived violation? This depends on four
factors:
• Outcome assessment: The greater the perceived imbalance
between the two parties’ contributions, the stronger the relationship
between perceived breach and violation. The greater the value attached
to the outcomes, the more likely it is that violation will occur. So,
for example, a worker may have been prepared to do a lot of unpaid
overtime on the expectation that they would be promoted in the near
future. The promotion would help to redress the imbalance because
the worker would be getting more pay and the prestige that goes with
the promotion. The worker may have been subject to adverse pressure
from their family about doing all the unpaid work. They may have
said to their family that if they do the overtime, they are sure to get
promoted. If the expected promotion does not happen, then it is more
likely that the worker will think that their psychological contract has
been violated.
• Attribution: Who is responsible for the perceived breach? If an
employee believes that the organisation purposefully reneged on their
promises, employees will experience more intense negative emotions.
• Process: If an employee feels that they were fairly treated, dealt with
honestly and respectfully and received adequate justification, they will
be less likely to experience negative reactions.
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• Context: The social contract in the employment relationship entails

beliefs about exchange, reciprocity, fair dealing and good faith. If for
example, lay-offs were unheard of in a particular organisation and
an employee was laid off, the breach of contract will lead to greater
feelings of violation because it was unexpected and contrary to
previous organisational actions.
5.11.4 Managing perceptions of breach

Before we look at the consequences of contract breach, we need
to examine what organisations can do to minimise perceptions of
contract breach. Given that contract breach can arise from reneging
or incongruence, these causes have practical implications for the
management of contract breach. First, organisations need to be careful
in making promises to employees as they may later find they cannot
fulfil them. Second, to minimise congruence, organisations may
want to increase communication between organisational agents and
employees. Furthermore, the use of realistic job previews may minimise
subsequent perceptions of contract breach, as employees will have a good
understanding of the job prior to hiring. If contract breach does occur,
organisations need to ensure employees are treated fairly (this is covered
in Chapter 10: Organisational justice).
Activity
a. What is the difference between contract breach and violation?
b. How does contract breach occur? Give an example.
5.12 Consequences of the psychological contract breach

The consequences of contract breach have been heavily researched and the
outcomes examined can be placed into three categories:
• employee obligations and fulfilment
• attitudes
• behaviours.
5.12.1 Employee obligations and fulfilment

Robinson, Kraatz and Rousseau (1994) found in their study of US Master
of Business Administration students that when an employer failed to
deliver on its obligations to employees, employees reciprocated by
lowering their obligations to their employer and were less likely to fulfil
those obligations. Similar evidence is found in the UK public sector (Coyle-
Shapiro and Kessler, 2000). Therefore, the empirical evidence that exists
tends to support the norm of reciprocity that underlies the psychological
contract in which employees attempt to maintain balance in the exchange
relationship with their employer.
5.12.2 Attitudes
Another strand of empirical research supports the relationship between
contract breach and employee attitudes. Robinson (1996) demonstrates
that contract breach leads to a reduction of employee trust in their
employer and it is this reduction in trust that may lead employees
to reduce their contributions to the exchange relationship. When an
employee experiences contract breach, he or she interprets this as
inconsistency between the employer’s words and their actions, which
causes employees to lose faith in the employer reciprocating their
contributions in the future. In other words, if promises are broken,
96
trust is undermined and an employee may be less likely to invest in the

relationship and maintain that relationship.
Similarly, contract breach is related to employees’ commitment to the
organisation (Coyle-Shapiro and Kessler, 2000). If employees experience
contract breach, they are likely to reduce their commitment to the
organisation (commitment is explored in 4.9 Commitment).
5.12.3 Behaviours
Turnley and Feldman (1999) found that employees who reported
higher levels of contract breach were more likely to attempt to leave the
organisation, to have neglected their in-role job performance, and would
be less likely to represent the organisation favourably to outsiders (be
less loyal). Robinson and Morrison (1995) found a positive relationship
between contract fulfilment and organisational citizenship behaviour.
However, contract breach can have implications for the longer term and
have spillover effects from one job to another. Pugh, Skarlicki and Passell
(2000) investigated the relationship between contract violation with one
employer and the consequences for an individual’s trust and cynicism in
future employment. The findings of the study indicate that:
• Perception of contract violation was negatively associated with trust in
an employee’s new employer.
• Perception of contract violation was positively related to an employee’s
cynicism in their new employment.
• If an employee experiences contract breach with one employer, they are
less likely to trust their subsequent employer.
5.12.4 Will employees exit the organisation when they perceive

contract breach?
Turnley and Feldman (1999), argue that employees will be more likely to
leave the organisation when they have available alternative employment,
when justification for contract breach is low and when procedural justice is
low.
Specifically, the authors found that availability of alternative employment
moderated the relationship between contract breach and exit. In other
words, when an individual thinks they have alternative employment
opportunities, they are more likely to leave the organisation when they
perceive contract breach.
Justification for contract breach moderated the relationship between
contract breach and exit such that when employees felt there was little
justification for the breach, they were more likely to exit the organisation.
The same holds true for procedural justice – when employees feel
procedural justice is low, they are more likely to exit the organisation when
they perceive a contract breach.
Overall, the relationship between contract breach and employees trying
to leave the organisation is stronger when they have available alternative
employment, they feel there is low justification for the contract breach
and they perceive low procedural justice (see Chapter 10: Organisational
justice).
Activity
a. What are the consequences of perceived breach of employees’ psychological contract?
b. What can organisations do to minimise the effects of a perceived breach?
97
5.13 Human resource practices and psychological

contracts
Human resource practices shape the day-to-day behaviour of employees.
The biggest influence on employees are their immediate managers, but
human resource policies and practices can influence the expectations of
employees at the beginning of the employment relationship, as well as
throughout the relationship. For example:
• Recruitment: what impression does the organisation give in the way
it recruits, what ‘promises’ are made in the recruitment advertising?
• Selection: does the company treat the employee well and with respect
during the selection process. Does the organisation communicate
clearly and appropriately. What promises are given by the managers
during the selection process?
• Training: the employee may feel valued if they are sent on training
courses. Induction training helps to shape employee expectations as to
what is on offer from the organisation. Induction training is part of the
socialisation of the new employee. It is here that the employee gets an
insight into the culture of an organisation, what is valued and what is
rewarded.
• Reward systems: are all employees treated fairly? (Not necessarily
the same.) Are promises of rises and bonus payments honoured? If a
pay freeze were to be necessary, how would it be communicated? Who
would tell workers what to expect?
All the above HR policies and the practice of HR by managers and the HR
department send cues to employees on what the employer is willing to
offer as part of the relationship and at the same time signal to employees
what their contributions are to the relationship. Overall, the type of
strategy an organisation pursues (Miles and Snow, 1984) makes specific
demands on human resource management systems, which in turn impact
on the contracts that define the employment relationship.
Activity
Drawing on what you learned from Chapter 1, which reviewed different types of human
resource strategies, note the key implications of each strategy for the psychological
contract of employees.
5.14 Are psychological contracts changing?

The psychological contract is defined by Rousseau (1989) as an
individual’s beliefs regarding the mutual obligations between him or her
and another party. Remember that there are other definitions too.
The concept has been used to describe the exchange between employees
and their employer (identifying what each party contributes to the
relationship). Although the concept of the psychological contract has
been around since the early 1960s, it was not until the late 1980s that the
conceptual and empirical work advanced. This was no doubt influenced
by changes occurring in the economic and social environments in which
organisations operate that subsequently affected what employers could
offer employees in the exchange relationship.
The implications of globalisation, organisational restructuring and cost
control on employment relations has led to a renewed interest in the
concept of the psychological contract. These trends make it more difficult
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to decipher what employees and organisations owe each other as part

of the exchange relationship. As organisations cope with the accelerated
pace of change by downsizing, outsourcing and embarking upon various
types of efficiency drives, the reported effect has been the demise of the
old, and the emergence of a new, psychological contract. In the process,
organisations are faced with the challenge of renegotiating and managing
the transition from one basis to another as they become unwilling or
unable to provide employees with the same inducements.
There is widespread belief that the nature of the psychological contract is
changing together with a view that organisational changes have violated
particular aspects of the psychological contract. Particularly in the US
there is a belief that the death has occurred of the old psychological
contract whereby in exchange for a career with the organisation,
employees were expected to be loyal, dependable and comfortable with
long-term promotional prospects. In return, the employee would be
offered continued employment, annual salary increases and slow but
steady advancement. This old contract is supposedly being replaced with a
new psychological contract, which can be described as follows:
• There is no job security. The employee will be employed as long as he
or she adds value to the organisation and is personally responsible for
finding new ways to add value.
• In return, the employee has the right to demand interesting and
important work, has the freedom and resources to perform it
well, receives pay that reflects his or her contribution and gets the
experience and training needed to be employable elsewhere.
Guest (1998) carried out research in 1998 trying to find evidence that
the old psychological contract was changing. He argued that at the time
there had been no dramatic increase in executive redundancies and very
few managers (according to a UK National Survey and the British Social
Attitudes Survey) had personal experience of job loss or were worried
about it in the future. Consequently, he warned against making too much
out of the notion that the old psychological contract was dead.
However, a different picture emerged from other case study research on
leading edge companies (Citibank, WH Smith, BT, Hewlett-Packard). The
authors (Stiles et al., 1997) concluded that:
• All jobs are less secure within these organisations than they were
before.
• For older managers, there is little prospect of employment beyond 50.
• First, in terms of career progression there are fewer opportunities for
promotion as there are fewer managerial positions in the hierarchy
following downsizing. Second, a career would consist of longer periods
in a specific position combined with some lateral moves. Third, it is still
possible to have a career but the career planning is the responsibility of
the individual. For example, in Citibank, the company handbook states
that ‘no one at Citibank is guaranteed a career. What you are offered is
a chance to pursue one.’
Consequently, there is some debate in terms of the changing nature of the
employment relationship. The following are some examples of conflicting
descriptions of the new employment relationship taken from Roehling et
al. (2000).
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5.14.1 Loyalty
• ‘There is an untapped reserve of employee commitment and loyalty…
Employees want to be loyal.’ (Hackett, 1996)
• ‘Bring out the casket. Organisational loyalty… has finally been laid to
rest.’ (Cole, 1997)
5.14.2 Job security

• Examples given of things employers are doing as part of the new
employment relationship include ‘giving guarantees of job security’.
(Schalk and Freese, 1997)
• Security is a thing of the past. (Herriot and Pemberton, 1995)
5.14.3 Shared commitment to business objectives

• There is no ‘commitment for mutual goals’. (Laabs, 1996)
• Employees provide ‘commitment to business objectives’. (Csoka, 1995)
Roehling et al. (2000) reviewed the academic and practitioner literature
and found there is some consensus regarding those things the employer
is said to do or provide as part of the new employment relationship. They
found there is a strong consensus that the new employment relationship is
characterised by the employer providing employees with:
• training and education
• skill development opportunities
• involvement/empowerment of employees in decision-making.
Other characteristics mentioned included providing employee
assistance with career management, performance-based compensation
and challenging work. On the employee side, frequently mentioned
characteristics included employees assuming responsibility for developing
and maintaining their work-related skills.
Consequently, while there is some debate as to the extent of changes
occurring in the employment relationship, there is some agreement that
change is occurring. However, it is important to bear in mind the extent of
changes may vary across sector, occupation and country.
In addition, the decline in trade union membership has led to a more
individualised approach to understanding the employment relationship
and, consequently, the psychological contract is useful in providing a
framework for understanding the relationship between employees and
their employer.
Activity
Go back to the notes you made for the previous activity when you outlined your
expectations about your dream job. Talk to a friend, colleague or family member who
has worked for at least 10 years. Ask them what they expect from their employer. Ask
them if their expectations have changed since they started work and if so how? If their
expectations have changed, do you think this is evidence of a change to the psychological
contract in your country?
5.15 Summary
There is agreement and debate on some of the issues surrounding the
psychological contract. The following are areas of agreement:
a. The psychological contract is an individual’s belief concerning the
reciprocal obligations that exist between him/her and another party.
100
b. Two individuals may hold different interpretations of the same

contract.
c. Contract breach has significant consequences for the organisation.
d. Psychological contracts can change over time.
Some of the areas of debate include the following:
a. Who is the other party to the exchange with the employee?
b. What is the relationship between obligations and expectations?
c. Are transactional and relational components the opposite end of the
same continuum?
d. Are there cross-cultural differences that affect how an individual
interprets the psychological contract and how they respond to
perceived contract breach?

• define the concept of the psychological contract
• discuss, citing relevant evidence, whether the employment relationship
is changing
• explain how psychological contracts are created
• discuss how contract breach and violation occur
• explain the consequences of contract breach
• critically evaluate the relationship between HRM practices and
psychological contracts.

1. a. Define what is meant by the ‘psychological contract’. (5 marks)
b. What are the key features of psychological contracts? (5 marks)
c. How does a psychological contract breach occur and what are the
consequences? (15 marks)
2. a. What is the difference between breach and violation in the
psychological contract? (5 marks)
b. How can organisations minimise the consequences of perceived
contract breach? (10 marks)
c. Explain why organisations should take the psychological contract
seriously. (10 marks)
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Notes
102
Chapter 6: Reward systems and motivation
Chapter 6: Reward systems and

motivation
6.1 Introduction
Reward is one of the defining characteristics of the employment
relationship. Indeed, the employment relationship is often defined in
terms of an effort–reward bargain between employers and workers. The
management of reward therefore assumes considerable importance.
Reward can become a powerful means by which employers pursue their
objectives. Thus reward might be used to generate and foster ‘desired’
attitudes and behaviours amongst employees. However, the importance
of reward also makes it a highly sensitive and potentially dangerous
tool. If workers are unhappy with their rewards negative organisational
consequences may well follow.
This chapter covers four main issues. The first is concerned with what
is meant by the term ‘reward’ and distinguishes between different types
of reward. The second issue focuses on how organisations select their
payment systems. It compares rational and strategic approaches with
less rational and more ad hoc ones. The third issue relates to payment
systems in operation; the chapter highlights the strengths and weaknesses
of different systems. The final issue touches on the impact of pay systems;
consideration is given to how such systems impact on employee attitudes
and behaviours as well as on organisational performance.

• The aim of this chapter is to introduce students to reward systems and
motivation theories.

• distinguish between intrinsic and extrinsic reward
• explain the ways in which pay can be related to job, person and
performance
• identify organisational approaches to the selection of pay systems
• discuss different motivation theories and how they have been used to
study pay and reward
• cite evidence of the impact of reward systems on individual and
organisation performance.

(Basingstoke: Palgrave, 2012) fifth edition [ISBN 9780230580565] Chapter
11 ‘Reward management’.
Jenkins, G., N. Gupta, A. Mitra and J. Shaw ‘Are financial incentives related
to performance? A meta-analytic review of empirical research’, Journal of
Applied Psychology 85(5) 1998 pp.777–87.
Kohn, A. ‘Why incentive plans cannot work’, Harvard Business Review Sept–Oct
(Issue 5) 1993, pp.54–63.
103

10 ‘Reward management’.
edition [ISBN 9780273713067] Chapter 7 ‘Reward management’.

Gomez-Meija, L., P. Berrone and M. Franco-Santos Compensation and
organizational performance. (Armonk, NY. M.E. Sharpe) [ISBN
9780765622518].
Mitchell, T. and D. Daniels ‘Observation and commentary on recent research in
work motivation’ in Porter, L., G. Bigley and R. Steers Motivation and work
behavior. (New York: McGraw-Hill Higher Education, 2002) seventh edition
[ISBN 9780072481674].
Marsden, D. and R. Richardson ‘Performing for pay? The effects of “merit pay”
on motivation in a public service organisation’, British Journal of Industrial
Relations 32(2) 1994, pp.243–61.

Ahlstrand, B. The quest for productivity. (Cambridge: Cambridge University
Press, 1990) [ISBN 0521363802].
Brown, W. Piecework bargaining. (Heinemann, 1973).
Bloom, M. and G. Milkovich ‘Issues in managerial compensation research’ in
Cooper, C. and D. Rousseau (eds) Trends in organizational behaviour. (John
Wiley, 1994) [ISBN 0471943444].
Dyer, L. and R. Theriault ‘The determinants of pay satisfaction’, Journal of
Applied Psychology 62, 1976.
Eisenberger, R., R. Huntington, S. Hutchison and D. Sowa ‘Perceived
organisational support’, Journal of Applied Psychology 71 1986, pp.500–07.
Henemann, H, and A. Milanowski ‘Employees’ withdrawal responses to the
individual base pay and group bonus pay systems’, Unpublished paper
presented at the Southern Management Association annual conferences,
New Orleans, November 1998.
Henemann, H, and D. Schwab Employee withdrawal responses. Research paper.
(New Orleans, 1985).
Kruse, D. and M. Weitzman ‘Profit sharing and productivity’ in Blinder, A. (ed.)
Paying for productivity. (Brookings, 1990) [ISBN 0815709994].
Lane, M. The effect of employee benefit satisfaction. Research paper. (Anaheim,
1993).
Lupton, T. On the shop floor. (Pergamon, 1963).
Lupton, T. and D. Gowler Selecting a wage payment system. (EEF, 1969)
[ISBN 0850380707].
Mahoney, T. ‘Multiple pay contingencies: strategic design of compensation’,
Academy of Management Review 28(3) 1983.
Miceli, M. and P. Mulvey ‘Consequences of Satisfaction with pay systems: two
field studies, Industrial Relations 39, 2000.
Murphy, K. ‘Corporate performance and managerial remuneration: an empirical
review’, Journal of Accounting and Economics 7 1985 pp.11–42.
Nejad, A. and R. Richardson ‘Employee share ownership schemes – an
evaluation’, British Journal of Industrial Relations 22(2) 1986.
Roy, D. ‘Work satisfaction and social rewards in quota achievements’, American
Sociological Review Vol. XVIII, No.5, October 1953.
Trompenaars, F. Riding the waves of culture. (NB Publishing, 1993)
[ISBN 1857880331].
Wood, S. ‘High commitment management and payment systems’, Journal of
Management Studies 33(1) 1996.
104

This chapter examines the difference between intrinsic and extrinsic
reward and talks about different types of reward system. It provides
a theoretical framework for studying reward, considering in particular
principal-agent theory and different theories of motivation. We look at
the relationship between pay, attitudes, behaviours and performance and
discuss the importance of fairness for pay satisfaction.
6.2 Definitions and classifications

6.2.1 Intrinsic and extrinsic reward
Reward can be broadly defined as the ‘bundle of returns offered in
exchange for a cluster of employee contributions’ (Bloom and Milkovich,
1994). This ‘bundle’ comprises different types of reward which, as noted in
Chapter 1, can be distinguished according to whether they are intrinsic or
extrinsic.
Intrinsic rewards are personal satisfactions which derive from the nature
of the job or from the more general working environment. They take the
form of self-actualisation through interesting or worthwhile work as well
as from a sense of pride in belonging to a well-regarded team or company.
Extrinsic rewards assume a more tangible and material form. They cover a
variety of fringe benefits including health schemes, pension entitlements,
welfare facilities and car allowances. However, the main form of extrinsic
reward is pay. Organisations often combine the use of different kinds of
rewards to establish a remuneration package. This chapter concentrates in
the main on pay although many of the principles presented on the design,
implementation and operation of pay systems and structures equally
underpin the use of other types of reward.
Activity
Compile a list of the different ways in which employees can be rewarded distinguishing
between intrinsic and extrinsic rewards.
As Mahoney (1983) notes, pay can be related to three contingencies:

• job
• person
• performance.
The nature of pay’s relationship with these contingencies determines the
rate of pay received and the way an employee’s pay increases over time.
6.2.2 Pay and job

Pay is related to job on the basis of internal and external job worth. In
other words, the pay attached to a given job will be associated with the
worth of the job relative to others within the same organisation and
relative to jobs in the outside labour market.
The main technique used to establish internal job worth is job evaluation.
This technique is designed to measure the value of different types of job
within the same organisation as a means of establishing a hierarchy of
jobs which are then clustered in grades. By implication the jobs in this
hierarchy attract different rates of pay although the pay setting procedure
is rarely part of the job evaluation process.
105
There are two broad approaches to job evaluation: non-analytical and

analytical. Non-analytical schemes are simple and highly subjective
involving an overview of the job often using formal and written job
descriptions. On this basis a judgement is made on which are the ‘bigger’
jobs that is, those involving a greater number of tasks and responsibilities.
Such an approach is viable in a small organisation with a limited number
of undifferentiated jobs. For example, in a small factory comprising a
managing director, a production manager, shop-floor operatives and
canteen staff, it is not difficult to rank jobs according to their size and
‘importance’.
In larger, more complex organisations comprising a wide variety of very
different jobs it becomes less easy to establish the relative value of jobs.
How does one know, for example, whether a secretary’s job is more
‘valuable’ or ‘bigger’ than that of a truck driver? Analytical job evaluation
schemes seek to measure very different jobs within the same organisation
by breaking these jobs down and assessing them according to a number of
criteria. Certain factors characterising jobs are selected (for instance the
problem solving involved, the knowledge required and the responsibilities
attached to the post). The different jobs will be evaluated against these
factors using a scale or scoring system. Those jobs which receive a similar
score are clearly of equivalent value and are clustered into a single grade.
Higher scoring jobs are naturally clustered into higher grades.
The most important points to note about all types of job evaluation are
that:
• they can never be completely objective or ‘scientific’ but they do
constitute a structured and systematic approach involving the
consistent application of a given set of rules
• this consistent application of rules should make the process of
determining job worth open and transparent lending the process
legitimacy in the eyes of those affected
• these schemes measure the job in terms of its tasks, responsibilities and
actions, not the person performing the job
• they are concerned with relative internal worth, not about how jobs
compare with those outside the organisation.
Activities
Investigate the pay structure/s used in your organisation, or an organisation you have
some knowledge of.
a. What kinds of job fall into which grade?
b. What type of evaluation was used to determine the hierarchy of jobs and grades?
Identify three or four very different jobs in your organisation or an organisation you
have some knowledge of. Gather as much information as you can on the tasks and
responsibilities involved in these jobs.
a. Evaluate these jobs according to a small number of criteria – for example, use
problem solving, knowledge required and responsibility for people and responsibility
for other resources.
b. Rank the jobs according to how they rate against these factors. Which are the more
highly valued jobs? Was the rank order as you had expected?
The hierarchy of jobs and grades naturally establishes a ranking for pay
purposes. However, organisations must still determine exactly what the
rates of pay should be. It is at this point that the issue of external worth
106
re-emerges. Organisations often look to external labour market rates

for similar jobs to determine their rates of pay. Of course, they need to
decide how to position themselves in relation to the external market. Will
they pay higher than the market rate for a given job or match the market
rate? They may want to be known as ‘good’ payers or simply for paying
the ‘going rate’. Relating pay to job on the basis of internal and external
worth is not always without problems; on occasion, there may be tensions
between these criteria. For instance, a job of low internal worth may be
valued much more highly externally given certain skill shortages. In such
circumstances companies may have to pay ‘market supplements’ or choose
between the weight given to internal and external value.
6.2.3 Pay, person and performance

Pay is linked to the person and performance as a means of establishing
how employees progress within a grade and determining how their pay
is regularly increased or up-rated. Pay can be linked to various personal
characteristics which the employee brings to the job and the organisation.
Pay can be related to age and seniority with an employee receiving
an increment on their grade every year up to the grade maximum. By
implication the worker is rewarded for bringing more experience to the
work as time goes on. Employees may also be rewarded with higher pay
for the qualifications or skills they bring to the post and less tangibly for
the competences, attitudes and behaviours they display.
In terms of performance, it is important to distinguish between schemes
which link pay to individual performance and those which relate pay to
group performance. Those systems which associate pay with individual
performance include:
• Commission: employees, particularly in jobs which involve selling,
are given a bonus which is often based on a proportion of the sales
value. They may need to hit sales targets in order to trigger such
payments.
• Piecework: employees receive a payment for every unit of output
or ‘piece’ they produce. This scheme might also be based upon time,
in that employees receive additional pay for time saved in doing a
particular job. Time-based schemes involve setting target times for jobs
with bonuses being paid if the job is completed faster than the time
allowed. Piecework has traditionally been common amongst shop-floor
manual workers in manufacturing industry.
• Individual performance related/merit pay: employees are set
certain individual targets and objectives with their performance then
appraised (usually by their line manager) to establish whether the
objectives have been met. These appraisals establish a performance
rating which in turn determines the increase in pay received.
Those systems which relate pay to group performance include:
• Profit-sharing schemes: employees are paid a bonus linked to
profits. This bonus is often triggered by profits reaching a target
with a proportion of the resultant profit then being distributed to all
eligible staff. Such systems sometimes emerge as employee share-
ownership schemes where profits are used to buy shares on behalf of
the employees.
• Gain-sharing schemes: employees are paid a bonus linked to other
measures of company performance such as value added or turnover.
Two such schemes using different measures and introduced in the US
in the 1950s were known as Rucker and Scanlon Plans.
107
• Team pay: employee’s pay is related to the performance of their work

team rather than performance of the company or enterprise as with
profit and gain sharing. The work team might be the small task group
or other organisational units such as the department, section or branch
office. Performance standards and targets are set for the team with
group members receiving a bonus if such targets are met.
Activity
Investigate the types of pay system used in your organisation or an organisation you have
some knowledge of.
Is the emphasis more on pay linked to person or pay linked to performance?
Organisations often relate pay to more than one contingency. It is

common, for example, for a company to relate pay to job through their
grading structures as well as introducing a variable element of pay by
linking it to person and performance. However, important choices or
decisions are still required on the nature of this balance and on the
personal characteristics and the forms of performance which will drive pay.
6.3 Selecting a pay scheme

Two broad organisational approaches to the selection of an approach
to pay can be distinguished. The first is opportunistic, ad hoc and non-
rational. The adoption of a pay scheme is, for instance, heavily influenced
by fashion, rather than by what is necessarily in the best interest of the
company. For example, it has been suggested that the introduction of
individual performance-related pay in Britain in the late 1980s was driven
more by fashion than organisational need. Moreover, pay schemes can be
used for symbolic purposes, that is to send signals to certain organisational
stakeholders.
6.3.1 Pay as a symbol at Esso Fawley

Ahlstrand’s (1990) work on productivity at the ESSO Fawley plant
in Britain provides an example of pay’s symbolic value. This research
established that a meaningful and effective link between pay and
productivity had long since ceased to exist at the plant. However, the
productivity pay agreements continued because they sent signals to those
interested in the organisation that management was taking action to deal
with issues and problems associated with plant performance.
Activity
Is following fashion a good or a bad idea when it comes to choosing a pay system?
The second approach to selecting a pay scheme is much more planned

and considered. It has been presented in analytical terms as a contingency
approach to pay. Initially set out by Lupton and Gowler (1969), this
approach suggests that the appropriateness of a payment system depends
on a number of factors. These factors emerge in response to three
questions:
• What are the organisation’s pay goals?
• What payment system is best suited to the achievement of these goals?
• Is that payment right for the organisation given its circumstances?
108
6.3.2 Pay goals

Pay can be used to pursue a wide range of managerial objectives. Four sets
of goals are distinguished in Table 6.1.
Attitudinal goals Behavioural goals Administrative goals Organisational goals

Loyalty/commitment High volume output Procedural fairness Support business
strategy
Team spirit/ cooperation High quality output Distributive fairness Support other HR
practices
Pride in work group/ Staying (recruitment) Simplicity Drive/support culture
company change
Innovation Joining (retention) Predictability Developing managerial
skills
Motivation Task flexibility Comprehensible
Identification with the Temporal flexibility Financial control/
company affordability
Better performance
from high-flyers
Table 6.1: Pay goals.
Such a wide range of goals can present organisations with a number of
difficulties. First, they may be unclear about what pay goals they are
actually pursuing. Second, there may be some tensions between the goals
selected. For example, companies may use individual performance-related
pay to encourage high performers but this in turn may undermine their
interest in encouraging team work and cooperation. Finally, there is a
danger that organisations will pursue too many goals, with pay schemes
consequently becoming too complicated for employees to understand or
too costly to administer.
6.3.3 Pay systems

Any given pay system can be used to pursue different managerial
objectives. Profit sharing, for example, has been presented as a scheme
particularly well suited to encouraging employee loyalty, commitment and
identification with the company. At the same time, others have seen it as
a system especially well suited to company concerns with affordability;
under this scheme employees are only paid when the company is making
a profit. However, it is also the case that certain payments systems have
been strongly associated with, and seen as well suited to, the pursuit of
particular managerial objectives. Table 6.2 below sets out those goals
most commonly associated with different pay systems. It can be seen that
piecework is geared very much towards encouraging volume production
while team pay encourages work group cooperation and identification.
109
Pay system Pay goal

Piecework High output
Direct incentive
Performance control
Individual Performance-Related Pay Encouraging new corporate values
Developing management process skills
Targeting pay in those who ‘deserve’ it
Profit/Gain Sharing Loyalty/commitment
Identification with the company
Affordability
Team pay Cooperation
Identification with the team
Peer control
Table 6.2: Pay systems.
6.3.4 Organisational circumstances

While the contingency framework suggests that organisations need to
be clear about their pay and goals, and the pay system best suited to
pursue those goals, it also highlights the importance of organisational
circumstances and whether the scheme is ‘right’ for the company. A
number of circumstances can be distinguished which might influence the
appropriateness of a pay system:
Technology: The viability of a pay system may be linked to the
technology employed. Certain technologies may well preclude the value of
incentives. For example, in continuous process production industries such
as electricity generation there would be very little value in relating pay
to an employee’s individual output given the lack of worker control over
production outcomes. In other industries where particular payment systems
have predominated for many years, the technology appears to sustain
and support the viability of that system. Thus, in the British clothing and
footwear industries, piecework pay systems have continued as the main
form of pay over many years. The technologies in these industries clearly
encourage the production of discrete units of output by the individual
worker, say, a pair of shoes, which constitute a meaningful basis for pay.
Type of workers: The nature of the work associated with occupations
affects the viability of different pay systems. For those in caring professions
(nurses and teachers, for instance) it is often difficult to identify
meaningful individual performance targets which can then be linked
to pay. Similarly, for those in routine, administrative tasks, it may be
difficult to continually set new individual work targets given the limited
scope for improvement in the post. We have already seen that different
occupational groups are covered by different pay systems. Thus sales staff
have often been on commission and shop-floor manufacturing workers on
piecework. The difficulties of individual performance targets for employees
in caring occupations in the public service have traditionally led to such
workers being paid according to the job or personal characteristics such as
qualification and experience.
Culture: Culture plays a significant part in the appropriateness of a pay
system in a number of respects. Organisational culture (or a company’s
history in terms of embedded values, beliefs and habits) will influence
the acceptability and viability of a payment system. In the British Civil
110
Service, for instance, where there was a tradition of all employees receiving
the same annual pay increase, the introduction of individual performance-
related pay saw those receiving the performance increase pooling the
additional money and taking colleagues out for an office outing. There are
also instances of company pay systems, such as the piecework scheme at
the US firm Lincoln Electric, which have been in place for many years and
clearly have become part of the fabric of the organisation. Details of the
Lincoln Electric pay scheme are set out below.
The Lincoln Electric Pay System

Lincoln Electric is a US manufacturer of arc welding products. Its approach to
pay comprises the following features:
• It has a number of pay practices: a piecework system, shared profits, year-
end bonuses and stock ownership options.
• It has developed a range of additional practices, which support this pay
approach including an employee advisory board, a suggestion scheme and
job security.
These pay practices have been established for many years reflecting, and
then supporting, the company’s philosophy of rewarding individuals for their
contribution. The piecework system was introduced in 1914 and the year-end
bonus in 1943.
Location: The location of a company may also affect the viability of a pay
system. Thus, national culture can have a bearing on the adoption of pay
practices. Certain pay schemes are more in tune with national values and
beliefs than others. As Trompanaars (1993) notes:
‘The internationalisation of business life requires more knowledge
of cultural patterns. Pay for (individual) performance, for example,
can work out well in the USA, the Netherlands and the UK. In more
collectivist cultures like France, Germany and large parts of Asia it
may not be so successful.’
In Japan, for example, where the national culture has been based upon
strong collective values, team bonuses and seniority pay (rather than
individual performance-related pay) have until very recently been the norm.
Activity
Do you think that certain payment systems are more suited to your country’s cultural
values than others?
The selection of an appropriate pay system is therefore contingent on

a number of issues, in particular what managerial objectives are being
pursued, the pay system most suited to their pursuit and organisational
circumstances related to, for instance, technology, type of worker and
culture. However, organisational sensitivity to these contingent factors is
no guarantee of the pay system’s efficiency and effectiveness. A range of
operational problems can still arise once a pay scheme has been introduced.
Activity
Review the survey of payment systems by considering:
a. What goals can be pursued through pay?
b. What goals are associated with different payment systems?
c. What factors influence the appropriateness of a payment system?
111
6.4 Pay schemes in operation

Reward systems comprise a series of rules which have to be interpreted
and put into practice by managers and employees. These rules are subject
to misinterpretation, re-interpretation and manipulation. Indeed, given
that management and employees may well have different interests in
payment systems (the former seeking to maximise employee effort in
return for a given reward and the latter seeking to maximise their reward
in return for a given level of effort) such systems might be viewed as
inevitably forming the focus for conflicting interests and goals. The
pressures faced by pay systems in these terms have led to suggestions that
such systems inevitably degenerate or decay, in that over time they cease
to operate in ways which meet original managerial intentions.
There is considerable evidence to support the view that reward systems
become distorted in practice in the context of wide-ranging social and
political pressures. Brown (1973), for example, has shown how, in periods
of full employment, workers in British manufacturing had the power to
take control of piecework schemes and bargain up prices for every unit
of output. Lupton (1963) has similarly highlighted the way in which staff
manipulated output and timing figures used in a factory piecework scheme
to ensure stability of earning across time. Moreover, Roy (1953) notes the
way in which workers deliberately held down production under piecework
if they felt that the price set for a job demanded too much effort and
energy on their a part, a process he labelled ‘goldbricking’.
Activity
Talk to managers in your organisation or in an organisation you have access to about
their pay systems.
Ask them what they think the pay systems are designed to achieve and whether they are
successful in achieving it?
If they are not working as intended, ask them why?
6.4.1 Operational problems which have been associated with

different pay systems
In addition to the fundamental pressures leading to potential degeneration
or decay, attention has also been drawn to some of the operational
problems which have been associated with different types of pay system.
The list below sets out some of these problems.
6.4.2 Pay system problems

Piecework:
• low quality products: employees paid according to quantity not quality
• inflated price per ‘piece’: employees can bid-up the price for every unit
• employee manipulation.
Individual performance-related pay:
• unclear/inconsistent performance targets
• tunnel vision: employees focus only on those objectives that are
rewarded
• subjectivity: appraisal for pay purposes can be subjective
• judgemental: linking pay to performance involves managers judging
employees which may upset them
112
• distorted pay link: managers may use merit pay to reward behaviours
unrelated to performance
• undermining team work and cooperation.
Profit–gain–sharing:
• line of sight: difficult for employees to see how their behaviour affects
company performance and therefore their pay
• free riding: ‘lazy’ employees can ‘hide behind’ the performance of other
employees and still get paid the same bonus
• unpredictability.
Team pay:
• defining the team
• finding team performance measures and performance standards
• stability of the team.
It can be seen that the problems associated with different pay systems
assume contrasting forms. For instance, profit-sharing and gain-sharing
schemes have created difficulties around the issue of ‘line of sight’. In other
words, it is very difficult for the employees to see how their performance
can affect company profits. According to certain theories (see pp.131–2)
this is likely to weaken its incentive effect. Indeed as a way of establishing
a line of sight, joint consultative committees providing an employee voice
are often seen as an essential part of gain-sharing schemes including the
Rucker and Scanlon plans. Profit-sharing and gain-sharing schemes also
run the risk of the ‘free rider’ problem, a difficulty characterising many
group-based schemes, with employees having the opportunity to rely
upon the efforts of others yet still being rewarded. In such circumstances
considerable emphasis is placed on the need for peer pressure to ensure
that each employee pulls his or her weight.
Team pay has also generated certain operational difficulties. It is not
always clear what constitutes the most appropriate team for pay purposes
given that employees may belong to a number of teams within the work
situation, for instance, the department, the section and the task group.
Moreover, teams are often not stable enough as a basis for reward, coming
together and breaking up relatively quickly as with project groups. Even
if a team can be identified and is stable enough over time, performance
measures and standards for team performance which can be linked to pay
are often difficult to find.
Considerable attention has been given to the operational difficulties
associated with individual performance-related pay in the context of the
recent emphasis placed by policy-makers, commentators and practitioners
on this approach to pay. Individual performance-related pay schemes
comprise three main elements: setting performance targets, evaluating
those targets and linking the evaluation to pay increase. Each of these
elements has been found to have problems associated with them. The first
two elements – target-setting and evaluation – relate to the performance
appraisal process. This is dealt with in greater detail in Chapter 17 of
this subject guide, but it is worth noting at this point that problems of
inconsistent goal setting within the same organisation and subjectivity in
the appraisal process assume particular significance when appraisal is then
linked to pay. Additional problems can arise from this appraisal pay link. It
might, for example, encourage ‘tunnel vision’ in that employees narrowly
concentrate on targets which form the basis of the pay increase to the
neglect of other aspects of their job or the concerns and interests of other
113
people within their section or department. This has encouraged some

organisations to introduce competence-based pay which focuses not only
on what employees need to achieve for pay purposes, but also rewards
them for how they achieve it.
The focus on the operational problems associated with different pay
systems raises important questions about the effectiveness of such systems.
Activity
Review the section on relating pay to performance by:
• identifying the main operational problems associated with profit-sharing, team pay
and individual performance-related pay
• noting ways in which you might address these problems to ensure that the respective
pay systems work more efficiently and effectively.
6.5 Reward outcomes

Our understanding of the relationship between rewards and various
outcomes has taken three main forms. The first, grounded in economics,
has been concerned with outcomes in terms of efficiency. Currently,
the predominant model for exploring this issue has been based upon
principal–agent theory. This theory views organisational efficiency as
lying in the alignment between the goals of the principal (usually seen
as the employer or manager) and the behaviour of the agent (viewed
as the worker or employee), assessing how compensation along with
other control mechanisms might be used and structured to achieve
such an alignment. ‘Optimal’ alignment is seen as leading to improved
organisational performance.
The second form of analysis, driven more by social psychology, has
revolved more around a broad notion of motivation, looking at the
range of rewards which might be used to motivate the employee and the
circumstances in which such motivation is likely to occur. This work has
tended to be based on various models, one based on content theory and
the other on process theory. These economic and social psychological
forms of analysis are based on very different sets of assumptions. They
are, however, both concerned with the relationship between reward and
outcomes in terms of various employee attitudes and behaviours.
A third form of analysis focuses on the relationship between reward and
company performance without being very explicit about the theoretical
underpinnings of this relationship. The three approaches distinguished are
considered in turn below.
6.6 Principal–agent theory

Principal–agent theory focuses on the way in which pay and other control
mechanisms can be used to ensure that the interests of the principal are
aligned with those of the agent. Principal–agent theory is based upon three
fundamental behavioural assumptions:
• that both parties are rational
• that both parties are self-interested
• that the agent is both effort and risk averse.
In the case of the agent, this combination of behavioural characteristics
(in particular rational-self interest and risk aversion) gives rise to the
possibility of moral hazard which involves agents acting to maximise
114
their outcomes (in the form for instance of pay) without exerting effort
towards fulfilling the principal’s goals. The agency ‘problem’ focuses on
how to structure monitoring and compensation mechanisms as a means
of aligning agent and principal interests. For the principal the choice lies
between the use of behaviour-based pay or output-based pay as a means of
achieving such an alignment (Bloom and Milkovich, 1994).
Two principal–agency scenarios can be presented which affect the
principal’s approach and calculations:
• In the first scenario, the principal knows what the agent has done and,
since the principal is buying the agent’s behaviour, a contract based on
behaviour is the most efficient. A contract based on outcomes would
needlessly transfer the risk.
• In the second scenario, the principal is uncertain what the agent
has done. A self-interested agent may or may not have performed as
required. In this case the principal has a couple of options: to discover
the agent’s behaviour by investing in information or pay the agents on
the basis of the outcome of their behaviour. Under the latter option the
agent’s preferences are more likely to be aligned with the principal’s
goals but at the price of transferring risk to the agent, given that a
range of factors beyond the agent’s control may affect their outcome
and thus their pay.
The decision whether to base pay on the basis of behaviour or outcomes
depends on the trade-off between the costs of measuring behaviour and
the cost of transferring risk to the agent through outcome-based pay. If it
is relatively inexpensive to monitor behaviour or expensive to place risk on
agents, behaviour-based pay is most efficient (Eisenhart, 1988).
Research drawing upon the principal–agent models has provided some
support for the view that incentive pay can be useful in aligning the
action of agents with desired organisation outcomes. Murphy (1985), for
instance, studied the pay-performance relationship of 501 managers in
72 companies and found that salary, bonus and total compensation were
positively related to total shareholder return and growth in firm sales.
6.7 Motivation theory

Arnold et al. (1998) have defined motivation as comprising three
components:
• direction: what a person is trying to do
• effort: how hard a person is trying
• persistence: how long a person continues trying.
As indicated, two sorts of theory have been put forward to explain the
relationship between reward and motivation: content and process.
6.7.1 Content theories – what motivates people?

Content theory is founded on the notion that individuals have certain
psychological needs which must be met in order to motivate the
individual. These theories can be distinguished according to the nature of
the needs identified and the relationship between them.
6.7.2 Maslow’s hierarchy of needs

The most well-known content theory is that of Maslow who suggests that
employees have the following needs:
115
• physiological: the basics for survival such as food and drink

• safety and security: physical and psychological protection
• belonging: a sense of affiliation, friendship and affection
• ego and esteem: self-respect and recognition
• self-actualisation: self-fulfilment, achievement and growth.
For Maslow, this list of needs constitutes a hierarchy and as one need
is met it ceases to motivate. The implication is that management must
provide rewards that meet these needs but as lower-level needs are
addressed they are increasingly less likely to encourage ‘desired’ attitudes
and behaviours.
Activity
Think about your workplace needs. Are they the same as those listed by Maslow? Would
you place them in the same order as Maslow’s hierarchy?
6.7.3 Herzbeg’s two-factor theory

Herzberg takes this point slightly further. He suggests that there are
some needs, labelled ‘hygiene factors’ covering basic environmental
dimensions of work (such as pay and conditions) which if not met may
well demotivate although their fulfilment is unlikely to motivate. It is only
‘motivators’ corresponding to the upper part of Maslow’s hierarchy and
related to achievement, recognition and growth needs that are likely to
encourage positive employee responses. In short, hygiene factors need to
be met to prevent demotivation but motivators are required to encourage
employees. (For additional information on Herzberg’s theory see Chapter 8
on job design.)
Activity
Would you expect the same factors to be hygiene factors and motivators in different
countries?
6.7.4 Alderfer’s Existence, Relatedness and Growth (ERG) theory

Other content models have narrowed down the range of needs identified
by Maslow to focus on those deemed to be particularly important. Alderfer,
for example, concentrates on the employee’s existence needs (those linked
to physical well-being), relatedness needs (those related to attachment
and belonging) and growth needs (those associated with development).
In contrast to Maslow’s hierarchy, these are presented as a continuum
from concrete, existence needs through to less concrete, growth needs.
This means that if, for example, growth needs are difficult to fulfil, the
employee may switch to fulfilling relatedness needs. In contrast to Maslow,
Alderfer also found that when certain of these needs are satisfied they can
become more rather less important.
6.7.5 McClelland’s achievement motivation theory

Other models have focused even more precisely on specific needs. Thus
McClelland’s theory of work motivation is based principally on the
significance of achievement. He identifies the following arousal-based, and
socially developed motives:
• achievement
• power
116
• affiliation
• avoidance.
However, he views achievement as the most critical to a country’s
economic growth and success. On the basis of empirical research
McClelland identifies four characteristics of people with a strong
achievement need: moderate task flexibility, personal responsibility for
performance, the need for feedback and innovativeness.
6.8 Process theories – how are people motivated?

Process theories have a strong cognitive focus concentrating on how
the dynamic mechanisms which underpin motivation are perceived by
employees. Again a number of theoretical process models can be identified.
6.8.1 Vroom’s expectancy theory

Expectancy theory is founded on the view that employees are influenced
by the expected results of their actions. As initially developed by Vroom
it comprised three elements presented as Valence, Instrumentality and
Expectancy (VIE). These elements represent certain conditions which, if
met, suggest employees will be motivated:
• Expectancy: are employees able to meet expected performance levels?
• Instrumentality: if an employee performs as expected, is there a clear
link to certain identifiable outcomes or rewards?
• Valence: does the employee value those outcomes?
6.8.2 Expectancy theory and individual performance-related pay

in the Inland Revenue
Marsden and Richardson (1994) used expectancy theory to explore
whether individual performance-related pay was likely to motivate civil
servants in the British Inland Revenue. In a survey of around 2,000
employees, they found that while many employees supported the principle
of pay for individual performance, it was unlikely such a system would
motivate. This conclusion was based on the fact that the main tenets of
expectancy were not fulfilled. Employees did not believe their performance
objectives were clear. They did not feel they would be rewarded if they
fulfilled their objectives. Moreover, they did not believe the amount of
money on offer was of sufficient value to change their behaviour.
Activity
Drawing upon expectancy theory, design a payment system which is likely to motivate.
Vroom’s model has been developed further by Porter and Lawler, who
have refined each of the three elements. They suggest the ability of
employees to achieve performance levels is influenced by how employees
view their job (‘role perceptions’) and by their abilities and traits. In other
words the extent to which employees feel they have the ability to meet
expected performance levels is likely to be influenced by what they see
their role as involving and whether they see themselves as having the
skills to fulfil it. Porter and Lawler also suggest that a distinction should
be made between the value employees place upon intrinsic and extrinsic
outcomes or rewards. Finally, in evaluating the link between performance
and outcome, they highlight the importance of equity, in other words the
nature of this link is affected by employee perceptions of the fairness of
the rewards received.
117
6.8.3 Adams’ equity theory

Equity has been taken forward as a fundamental basis for motivation
by Adams. His equity theory is based upon the notion of exchange, the
view that employees expect certain outcomes in return for providing
particular contributions. Employees compare the balance between inputs
and outputs in this exchange with significant others, perhaps colleagues
within or beyond their organisation. Equity theory suggests that when the
ratio of an employee’s total outcomes to total inputs equals the perceived
ratio of other employee’s total outcomes to total inputs there is equity. In a
circumstance where there is an unequal comparison of ratios the employee
experiences inequity. Where inequity is experienced, Adam suggests six
behavioural responses:
• changes to inputs
• changes to outputs
• cognitive distortion of input and outputs: seeking to change others’
perceptions of their inputs and or outputs
• leaving the field
• acting on others: seeking to change the inputs or outputs of others
• changing the object of comparison.1 1
Further information
on equity theory
Activity see Chapter 10
‘Organisational justice’.
Outline the key tenets of the content and process motivation theories presented in this
section. What are the managerial implications of these theories for the way staff are
rewarded?
6.9 Pay, attitudes and behaviours

Motivation theory has important implications for many aspects of human
resource management and can be used to understand the impact and
value of a variety of approaches and practices. For example, the emphasis
placed by certain content theories on specific personal needs, like
achievement and growth, raises issues related to job design (see Chapter 8
on job design). Moreover, the emphasis placed on employee abilities and
skills as a means of achieving certain performance goals in expectancy
theory highlights the contribution made by training and development to
motivation (see Chapter 3 on training). Focusing more specifically on the
relationship between motivation theory and reward, a number of streams
of research have been developed, as described below.
6.9.1 Intrinsic and extrinsic reward

The first of these streams has focused on the relative impact of intrinsic
and extrinsic rewards on employee attitudes and behaviours. Content
theorists suggest that while employees need to be rewarded in both
senses, intrinsic rewards are a more powerful, positive motivational
force. Herzberg, for example, sees pay as a hygiene factor rather than a
motivator and indeed in this sense is part of school of thought, which has
continued to highlight the dysfunctional consequences of using pay as an
incentive to encourage ‘desired’ attitudes and behaviours.
This view has been articulated most vehemently by Kohn (1993). He
suggests that financial incentives ‘buy’ only a temporary employee
compliance which soon wears off. In this sense it is no substitute for a more
enduring commitment to and interest in the task and the organisation.
Kohn (1993, p.62) proceeds to list the following difficulties associated with
using pay as an incentive which he derives from a range of studies:
118
• Pay punishes: incentives can become a coercive technique more likely

to foster fear and rage than motivation.
• Pay ruptures relationships: individual incentives can upset relations
with colleagues as well as with line managers forced to differentiate
between staff on the basis of performance.
• Pay discourages risk taking: employees are more likely to focus on
those tasks which readily render rewards rather than high-risk activities
which may not.
• Pay undermines work interest: reliance on incentives may drive out
intrinsic motivation such as the value derived from employee interest in
the job. ‘The more a manager stresses what an employee can earn for
good work, the less interested that employee will be in the work itself.’
More systematic and structured reviews of the relationship between
incentives and employee outcomes provide a slightly different picture.
Thus a meta-analytic review of empirical research on the relationship
between financial incentives and individual employee performance carried
out by Jenkins et al. (1998) suggests a positive relationship between the
two. Reviewing 39 studies this analysis finds that financial incentives
are related to performance quantity and the affected size is estimated at
0.34. In other words, the use of financial incentives explains 34 per cent
of the variance in performance quantity. The authors suggest that these
findings lend support to the view that extrinsic rewards can motivate and
in so doing they explicitly challenge Kohn’s observations. It is important,
however, to note that the meta-analysis did not find a positive relationship
between financial incentives in terms of the quality of employee output.
Activity
Read:
Kohn, A. ‘Why incentive plans cannot work’, Harvard Business Review, Sept–Oct. 1993.
Jenkins, G., N. Gupta, A. Mitra and J. Shaw ‘Are financial incentives related to performance?
A meta-analytic review of empirical research’, Journal of Applied Psychology 85(5) 1998,
pp.777–87.
6.9.2 Fairness and pay satisfaction

The second stream of research interest has been driven more by equity
theory and, in particular, the relationship between perceptions of fair
treatment, pay satisfaction and certain attitudinal and behavioural
outcomes. Pay satisfaction has been seen as having a number of different
dimensions: satisfaction with pay levels, pay administration and pay
structure, as well as satisfaction with benefits (Dyer and Theriault, 1976).
While such work has identified a number of predictors of pay satisfaction,
particular attention has been given to fair treatment in terms both of
process (procedural justice) and substantive outcome (distributive
justice). Fairness has been defined in terms of treatment relative to
comparative groups such as colleagues within the organisation as well as
those doing similar jobs in other organisations. It has also been linked to
absolute measures such as the extent to which pay is deemed fair relative
to movement in the cost of living and pay increases received by the
employee in the past. Fair treatment related to pay satisfaction, in turn,
has been positively associated with attitudinal outcomes such as employee
organisational commitment (Lane, 1993) and behavioural outcomes such
as organisational citizenship behaviour (Miceli and Mulvey, 2000). In
harder, more tangible terms, pay satisfaction has been linked with lower
quit rates (Heneman and Milanowski, 1998). In other words, the more
119
satisfied employees are with pay, the less likely they are to leave the
organisation.
Activity
Think about your own current or past work. (If you do not work, you may need to discuss
the following questions with a friend or family member who does.)
• Do you feel you are being treated fairly in pay terms?
• What are you basing this judgement on?
If you were not being treated fairly how would it affect your work-related attitudes and
behaviours?
6.9.3 Pay and organisational performance

A final stream of research has been influenced less explicitly by models
of employee motivation (or indeed any theoretical model) and more by
particular propositions on the relationship between different pay systems
and organisational performance. To some extent this work overlaps with
the broader interest in the relationship between what are labelled high
commitment or high performance practices and business performance
variously defined (see Chapter 1 on HRM theoretical frameworks). Such
practices have been positively related to business performance, and pay
systems have invariably formed part of the high commitment bundle.
Those systems included have tended to be those which link pay to
certain employee attributes such as skills but more typically to corporate
outcomes such as profits and value added. However, there are problems
with this work. First, there is little agreement as to what constitutes a
high commitment pay system (Wood, 1996). Thus different researchers
include different pay systems in their high commitment bundles. Second,
and as already noted, any given pay system can be used to pursue a range
of managerial objectives. To classify them as being focused on developing
employee commitment is to assume a managerial motive which may
or may not be present. Finally, as implied above, this approach is not
essentially theory driven. In other words the reasons why such pay systems
might improve organisational performance are not explored in detail.
Other research has focused on the relationship between organisational
performance and specific types of pay system. Employee share ownership
schemes have, for example, been evaluated in these terms. Nejad
and Richardson (1986), using share price movement as a proxy for
company performance, found that those organisations with employee
share ownership schemes had a better share price movement over time
than those that did not. However, as the authors point out, difficulties
remain in establishing cause and effect: do employee share ownership
schemes contribute to companies becoming high performing or do high
performing companies have sufficient resources to introduce employee
share ownership? It is also difficult to isolate the impact of employee
share ownership schemes given that such schemes are often introduced as
part of a package of HR measures. At the same time, a review of studies
on profit and gain sharing schemes by Kruse and Weitzman (1990)
does suggest a small, but consistently positive, relationship between
such schemes and corporate performance. The authors note that this
relationship may well derive less from the pay element in such schemes
than from the fact that they are often accompanied by participative
mechanisms such as joint works committees allowing employees to express
their opinions.
120

• distinguish between intrinsic and extrinsic reward
• explain the ways in which pay can be related to job, person and
performance
• identify organisational approaches to the selection of pay systems
• discuss different motivation theories and how they have been used to
study pay and reward
• cite evidence of the impact of reward systems on individual and
organisation performance.

1. Is individual performance-related pay likely to motivate?
2. Is performance-related pay doomed to failure?
3. ‘There is no such thing as a perfect payment system?’ Discuss.
4. Do you agree that pay can never motivate, it can only demotivate?
5. What factors should be taken into account in selecting a pay system?
6. a. Explain the three main elements of Vroom’s Expectancy Theory.
(6 marks)
b. Discuss how these three elements are interrelated. (4 marks)
c. How does an understanding of expectancy theory influence the
design of reward systems? (15 marks)

Is individual performance-related pay likely to motivate?
121
Notes
122
Chapter 7: Performance management
7.1 Introduction
The evaluation of employee performance is often a central element in
organisational approaches to the management of staff. It informs and
shapes a wide range of decisions including those related to reward,
development and training. It is, however, a process which is complex and
full of difficulties. As Bratton and Gold (2012) have stated:
Of all the activities in the HRM cycle, performance appraisal is
arguably the most contentious and least popular amongst those
who are involved.
This chapter defines key elements of the evaluation process and sets out
various approaches to it. However, given the ‘contentious’ character of the
process, it is also concerned with the problems faced by those involved and
seeks to outline some of the tensions, dilemmas and conflicts associated
with it.

• The aim of this chapter is to introduce students to the key concept of
performance management and the part that it plays in organisational
performance.

• distinguish between performance appraisal and performance
management
• set out the main management objectives which underpin the use of
performance appraisal and management
• distinguish between developmental and judgemental appraisal
• identify the different ways of setting performance measures for
appraisal purposes
• highlight the different ways of assessing performance for appraisal
purposes
• identify the range of different people who can carry out the appraisal
• critically evaluate approaches to performance appraisal.

(Basingstoke: Palgrave, 2012) fifth edition [ISBN 9780230580565].
Chapter 8 ‘Performance management and appraisal’.
9 ‘Performance management’.
edition [ISBN 9780273713067] Chapter 5 ‘Performance management’.
123
Books
Boxall, P., J. Purcell and P. Wright Oxford handbook of human resource
management. (Oxford: Oxford University Press, 2007) [ISBN
9780199282517] Chapter 18 ‘Performance management’.
Fisher, C. ‘Performance management and performance management’ in J.
Leopold, L. Harris and T. Watson The strategic managing of human resources.
(Harlow: Prentice Hall, 2005).
Journal articles
Grint, K. ‘What’s wrong with performance appraisal? A critique and a
suggestion’, Human Resource Management Journal 3/3 Spring 1993.
Luthans, F. and S. Peterson, ‘360 degree feedback and systematic coaching’,
Mabey, C. ‘Closing the circle: participants views of a 360 degree feedback
programme’, Human Resource Management Journal 11(1) 2001, pp.41–53.

Armstrong, M. and A. Baron Performance management: the new realities.
(IPD, 1998) [ISBN 0852927274].
Arnold, J., C. Cooper and I. Robertson Work psychology. (Pitman, 1998) third
edition [ISBN 9780273628682].
Austin, J. and P. Bobko ‘Goal setting theory: unexplored areas and future
research needs’, Journal of Occupational Psychology 58 1985, pp.289–308.
Bach, S ‘From performance appraisal to performance management’ in S. Bach
and K. Sisson (eds) Personnel management: a comprehensice guide to theory
and practice. (Oxford: Blackwell, 2000) [ISBN 0273631640].
Barlow, G. ‘Deficiencies and perpetuation of power: latent functions in
management appraisal’, Journal of Management Studies 25(5) 1989,
pp.499–517.
Bevan, S. and M. Thompson Performance management in the UK: an analysis of
the issues. (IPM, 1992) [ISBN 0852924895].
Cully, M., S. Woodland, A. O’Reilly and G. Dix Britain at work as depicted
by the 1998 Workplace Relations Survey. (Routledge, 1999) [ISBN
9780415206372].
Earley, P., T. Connolly and G. Ekegren ‘Goals, strategy development and task
performance: some limits on the efficacy of goal setting’, Journal of Applied
Psychology 8, 1989, pp.24–33.
Fisher, C. ‘Performance management and performing management’ in
J. Leopold, L. Harris and T. Watson (eds) Strategic human resourcing.
(London: FT Pitman, 1999) [ISBN 0273631640].
Foot, M. and C. Hook Introducing Human Resource Management. (Harlow:
Longman, 1999) second edition [ISBN 0582368928].
Foucault, M. Power/knowledge: selected interviews and other writings. (Harvester
Press, 1981) [ISBN 085527557X].
Kaplan, R. and D. Norton ‘The balanced scorecard – measures that drive
performance’, Harvard Business Review 1992, pp.71–79.
Locke, E., K. Shaw, L. Saari and G. Latham ‘Goal setting and task performance,
1969–80’, Psychological Bulletin 90 1981, pp.125–52.
Long, P. Performance appraisal revisited. (IPD, 1986) [ISBN 0852923678].
Longnecker, C. and D. Ludwig ‘Ethical Dilemmas in Performance Appraisal
Revisited’, Journal of Business Ethics 9 1990, pp.961–69.
Mathis, R. and J. Jackson Human resource management. (Mason, OH: South-
Western/Cengage, 2011) [ISBN 9780538453158].
Randall, G. ‘Employee appraisal’ in K. Sisson (ed.) Personnel management: a
comprehensive guide to theory and practice in Britain. (Oxford: Blackwell,
1994) [ISBN 0631188215].
124
Redman, T. ‘Performance appraisal’ in T. Redman and A. Wilkinson (eds)

Contemporary human resource management. (Harlow: Prentice Hall, 2001)
[ISBN 020159613X].
Sparrow, P. ‘Organisational competencies: creating a strategic behavioural
framework for selection and assessment’ in N. Anderson and P. Herriot (eds)
Assessment and selection in organisations (Chichester: Wiley, 1994) first
update and supplement.
Townley, B. ‘Performance Appraisal and the Emergence of Management’,
Journal of Management Studies 3 1993, pp.221–38.

This chapter explains the difference between performance management
and performance appraisal, distinguishes between developmental and
judgemental reasons for performance appraisal, and evaluates different
approaches. We examine the design of performance management systems
and the measures used in assessing performance. We consider the role of
the appraiser and who should be involved in the process of performance
appraisal.

Performance appraisal can be presented under various headings. In
different organisational settings it has been referred to as performance
review, performance evaluation, results appraisal, employee rating and
employee evaluation. In essence, these terms refer to similar processes
which, as Fisher (1999) states:
‘regularly record an assessment of an employee’s performance,
potential and development needs. The appraisal is an
opportunity to take an overall view of work content, loads and
volume, to look back on what has been achieved during the
reporting period and agree objectives for the next.’
In short, therefore, appraisal is a technique or a management practice
which involves looking backward and forward at different aspects of the
individual’s work performance over a fairly tight time frame.
It is important to distinguish performance appraisal from performance
management. While appraisal has been seen as a free-standing process
concentrating specifically on the individual employee and their job,
performance management has been viewed more as a system or cycle
of integrated activities with a much broader organisational or strategic
focus. Bevan and Thompson (1992) have suggested a ‘model’ performance
management system that might comprise the following elements:
• a shared vision of the organisation’s objectives communicated through
a mission statement communicated to all employees
• individual performance targets which are linked to the operating unit
and the wider organisational objectives
• regular formal review of progress towards targets
• a review process which identifies training and development needs and
rewards outcomes
• an evaluation of the effectiveness of the whole process and its
contribution to overall organisational performance, to allow changes
and improvements to be made.
It can be seen that performance management seeks to ‘lock’ the individual
into the organisation through ensuring that individual objectives derive
from cascading business objectives. Both sets of objectives are provided
125
within the context of a shared understanding of the company’s overall

mission or purpose and an appreciation of how the individual performance
can contribute to overall business performance.
In presenting performance appraisal and performance management
in these general terms, one should not lose sight of the fact that these
processes can be used to pursue a wide range of management objectives
and they can also be designed in very different ways. Such variation needs
to be explored and begs questions about how organisations select their
approach to performance appraisal and management.
7.3 Selecting an approach

It is possible to distinguish between what might be viewed as a non-
rational strategic or a non-rational organisational approach to performance
appraisal and a more strategic or rational approach. The former may be
reflected in a number of ways.
First, approaches may be a response to fashion and fad. Thus, as we shall
see, there are a number of newer techniques associated with performance
evaluation such as upward appraisal, 360-degree appraisal and customer
appraisal (see Section 7.4.3). These may be attractive to organisations
simply because they are perceived as ‘leading edge’ rather than because
they meet the considered needs of the organisation.
Second, conventional wisdom and myth unsupported by firm evidence
may well encourage organisations to retain or adopt performance
appraisal techniques (Fisher, 1999). However, a more strategic and
rational approach might be seen as based on a contingent framework,
which suggests that organisational approaches should be based on a clear
recognition of what organisations are seeking to achieve and the adoption
of an appropriate scheme to their particular circumstances. As Randall
(1994) notes:
‘a contingency approach is required. An appraisal scheme must
match the needs of the organisation and the expectations of the
employees at its particular stage of development.’
This contingency approach suggests that organisational approaches to
appraisal may be influenced by managerial objectives, national and
corporate culture, and the occupation’s concerns.
Performance appraisal and management cut across a range of human
resource policies and practices such as selection, reward, training and
career management, and can be used to further and support activities in
these areas. This is reflected in the wide range of objectives which might
inform the use of performance appraisal and management, distinguished
by Foot and Hook (1999). These include objectives to:
• improve current performance
• provide feedback
• increase motivation
• identify training needs
• aid career development
• award salary increases
• solve job problems
• let individuals know what is expected of them
126
• clarify job objectives

• provide information about the effectiveness of the selection process
• provide information for human resource planning
• provide rewards.
Activity
Is performance appraisal or performance management used in your organisation or an
organisation you have some knowledge of?
Investigate the goals which underpin the use of either approach in this organisation.
7.3.1 The theoretical rationale

The theoretical rationale for these objectives, in other words, the extent to
which evidence suggests that appraisal will achieve these aims, is extremely
uneven. The objective that lends itself most clearly to theoretical scrutiny
relates to the appraisal’s power to motivate. The motivation theories
outlined in Chapter 6 can be used to analyse appraisal as a motivational
tool.
For example, equity theory might well suggest that employees will be
motivated if key decisions related to reward, promotion, training and
development are informed by an appraisal process which is seen as
procedurally just, that is perceived as being conducted in a fair and open
way. (For full discussion on the relationship between appraisal and justice
see Chapter 10).
More significantly, goal setting theory suggests there is an important
relationship between the way individual employee performance objectives
are set, the nature of those goals and employee performance. Thus, Locke
et al.’s (1981) goal-setting model suggests a link between employee
performance and:
• the extent to which the employee participates in goal setting
• the degree to which these goals are accepted by the employee, how
difficult they are to achieve and how precisely they are defined
• the way the employee pursues goals, in terms of intensity and
persistence, mediated by the employee’s ability.
The model finally suggests that knowledge of the results of their
performance, in turn, feeds back to further affect the intensity with which
employees pursue the goals.
Arnold et al.’s (1998) summarising research which has tested this goal-
setting model note that:
• difficult goals appear to produce higher performance than easy goals,
as long as they have been accepted by the person seeking to achieve
them
• specific goals seem to encourage higher performance than general,
open-ended goals
• knowledge of results seems to be crucial if the full benefits of setting
difficult and specific goals are to be achieved
• the positive effects of goal setting are dependent on a person’s
commitment to the goals.
127
Activity
Why are specific and tightly focused goals more likely to improve performance than open-
ended goals?
This testing of the goal-setting model has, however, been criticised. Austin
and Bobko (1985), for example, note that goals related to the quality of
work have rarely been tested, while most of the research has been limited
to laboratory environments. Moreover, Earley et al. (1989) note that goal
setting may be harmful where a task is new and unusual and where a
range of possible strategies are available to deal with it.
From a contingency perspective, one of the key issues is for organisations
to be clear about which of the wide range of goals listed by Foot and Hook
(1999) they are pursuing. In this respect it is of value to divide the goals
underpinning appraisal and listed above into two sets:
• judgemental
• developmental.
Judgemental appraisal involves management taking a firm view
and making a concrete decision about the quality of the employee’s
performance which then has significant consequences for the future
treatment of that employee. In contrast, developmental appraisal is much
more of a diagnostic tool designed to identify and address an employee’s
strengths and weaknesses. The following table highlights the activities
informed by these different forms of appraisals. Thus, judgemental
appraisal is used when making decisions, for example, related to reward,
while developmental appraisal might affect decisions on career planning.
Judgemental appraisal Developmental appraisal

used for decisions on: used for decisions on:
• compensation • identifying training needs
• promotion • identifying areas for growth
• dismissal • development planning
• downsizing • coaching and career planning
• lay-offs
Table 7.1: Types of appraisals.

Source: Adapted from Mathis, R. and J. Jackson Human resource management. (Cincinnati: West
Publishing Co., 1997) eighth edition [ISBN 0538890045].
Over the years the pendulum has swung between an emphasis on hard
and soft appraisal goals. Research by Long (1986) in Britain in the 1980s
suggested that the emphasis was on harder, judgemental appraisal with
the increased use of tight performance objectives and a tendency to
link appraisal to pay. More recently Bach (2000) has suggested that the
pendulum has swung back to softer developmental aims, with the move
away from reward-driven appraisal.
However, more significant in this context is the potential tension between
the use of appraisal for developmental and judgemental purposes. If
appraisal is being used for judgemental purposes, say, to determine
pay increases, employees are unlikely to be open and honest about
their limitations. Yet this very openness and honesty may be crucial if
management is seeking to develop employees, using appraisal to identify,
for example, training needs. Organisations may well be unclear about
the predominant purpose of appraisal. Is it being used primarily to judge,
128
or essentially to develop, employees? If it is used in an unsophisticated

way to pursue both ends at the same time it may well cause difficulties
and confusion. In short, organisations need to be clear about what their
appraisal objectives are.
Activity
Many organisations use appraisal for both judgemental and development purposes.
Can schemes be designed to minimise the tension between these two sets of goals? If so,
write down some suggestions about how this might be achieved.
While suggesting that the nature of the appraisal process will be

dependent on the goals being pursued, the contingent approach also
suggests that organisational circumstances will be important. For instance,
the location of the company may well influence the appropriateness
of appraisal. The focus on the individual may well accord with some
cultures more than others. In the US and the UK, workplace appraisal
is common. Thus, some employees will be covered by appraisal in
around three-quarters of such workplaces. Indeed, Bach (2000) quotes
a number of studies which suggest that the proportion of workplaces
using performance appraisal has increased over the years. In non-Western
countries the incidence is lower although, as Redman (2001) notes,
performance appraisal is now more common in China, Hong Kong, Japan,
Africa and India.
The nature of the workforce, and in particular the types of workers
employed, might also affect the use of appraisal. As noted in discussing
individual performance-related pay (Chapter 6), it is sometimes difficult to
set performance goals for certain employees, say, in routine or caring
occupations. Indeed, evidence from Britain (Cully et al., 1999) does
indicate that performance appraisal is considerably more common for
managers than those in most other occupational groups. At the same time
this evidence does provide a number of perhaps unexpected findings. First,
the proportion of workplaces with appraisal for professionals is very
similar to that for managers1 despite the difficulties one might have
envisaged in setting performance targets for professionals. Thus around
three-quarters of workplaces have appraisal for both groups. Second,
although the proportion is not as great, appraisal is still present in around
half of workplaces for those in lower level white-collar jobs and factory
jobs such as plant and machine operatives. Certainly these findings
support the suggestion that appraisal has now moved down the
organisation, covering many groups, including those on the factory floor,
formerly excluded from the process.
Activity
Investigate how performance appraisal is carried out in your country.
a. How common is it?
b. Does it cover particular occupational groups?
c. Does your national culture encourage or discourage the use of appraisal?
It has been suggested that contingent factors related to objectives, culture

and occupation may well affect whether appraisal is adopted and how it is
used. They may also influence the design of appraisal schemes and it is to
this variation in design features that attention now turns.
129
7.4 Design features

Performance appraisal invariably comprises a number of design and
process features. The core design features have been identified by Bratton
and Gold (1994) as:
• define work
• set measurable targets
• perform
• assess against targets.
Certainly, these features may take different forms and be more or less
structured and formalised. Indeed, they may be supplemented to varying
degrees with additional elements or stages. For example, between setting
targets and finally assessing them there may periodic reviews to check
progress. In the light of this review, objectives may be refined and support
provided if needed. After the final assessment takes place corrective
action of various forms might take place, while certain schemes might
also include an appeals procedure for employees unhappy with their
assessment. More typically (Armstrong and Baron, 1998) the appraisal
process may conclude with the formulation of a personal development
plan providing a structured statement and series of steps which seek
to address the individual employees’ development needs. However, the
core features listed by Bratton and Gold will be present in any appraisal
scheme. One further inevitable feature of an appraisal scheme is an
appraiser: someone who naturally has to appraise the employee. This
section focuses on how targets are set, how performance against targets is
measured and who undertakes target setting and measurement.
7.4.1 Setting performance targets

The setting of performance standards for appraisal purposes is a two-
stage process. It first requires identifying an appropriate performance
indicator, in other words, a feature of the job or dimension of the person’s
performance that can be evaluated. The following types of performance
indicator can be distinguished:
• Trait based: subjective character features including for example
‘co-operative’, ‘flexible’, ‘imaginative’ or ‘creative’.
• Behaviour based: specific forms of behaviour which lead to efficient
and effective job performance, for instance, being accurate or
persuasive.
• Results based: output related measures linked to the achievement of
tangible work-related goals, for example achieving cost savings, writing
a report or reducing wastage rates.
The second stage then involves setting a target against these indicators.
Thus, in the case of result based measures, it might involve ‘reducing costs
by 10 per cent over the year’ or ‘lowering wastage by five per cent’.
The different performance measures have tended to be reflected in
different types of appraisal scheme. Results-based measures have clearly
been central to management by objectives schemes. Certainly the use
of objectives has spawned a prescriptive literature on ‘good practice’ in
setting targets. Companies often use the acronym SMART which suggests
that target should be:
S Specific or stretching
M Measurable
130
A Agreed or achievable
R Realistic
T Time bound.
As we shall see, in practice the objective-setting process rarely lends itself
to such seemingly straightforward and simple guidance.
Activity
Try to devise some SMART objectives related to any aspect of your work life or home life
activities. Seek to develop two SMART objectives for each of the performance measures
distinguished – traits, behaviours and results.
Traits and behaviour measures have more recently developed into

competency-based appraisal schemes. Many organisations now have
competency ‘grids’ including such competencies as teamwork, initiative,
leadership and communication. Different levels of competence by which
to evaluate the employees’ performance are established. Redman (2001)
suggests that this form of appraisal has a number of benefits which
includes directing employees’ attention to areas where there is scope for
improvement and encouraging a focus on how well a job is undertaken
rather than just what is achieved. Others have been more critical. Sparrow
(1994), in particular, highlights difficulties in identifying robust and
measurable competencies as well as the problems management might
face in actually assessing whether their employees have achieved different
competence levels.
The most recent attempt to reconfigure the use of different performance
measures for appraisal purposes has emerged in the form of the
balanced scorecard approach. This approach derives from the work of
Kaplan and Norton (1992) who put forward a model which suggests
that organisational performance might be evaluated from a number of
perspectives: financial, customer, internal business and learning. Applied
in a performance appraisal context, the balanced score card approach
might be seen to imply that ‘successful’ job performance may combine
traits, behaviours and outputs as they relate to different dimensions of
the job. A university academic, for example, might be appraised against a
scorecard comprising research outputs, teaching quality and administrative
responsibility. This is, however, a fairly intense approach to appraisal
which would involve considerable administrative cost and complexity.
In Britain, the take-up of these newer approaches to appraisal has been
relatively slow. Objective setting still appears to be the most common form
of performance measurement with Armstrong and Baron (1998) finding
that 85 per cent of the organisations in their survey use it. Only around a
third of companies used competence assessment and, more striking, a bare
five per cent used the balanced scorecard approach.
7.4.2 Assessing performance

A number of different techniques are available to assess employee
performance. In part, these are related to the types of performance
measures used but in some cases they can be used to assess performance
across traits, behaviours and objectives. Mathis and Jackson (2011)
distinguish four sets of techniques: category rating, comparative, narrative
and behavioural. Each set is considered in turn with a brief description of
the techniques included.
131
Category rating methods

The simplest methods of appraisal involve the appraiser marking the
employee’s level of performance on a specifically designed and structured
form. These include:
• Graphic rating scale: This is based on the appraiser indicating the
employee’s performance on a continuum. This continuum might run
from satisfactory to unsatisfactory behaviour or from fully achieved
goals to goals which have not been achieved at all.
• Checklist: The appraiser assesses performance against a list of job
related requirements, ticking-off those which have been performed to a
satisfactory level.
Comparative methods
These methods involve the appraiser directly comparing the performance
of employees against one another.
• Ranking: This involves listing all employees from the highest to the
lowest performing, using a common performance measurement system.
• Paired comparison: The appraiser formally compares each
employee with every other employee in the rating group one at a time.
• Forced distribution: Appraisers are required to allocate
performance ratings according to an established pattern, usually
related to the assumption that within any group there will be a normal
distribution of performance. This might therefore require the rater to
appraise at least 10 per cent as ‘high’ performers and 10 per cent as
‘poor’ performers.
Narrative methods
These methods require the appraiser to provide a written and integrated
report on the employee based on a detailed description of their
performance.
• Critical incident: This involves the appraiser keeping a written
record of how the employee responded to key issues or events.
• Essay: This is a ‘free form’ assessment which allows the appraiser to
provide an account of the employee’s performance, usually under a
limited number of general headings.
• Field review: This form of appraisal typically involves a third party,
usually someone from the HR department, interviewing the line
manager on the performance of the employee. It assumes the HR
manager knows enough about the job to help the supervisor give a
more accurate and thorough appraisal.
Behavioural methods
Here the focus is clearly on assessing behaviours rather than other aspects
of performance.
• Behaviourally anchored rating scales: these match descriptions
of possible behaviours with what the employee most commonly
displays.
• Behavioural observation scales: these are used to count the
number of times certain behaviours are exhibited.
• Behavioural expectation scales: these order behaviours on
a continuum to define outstanding, average and unacceptable
performance.
132
Activity
Review the above by listing the different ways of assessing performance.
7.4.3 The performance appraiser

The appraisal can be undertaken by a number of different stakeholders
(Mathis and Jackson, 2011):
• The supervisor or line manager. Traditionally the supervisor or
line manager has been assumed to be in the best position to observe,
understand and therefore evaluate the employee’s performance. This
method also reflects embedded patterns of authority with employees
in the past being accountable to a single manager. It is an approach
which has been more recently questioned with changing organisational
structures – for instance, the use of the matrix structures where an
employee might have two ‘bosses’, say, a functional ‘boss’ and a project
‘boss’– and the search for staff flexibility with the result that the
employee may have more than one supervisor over a given period.
It has also been challenged by the realisation that there may be a
number of other parties interested in and affected by the employee’s
performance.
• Employees who assess their superiors. This type of evaluation,
often referred to as upward appraisal, is clearly designed to make
managers more sensitive to their employees. Moreover, given that
managing employees is often an important part of a manager’s job such
appraisal is a valuable and valid element in measuring the manager’s
performance. It is, however, a technique which provokes considerable
hostility amongst managers and is therefore often subject to some
resistance by them. Redman (2001) notes that it is a form of appraisal
particularly common in the USA. However, Armstrong and Baron
(1998) also found that it was present in around a quarter of the British
workplaces they covered in their survey.
• Team members who rate each other (team-based
appraisal). The ongoing development of teamwork has encouraged
attempts to assess team performance. This has taken two forms. First,
it has been reflected in the team leader or supervisor setting team
targets and then measuring the performance of the whole team against
them. Second, it has emerged as peer review with members of the team
assessing one another’s performance.
• External appraisers. The use of those outside the organisation to
assess employee performance has been apparent particularly in service
sector organisations and reflected especially in the use of customer
views as part of the appraisal process. It is an approach which is often
linked to a Total Quality Management initiative or a customer care
programme. Customer service data for appraisal purposes can be
collected in a variety of ways:
• customer surveys
• surveillance techniques allowing managers to sample the
service encounter, for instance eavesdropping on the telephone
conversation in call centres
• mystery shopper exercises with a management agent going
‘undercover’ to experience the quality of service care.
The latter two techniques in particular have elicited some employee
resistance being perceived as underhand and invasive.
133
• Employee self-appraisal. This provides the employee with

an opportunity to evaluate their own performance. In the UK it is
quite common, being found in half of the companies covered by the
Armstrong and Baron (1998) survey. It would be rare, however, for
this evaluation to form the only basis for the appraisal. More typically,
it contributes as one element of the appraisal process along with other
inputs.
• Multi-source appraisal. This sort of assessment has received
considerable attention in recent years, particularly under the guise
of 360-degree appraisal. As implied, this form of appraisal relies on
input from those at different levels and positions in the organisation
(peers, superiors and superordinates) with a stake in the employee’s
work performance. It is more likely to be used for those at middle
and senior management levels as a way of identifying development
needs. There are a number of high profile companies who have used
this scheme including, in Britain, Northumbrian Water, Dupont and
British Aerospace, and in the US, Mobil Oil. However, as with many
‘fashionable’ HR techniques, and leaving aside these isolated examples,
360-degree appraisal is more often talked about than practised.
Armstrong and Baron (1998) found it in only 11 per cent of their
organisations. The low take-up may well reflect the administrative
burdens and costs associated with the establishment of such a complex
system.
Activity
Think about the strength and weakness of the following forms of appraisal from both a
management and a worker perspective:
a. self-appraisal
b. upward appraisal
c. 360-degree appraisal
d. team appraisal.
Which approach would you prefer and why?
7.4.4 Performance appraisal in action

In action, performance appraisal is a process which impinges on the
interests and concerns of a wide range of organisational actors. As
with pay, therefore, it becomes a highly politicised activity subject to
manipulation and subversion as different groups seek to use it to protect
or further their concerns. Indeed, it is for this reason that there is often
a large gap between the prescriptive rhetoric on appraisal and the actual
practice. Thus, despite the widespread use of appraisal, Grint (1993) has
noted that ‘rarely in the history of business can a system have promised so
much and delivered so little.’
In seeking to evaluate the problems associated with appraisal, Bach
(2000) distinguishes two perspectives: an orthodox critique and a radical
critique. The former is a managerial view based on the assumption that
there is shared employee–management interest in the improvement of
the workers’ performance and highlighting how the problems which beset
appraisal in practice may inhibit the achievement of this goal. The radical
critique challenges the assumption of shared interest, claiming that it is
the employer who stands to gain most from improved performance, with
appraisal consequently seen as a control mechanism designed to serve
management ends. Each critical perspective is considered in turn below.
134
7.4.5 The orthodox critique

The problems raised by the orthodox critique have taken a number of
different forms. First, they have focused on the purpose of appraisal and
in particular criticism has concentrated on appraisal’s judgemental goals.
Some of the highest profile management ‘gurus’ have criticised appraisal
on these grounds. McGregor, for example, felt that the judgemental nature
of appraisal was demotivating, while Demming viewed it as a ‘deadly
disease’ being designed to apportion blame for problems which were
more likely to reflect fundamental organisational problems of a systematic
kind. As noted above, however, appraisal can be used for developmental
as well as judgemental purposes. Although the two aims may well create
tension if pursued at the same time, organisations can use appraisal for
developmental rather than judgemental purposes.
Second, criticism has concentrated on the target-setting stage. Some
of the difficulties faced by managers in setting performance goals have
already been alluded to. They include the issue of consistency, that is,
the possibility that different managers in the same organisation may set
targets of uneven quality, leading to employee perceptions of inequity.
There is also the danger that managers will set targets on aspects of the
job which are measurable rather than central to efficient and effective
individual and organisational performance. Moreover, there is a danger
that goals, whether intentionally or not, may discriminate, say, on the
ground of ethnicity and gender; in other words, certain targets may be
more difficult to achieve by certain groups than others.
Third, there have been problems related to the assessment of performance.
It is these difficulties which have perhaps received the greatest attention.
Assessment has been seen as being distorted by a number of effects (Grint,
1993):
• Recency effect: the danger that weight will be placed on
performance in the immediate past rather than over the appraisal
period as whole.
• Halo and Horn effect: the appraiser inflates the positive or negative
characteristics of the employee on the basis of highly personal, non-
rational feelings or beliefs.
• Doppelgänger effect: where the appraisee is rated highly for being
similar to the appraiser.
• Crony effect: distortion of the rating based on the close relationship
between the appraiser and the appraised.
• Veblen effect: named after Veblen’s practice of giving all his students
the same middle grade regardless of their performance.
• Impression effect: this arises from the difficulties faced in
distinguishing actual performance from calculated impression.
Activity
What advice would you give to a manager trying to minimise these distorting effects?
Read Grint (1993).
Longnecker and Ludwig (1990) adopt a somewhat different approach to the problems
associated with assessment, suggesting that managers may manipulate ratings by
inflating or deflating them for positive or negative reasons. This categorisation of
difficulties gives rise to four types of manipulative rating behaviours:
1. Inflating ratings for positive reasons to:
• keep an employee motivated
135
• maximise merit pay

• assist an employee with a personal problem.
2. Inflating ratings for negative reasons to:
• avoid washing dirty linen in public
• make themselves look good
• avoid conflict with a subordinate.
3. Deflating ratings for positive reasons to:
• provide an argument for investing in staff training and development
• build a stronger case for an employee destined to be dismissed.
4. Deflating ratings for negative reasons to:
• punish an employee
• encourage an employee to leave
• minimise a merit pay increase.
Attempts to address the wide range of problems associated with the

orthodox critique have tended to focus on those carrying out the appraisal.
Thus, attention has been drawn to the need to train line managers
undertaking the assessment, to make them more accountable for
appraising staff in an efficient and effective way and giving managers a
sense of ‘ownership’ in the appraisal scheme through involvement in their
design and implementation. However, the evidence suggest that attempts
to take these steps are, at best, uneven (Bach, 2000).
Activity
Read Grint, K. ‘What’s wrong with performance appraisal? A critique and a suggestion’,
Human Resource Management Journal 3/3 Spring 1993.
7.4.6 Radical critique

As indicated, the radical critique of performance appraisal has focused
on the use of this technique as a means of bolstering management control
and power. Some researchers have highlighted the ways in which appraisal
can be manipulated towards this end. Barlow (1989) illustrates how (in
a petrochemical plant) the problems associated with appraisal actually
facilitated, rather than undermined, its value as a controlling device
allowing managers to legitimise the advance of favoured subordinates.
Others have focused more on attempts by management to use appraisal
as a means of directly controlling employee attitudes and behaviours.
Research by Townley (1993) has drawn upon the work of Foucault
(1981) to highlight the way in which appraisal can be used to create
an all-pervading, and unseen, form of surveillance. This is achieved in
part through tangible forms of covert observation. However, it is also
pursued in a more subtle form through the use of language as enshrined in
performance objectives to structure workers’ perceptions not only of their
jobs but also their own identity as employees.
Such work might, however, be criticised on a number of grounds. First,
it overestimates management’s ability and willingness to use appraisal
in a strategic manner to further their control. Second, it underestimates
employee propensity to resist such control and, closely related, it assumes
an unrealistic degree of worker naivety and susceptibility to manipulation.
136
Activity
Based on what you have read, in what ways can workers manipulate the performance
appraisal process to serve their best interests?

• distinguish between performance appraisal and performance
management
• set out the main management objectives which underpin the use of
performance appraisal and management
• distinguish between developmental and judgemental appraisal
• identify the different ways of setting performance measures for
appraisal purposes
• highlight the different ways of assessing performance for appraisal
purposes
• identify the range of different people who can carry out the appraisal
• critically evaluate approaches to performance appraisal.

1. What factors should be taken into account in designing and
implementing a performance appraisal system?
2. What accounts for management hostility towards performance
appraisal?
3. How would goal-setting theory help a manager design an efficient and
effective appraisal system?
4. Why do organisations continue to use performance appraisal given all
the operational problems associated with it?
5. ‘Appraisal is more about tightening management control than
improving employee performance.’ Discuss.

Why do organisations continue to use performance appraisal given all the
operational problems associated with it?
137
Notes
138
Chapter 8: Job design and redesign
8.1 Introduction
The aim of this chapter is to introduce the debates and dilemmas that
surround the issue of job design and redesign. In particular, the chapter
will consider whether it is really possible to design jobs in such a way that
levels of employee motivation and performance can be increased, and
whether the levels of boredom, monotony and stress that are commonly
associated with traditionally designed work, can be reduced. The debate
is split into two halves. The first relates to the design of individual jobs.
This was very much the focus of interest until the start of the 1990s.
The second relates to the post 1990s when attention turned to issues
surrounding teamworking. The structure of this chapter reflects this
chronological development.
A useful starting point in terms of the study of job redesign, is to examine
Taylorism and Scientific Management, and then evaluate ensuing
developments in a chronological order. The reason for this is that most
attempts to redesign jobs have focused on the alleviation of some of
the more negative outcomes of Scientific Management. The chapter
will therefore begin with a discussion of Taylor’s Scientific Management
principles, before moving onto the issues of job enlargement, job
enrichment and teamworking.

• The aim of this chapter is to introduce students to the concepts of job
design and redesign, and to examine the debates and dilemmas which
surround both concepts.

• explain the term ‘scientific management’ and the problems that
emerged with the system when it was put into practice
• describe what is meant by the term ‘job enlargement’ and the extent to
which job enlargement initiatives proved effective in overcoming the
problems generated by Taylor’s ideas
• outline Herzberg’s two-factor theory of motivation, the implications of
the theory for job design, and the criticisms that have been made of the
theory
• describe Hackman and Oldham’s Job Characteristics Model, the
theoretical criticisms of the model and the empirical evidence that has
been generated with regard to the model
• describe Kelly’s twin-track model and its conceptual underpinnings
• assess the arguments relating to the performance-enhancing qualities
of teams, and the empirical evidence concerning the effectiveness of
different forms of teamworking
• outline the potential for management teams, and appreciate issues
concerning the development of effective management teams.
139
Journal articles
Allen, N.J. and T.D. Hecht ‘The “romance of teams”: toward an understanding
of its psychological underpinnings and implications’, Journal of
Occupational and Organizational Psychology 77 2004, pp.439–61.
Kelly, J. ‘Does job redesign theory explain job redesign outcomes?’, Human
Relations 45(8) 1992, pp.753–74.
Mueller, F., S. Procter and D. Buchanan ‘Teamworking in its context(s):
antecedents, nature and dimensions’, Human Relations 53(11) 2000,
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towards an elaborated model of work design’, Journal of Occupational and
Organizational Psychology 74 2001, pp.413–40.

Bacon, N. and P. Blyton ‘Union co-operation in a context of job insecurity:
negotiated outcomes from teamworking’, British Journal of Industrial
Relations 44(2) 2006, pp.215–37.
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and meta-analysis’, Personnel Psychology 40 1987, pp.287–322.
Knights, D. and D. McCabe ‘Bewitched, bothered and bewildered: the meaning
and experience of teamworking for employees in an automobile company’,
Human Relations 53(11) 2000, pp.1481–1517.
Oldham G. and J. Hackman ‘Not what it was and not what it will be: the future
of job design research’, Journal of Organizational Behaviour, 31(2–3) 2010,
pp.463–79.
Sandberg, A. ‘Volvo human-centred work organisation – the end of the road?’,
New Technology, Work and Employment 8(2) 1994, pp.83–87.
Sethi, R., D. Smith and C. Whan Park, ‘How to kill a team’s creativity’, Harvard
Business Review 80(8) 2002, pp.16–17.

Beaumont, P. HRM: key concepts and skills. (London: Sage, 1993)
[ISBN 0803988141].
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[ISBN 0750609257].
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plant. Paper presented at Employment Relations Unit Conference, Cardiff
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the 1998 Workplace Employee Relations Survey. (London: Routledge, 1999)
[ISBN 9780415206375].
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of Trade and Industry, 1998) [ISBN 0856053821].
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economy. (London: Mansell, 1992) [ISBN 0720120209].
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Hackman, J. and G. Oldham ‘Motivation through the design of work: test of
a theory’, Organisational Behaviour and Human Performance 16, 1976,
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In this chapter we examine the concepts of job design and redesign, and
their origins in the scientific management movement. We consider a
number of models, including Herzberg’s two-factor system of motivation,
Hackman and Oldham’s job characteristics model and Kelly’s twin-track
model. The evidence concerning the success of different forms of team-
working is examined.
8.2 Taylorism and scientific management

In his theory of Scientific Management, introduced in 1911, Taylor argued
that there were two key elements to be considered when looking for an
increase in the productivity of labour.
Increased specialisation and division of labour
Taylor advocated that job tasks should be broken down as far as possible
into their constituent parts, and that individual workers should be given
responsibility for each of those specific parts. Such an approach, Taylor
argued, would have several benefits. For example, with workers focusing
on one small part of the overall production process, they would not waste
time moving around the workplace between tasks. Additionally, cycle
times and faults would decrease, as workers would become increasingly
dextrous at performing their particular task.
The system would also allow for a minimisation of skill requirements.
Given that within a Taylorised system of production, jobs would be very
straightforward and very easy to perform, companies would not have to
employ skilled workers. This would have several benefits. First, companies
would be able to reduce their wage bill by not having to pay for skilled
labour. Second, it would be easier to exert control over the workforce. If
workers are unskilled, they can be easily replaced, should they engage
in any form of dissent. By contrast, skilled workers are more difficult to
replace and will be able to make demands on management (e.g. to get
better wages).
Separation of conception and execution
The second element of Taylor’s principles of scientific management was
that management should be responsible for the design of jobs and the
planning of the overall work process. As a result, jobs could be designed
141
in the most scientific way using ‘time and motion’ analysis: a technique
that would enable management to find the most effective method of
performing a particular task. All brainwork would therefore be removed
from the shop-floor and be centralised in a planning department, with
management deciding how and when work was to be done, and with
workers simply doing what they were told, when they were told to do it.
Henry Ford took Taylor’s ideas a step further by adding the concept of the
moving assembly line within the car industry. This provided an additional
regulatory effect over the workforce, with work effort now being governed
by the pace of the line. Ford also introduced the $5 day wage, an extremely
generous wage at the time. This reflected the belief that financial incentive
alone would be sufficient to ensure workforce motivation.
These principles have underpinned the concept of job design for many
years. Indeed, industrial sociologists such as Steve Hill (Hill, 1981) and
Craig Littler (Littler, 1982) argue that the real significance of Taylor’s
theory of scientific management was that it established the basic
philosophy of work organisation that still exists in many respects to the
present day, in the sense that the principles of job fragmentation, tight job
boundaries and the separation of mental and manual labour have become
the dominant ideals for job design.
Activity
Jobs are still designed using Taylorist principles. Can you think of an example? Why do
you think that an idea developed in 1911 is still in use today?
Before reading the next section, list the problems you think might emerge within a
workplace that has jobs designed on Taylorist principles.
8.2.1 The shortcomings of scientific management

In practice, several problems and criticisms emerged with regard to
Taylor’s system. The first criticism related to the issue of production
flexibility. Workers trained to perform one specialised task were unable to
move around between tasks as the work flow necessitated. This allowed
for the possibility of production bottlenecks to develop, with workers
in one area working at full capacity to catch up with the workflow, and
workers in other areas standing idle.
The second criticism related to the fact that in a Taylorised system, all
production planning and improvements to production processes became
the responsibility of management, with there being no scope for the input
of ideas from the shop-floor. With the role of the workers being to simply
follow orders laid down by management, companies were unable to tap
into the creativity of their workforce. In effect, the workforce became an
underutilised resource.
The third problem with Taylor’s system was that jobs became simple,
boring and repetitive, and workers became dehumanised. This was
reflected in Ford’s factories by high levels of absenteeism and labour
turnover, despite the high levels of basic pay. Also, studies undertaken by
the Industrial Fatigue Research Board in the 1920s demonstrated that if
taken to extremes, repetitive work was not necessarily more productive.
8.3 Job enlargement

The first major attempts to alleviate the negative effects of Taylor’s
principles of scientific management were carried out in the early 1950s,
in response to a highly influential study conducted by Walker and Guest
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entitled ‘The man on the assembly line’ (Walker and Guest, 1952). The
study, which examined car plants in the USA, demonstrated that workers
were dissatisfied with the pace of the production line, the repetitiveness of
their jobs, low-skill requirements, the fact they were only involved in one
small part of the production process and the lack of control over the way
in which work tasks were carried out.
The solution Walker and Guest offered was to reconstitute specialised
tasks: in other words, to combine fragmented tasks together. As such,
jobs would be enlarged, cycle times would be lengthened, and individuals
would experience a greater degree of variety and a wider skill range in
their work.
The expectation was that by enlarging jobs in this way, higher workforce
morale and higher performance would result. In reality, however,
job enlargement programmes had little effect. Several reasons were
given for this. First, the nature of the work remained unchanged. Job
enlargement interventions simply combined together simple tasks that
required only minimal skill levels to complete. Second, the intervention
left the separation of conception and execution unchanged. Workers still
had no control over production methods, and no method by which they
could input their own ideas into the production process. Third, many
job enlargement interventions were introduced in a low-trust industrial
relations climate, and they came to be perceived by the unions and
the workforce as a mechanism by which management could instigate
headcount reductions and increase labour intensification.
8.4 Herzberg and job enrichment

The next wave of job redesign initiatives took place in the late 1950s and
early 1960s, following the introduction of Herzberg’s two-factor theory of
motivation (Herzberg, Mausner and Snyderman, 1959).
Herzberg argued that job characteristics fell into two categories. These
were:
• Motivators: these refer to the extent to which a job offers
opportunities for achievement, creativity, responsibility and
opportunities for personal growth. These factors are intrinsic to the job
itself.
• Hygiene factors: these comprise issues such as the nature of
supervision and supervisory style, the level of pay, working conditions
and interpersonal relations. These factors are extrinsic to the job.
Herzberg argued that only the motivators have the potential to generate
satisfaction and motivation. If the hygiene factors are improved, they
do not result in improved motivation, but if removed, demotivation will
result (for example, an improvement in the working environment will not
cause higher work motivation, but a notable deterioration in the working
environment will lead to demotivation). To raise levels of motivation and
hence performance, therefore, Herzberg argued that companies needed
to ensure that the hygiene factors were in place, and also to ensure that
intrinsic motivators were built into jobs. In particular, jobs needed to be
designed in such a way that workers could be given opportunities for
achievement, responsibility and personal growth.
The two-factor theory made an important theoretical advance, in the sense
that Herzberg recognised that fulfilment and growth could not be achieved
through specialised or prescribed job tasks. Building opportunities for
personal growth and achievement into jobs would mean giving workers
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more direct control over production methods. By advocating a breach of

the traditional conception/execution divide, Herzberg was among the first
to argue against Taylor’s principles of Scientific Management.
However, the theory had several shortcomings. First, was Herzberg right to
suggest that job characteristics fall neatly into two categories of motivators
and hygiene factors? Can a job characteristic actually be both? For
example, for some people it is possible for pay to be a motivator and not
just a hygiene factor.
Second, Herzberg’s theory is an example of what is referred to as a
universalistic theory, in the sense that he did not acknowledge the
psychology of individual differences. The assumption within the two-factor
theory is that job enrichment will have the same impact on everyone in
all work situations. The theory does not take into account, therefore, the
fact that some people may not have a desire for personal growth, and are
therefore unlikely to be motivated by job enrichment initiatives that give
them higher levels of autonomy and responsibility. It did not take into
account cultural differences either and it is known that some societies are
more collective than others and so may not react to individual motivators
in the same way.
8.5 Hackman and Oldham’s job characteristics model

The Job Characteristics Model effectively superseded Herzberg’s two-factor
theory when it was first introduced in the mid-1970s (Hackman and
Oldham, 1976).
CRITICAL
CORE JOB
PSYCHOLOGICAL OUTCOMES
CHARACTERISTICS
STATES
Moderators
Skill variety EXPERIENCED

Task identity MEANINGFULNESS
Task significance OF THE WORK
HIGH INTERNAL
WORK MOTIVATION
Autonomy EXPERIENCED
RESPONSIBILITY FOR
OUTCOMES OF THE WORK
Feedback from the job KNOWLEDGE OF THE ACTUAL

RESULTS OF THE WORK ACTIVITIES
Figure 8.1: Hackman and Oldham’s job characteristics model.
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The essential argument of the job characteristics model, which is similar

to the argument made by Herzberg in many respects, is that if jobs
are enriched, this will lead to improvements in attitudinal outcomes
(increased satisfaction and motivation, for example) and improvements
in behavioural outcomes (such as higher productivity and lower rates of
absenteeism).
The model is shown in Figure 8.1.
8.5.1 Three critical psychological states

Looking at the model in detail, Hackman and Oldham argued that
jobs should be designed in such a way that they are focused on the
achievement of three critical psychological states. These three critical
psychological states can be described as follows:
• Workers must experience work as being personally meaningful – they
must view work as something they personally care about.
• Workers must experience personal responsibility for their work. In
other words, if the job is well done, they must feel it is as a result of
their own efforts. Similarly, if something goes wrong, they must feel at
least partly to blame.
• Workers must know if their work performance is effective. As such,
they must have knowledge of the results of their work activities.
If these three critical psychological states are achieved (in other words,
if the work is meaningful, that employees feel responsible for it and they
know how they are performing), higher levels of satisfaction, motivation
and performance will result.
8.5.2 Five core job characteristics

In terms of achieving these critical psychological states, there are five
dimensions of job content, or job characteristics that have an influence.
In order to increase productivity and reduce absenteeism, the manager of
a team or an organisation should try to ensure these factors are included
in the design of any job. In effect the manager is looking to enlarge jobs
(make them cover a wider variety of skill and knowledge) or enrich jobs,
(give more responsibility to people doing the jobs). Another way of giving
interest to workers is to rotate jobs. People could change the jobs they
were doing every few months or even yearly. To some extent it depends on
the complexity of the jobs. If much knowledge and skill is required to do a
job, the rotation would take place less often. The advantage of job rotation
is that it equips a team to do a whole range of jobs, so if one of them is
absent or leaves, the team does not lose that skill and knowledge and the
tasks can still be carried out. It will also add to the ‘task significance’ as
outlined below. Workers will be able to see where their job fits in to the
whole process.
Three of these job characteristics influence the meaningfulness of work.
These are:
• skill variety – the worker has the opportunity to use a variety of skills in
their job
• task identity – the worker completes a whole piece of work, or
identifiable part of the production process
• task significance – the worker can see the way in which their efforts
contribute to the product as a whole, and the way in which their efforts
will impact on the end user of the product.
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In terms of influencing personal responsibility, it is necessary to allow

workers a degree of task autonomy; if an individual is free to use their
discretion in terms of the way in which they perform a particular task,
they will feel a greater sense of responsibility if problems emerge, but will
feel a greater sense of achievement if the job is successfully completed.
In terms of influencing knowledge of results, it is essential the company
has effective feedback systems in place, such that workers have access to
relevant performance data.
The five core characteristics can be combined into a single index or
Motivating Potential Score (MPS). This reflects the overall potential of
a job to impact on individual motivation. The MPS, can be calculated as
follows:
MPS = (Skill variety + Task identity + Task significance) × Autonomy × Feedback
3
8.5.3 Moderators
A further important feature of the job characteristics model is that it
incorporates a set of moderators. These moderate the strength of the
impact of an improvement in the five core job characteristics on the
three critical psychological states, and the strength of the impact of an
improvement in the three critical psychological states on motivation and
performance. The moderators are as follows:
• Knowledge and skill: if a worker does not possess the knowledge
or the skills to perform the redesigned job effectively, the redesign
initiative will not lead to an improvement in performance.
• ‘Growth need strength’ or how strongly the individual
feels that they need to develop and grow: if a need for
personal development is lacking, an improvement in the five core job
characteristics will have little impact on the three critical psychological
states, or on resulting levels of motivation. As different people have
different levels of ‘growth need’ strength, some are likely to respond
more favourably to job redesign initiatives than others.
• Context satisfaction: this relates to the context of the work
situation. It is necessary, therefore, for workers to be in receipt
of a reasonable rate of pay, for supervisory style not to be overly
authoritarian, for working conditions to be acceptable and for there to
be a sense of equity in the workplace. If workers are dissatisfied with
these factors, it is unlikely that they will respond positively to a job
redesign initiative. This last moderator is very similar to Herzberg’s
ideas on hygiene factors.
8.5.4 Is the theory useful?

The job characteristics model made several important contributions to
the job redesign debate. First, by incorporating moderators, the model
recognised the psychology of individual differences – the fact that
different people in different situations may respond differently to attempts
to redesign jobs. For example, some people have a high-growth-need
strength; they are likely to respond more positively to attempts to give
them higher levels of autonomy than are workers with a low-growth-
need strength. This was the first time that individual differences such as
these had been taken into consideration. As such, the theory represents
a considerable step forward from the universalistic theory presented by
Herzberg, which assumed that job redesign would impact on everyone in
the same way.
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Second, the theory provided valuable guidance for managers in terms

of the specific characteristics of jobs that need to be taken into account
when job redesign issues are being considered. In particular, the theory
suggested to managers the need for jobs to be diagnosed in terms of the
extent to which they provided opportunities for task variety, task identity,
task significance, autonomy and feedback. As such, the theory had
considerable prescriptive value.
8.5.5 Empirical assessments of the model or did the research

prove the theory?
Activity
Before reading the next section, write down whether or not you think job redesign
initiatives undertaken along the lines of the job characteristics model are likely to be
effective in raising work motivation and performance. Answer yes or no, but make a note
of why you think the way you do.
Many attempts have also been made to assess the model empirically, with researchers
setting out to test whether the model’s predictions hold true in real life situations. In
particular, researchers have attempted to evaluate whether it really is the case that
an improvement in the five core job characteristics leads to an improvement in the
critical psychological states, which in turn impacts on motivation, satisfaction and work
performance.
Activity
Read the article by Kelly listed in the Essential reading.
Before looking at the empirical results, it is worth pointing out that some
question marks have been raised concerning the quality of the research
conducted. First, it is extremely difficult to obtain accurate information on
aggregate, let alone individual, performance levels. This raises problems
in terms of testing the impact of improvements in the three critical
psychological states on performance. Second, many of the empirical
studies of job redesign change were undertaken within a relatively short
time span of about 12 months (Kelly, 1992). It is difficult, therefore, to say
whether the effects of the redesign initiative will be long lasting. It may
be the case that over a longer period of time the motivating effects of an
improvement in job design will begin to fade, after an initial ‘honeymoon
period’.
Nevertheless, the empirical tests that have been carried out demonstrate
the following:
Looking first at the relationship between perceived improvements in job
characteristics and job satisfaction, the evidence suggests a strong link.
In other words, where job redesign leads to an improvement in the three
critical psychological states, this has a beneficial impact on the level of job
satisfaction.
However, the evidence is much weaker where the relationship between
job redesign and intrinsic motivation is concerned. In many instances,
job redesign initiatives have not proved effective in terms of raising levels
of motivation (Kelly, 1992). It seems, therefore, that improvements in
the five job characteristics are sufficient to result in job satisfaction, but
not necessarily to motivate workers to work harder. It also seems likely
therefore that satisfaction and motivation do not share the same set of
determinants. What satisfies employees will not necessarily motivate
them.
147
However, there are cases in which job redesign has led to improved
performance, even in instances where there has been no increase in intrinsic
motivation. This raises the question: what causes performance gains, if they
are not caused by higher levels of motivation? The first answer is pay. It is
often the case within the empirical analyses that performance improvements
occurred in instances where workers were expecting a pay increase following
the redesign initiative. Higher work performance was therefore actually
generated by expectations of subsequent higher pay.
A second issue concerns the fact that if a job redesign initiative involves
a change in workflow or in work layout which leads to a reduction in the
amount of downtime, considerable improvements in performance are
possible without there being any changes in levels of motivation. It is simply
the case that the workflow becomes better organised.
One key conclusion that emerges from the empirical tests of the job
characteristics model is that there are several routes by which the redesign
of jobs can impact on employee performance, of which an improvement in
intrinsic motivation is only one. To aid a conceptualisation of all of the routes
by which job redesign can impact on performance, John Kelly has proposed
the ‘twin-track’ model (Kelly, 1992). The model takes into account the much
wider range of routes by which job redesign can affect performance that are
not included within Hackman and Oldham’s ‘job characteristics model’.
8.5.6 Further criticisms of the job characteristics model

Some further criticisms of the job characteristics model have been put
forward. First, it may be the case that there is more to jobs than the five core
job characteristics listed in the model. For example, the model makes no
reference to issues such as physical load, memory load and time pressure.
These factors are likely to have a considerable influence on workers’
attitudes and behaviour, and hence on the likelihood that a job redesign
initiative will raise levels of motivation and performance.
Second, there is nothing within the job characteristics model that refers to the
process by which jobs are redesigned. For example, it may be the case that
where jobs are redesigned in a participative manner, with workers themselves
having an input in terms of the way in which jobs will be redesigned, they are
likely to respond more favourably to the redesign initiative.
Third, the job characteristics model does not take into account the fact that
job redesign initiatives may prove more effective in certain organisational
contexts, such as high-skill environments, as opposed to low-skill or
bureaucratic environments.
Finally, the model focuses on a narrow range of outcomes. The only
outcomes considered are performance, motivation and satisfaction. It may
be the case that job redesign initiatives have an impact on a much wider
range of work-related outcomes, such as mental health, stress, accidents and
grievances.
8.6 Teamworking
Towards the end of the 1980s, attention began to shift increasingly to the
issue of teamworking. It is fair to say, however, that interest in teamworking
is nothing new. Autonomous or semi-autonomous workgroups were central
features of the socio-technical theories of the 1960s and 1970s (Rose, 1975).
The 1980s and 1990s saw a re-emergence of interest in teamworking as part
of the lean-production debate. Teamworking is now seen as the dominant,
state-of-the-art method of shop-floor job design.
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What do we mean by teamworking? Shopfloor teamworking arrangements

are referred to by a wide range of labels. For example, Kelly refers to
it as ‘flexible’ work groups, Buchanan refers to it as ‘high performance
work design’, Grayson refers to teams as ‘self-regulating work groups’
(Marchington, 1992). Despite the differences in terminology, the
theoretical perspectives essentially have the same key features in common,
these being that the team is given a task, possibly a whole or considerable
part of the overall process of production, and the team members
themselves decide how the task is to be completed. As such, the team is
given a high degree of discretion over how the work is done and how tasks
are to be allocated.
In the 1990s, teams have become an increasingly common feature in
many organisations. Teamworking has been pretty well universally
adopted across the car production industry in both the UK and the US.
In the UK, teamworking arrangements were adopted first by Japanese
inward investors such as Nissan and Toyota. Other car manufacturers such
as Ford, General Motors and Rover were quick to follow. At Rover, for
example, teamworking was introduced in 1992 when it was bargained in
through the unions in return for a considerable increase in pay (Industrial
Relations Services, 1992). Figures from the 1998 Workplace Employee
Relations Survey suggest that teamworking arrangements have been
adopted in 65 per cent of UK workplaces (Cully, Woodland, O’Reilly and
Dix, 1999). The extent to which these teams conform to the ideal type as
described above is, however, a matter of considerable debate.
Teamworking arrangements have extended beyond the shop-floor in recent
times, and it is now increasingly the case that managers are working in
teams also. Examples include ‘ad hoc problem-solving teams’ and ‘cross-
functional product development teams’. The nature and effectiveness of
management teams will be considered later on. Some of the growth in
teams, especially in the 1980s can be attributable to the introduction of
Total Quality Management (TQM) initiatives. Here problem-solving teams
were created to try to remove blockages to increased productivity. This was
especially the case in the UK and the USA. In a way, the TQM initiatives
were only trying to replicate the culture of Japanese companies. In the
1980s Japan was held up as an example of a country that was industrially
very strong and where the workers were very productive. Japan has a
collective culture in contrast to the more individualistic culture of the
US. Business Process Re-engineering was another initiative that relied on
teams to solve problems and to try to increase productivity.
Activity
Now make a short list of what you think are the main advantages and disadvantages of
team-working? You will probably have used your own experience as a guide. As humans
we have experience of being in teams from an early age, even if it is just a junior sports
team at school.
8.6.1 The effectiveness of teamworking

Some of the arguments for and against teamworking date back to the early
part of the 20th century, following the introduction of Taylor’s scientific
management principles.
Scientific management and the evil of work groups

Several debates over the performance-enhancing effects of teamworking stem
back to the early part of the 20th century. Taylor argued, for example, that
149
teams were bad for effectiveness. He argued that if workers are allowed to
work together in teams they will engage in what he referred to as ‘systematic
soldiering’. This involves workers within a team colluding with each other to
minimise their output and maximise their wage-effort trade-off. The key to
improving effectiveness, Taylor argued, was for managers to break the power
of the workgroup and to exercise direct control over individual workers and the
work process.
The Human Relations school, however, argued that there will always be
groups in organisations. They are a naturally-forming phenomenon, because
individual workers have a basic psychological need for group membership.
Think about Maslow’s Hierarchy of Needs and the need for love, affection
and the acceptance as belonging to a group. If they are not allowed to form,
absenteeism, labour turnover and disenchantment will result from the isolation
and alienation that workers will experience. As groups are naturally forming,
their formation cannot be left to chance. It could be said therefore to be of
paramount importance for companies to proactively manage work processes in
such a way that workers are able to work together in teams.
So it can be seen that the debate on whether teams are a ‘good thing’ stretches
back to the 1930s.
Much of the contemporary literature treats teamworking very favourably,

suggesting it possesses several advantages over conventional forms of
working. These advantages include the following:
• Teams are good for people in a social-psychological sense.
As people have a need for social belonging, teams are a natural
phenomenon. In this sense, the current literature makes the same
point as was made by the Human Relations school (see the previous
example: ‘Scientific management and the evil of work groups’). In large
organisations, a feeling of social belonging can be easily lost, but it can
be replaced by a feeling of social belonging to the team. Teamworking
can therefore offset negative effects in big organisations. .
• Teams can be useful for promoting innovation and
creativity. The argument here is that people make better decisions
in teams than when working alone. Where the team has to deal with
a complex problem, it can be solved more easily through the ‘mental
division of labour’, with each member of the team tackling a small
part of the problem and then pooling their ideas. As a result, problem-
solving capabilities can be enhanced in team working situations
through the sharing and exchanging of information and knowledge.
Furthermore, the evidence suggests that people are prepared to take
larger risks when operating in a group than when operating alone.
This argument relies on the idea that there is a variety of people with
a variety of characteristics in a team. Obviously if the team were to
be made up of people who had a lot in common, then there would be
fewer fresh ideas generated.
• Teams can play an important role in promoting
commitment. If an individual has played a part in making a decision
within the team (for example, in terms of how to allocate or carry out
certain work tasks), they are more likely to be committed to ensuring
that the decision taken proves effective.
• Peer group pressure within teams can prevent shirking.
However, ‘free riding’ is easier in teams than where people are working
alone, as their individual work effort is less visible.
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• Teams can facilitate a reduction in supervisory or

managerial headcount. Many companies have found that it is
possible to delegate to teams several functions that were previously
the responsibility of management, and teams are increasingly making
decisions that supervisors or junior managers previously made. For
example, they plan and control their own work processes and play a
major part in the continuous improvement of those work processes,
they are responsible for their own quality and inspect their own
work, they take responsibility for materials and component ordering,
inventories and dealing with suppliers and they perform basic
maintenance tasks.
8.6.2 Developing effective teams

The development of an effective team cannot be left to chance. For
individuals to be able to function effectively as team players, there are
important training implications, particularly in terms of interpersonal
skills such as group problem-solving, effective running of meetings,
communication skills and the handling of group conflict. There are also
implications where technical skills training is concerned. For example,
if responsibility for quality is to be delegated to teams, it is essential
that workers are trained in quality management techniques such as
statistical process control and cause-and-effect analysis. Similarly, if basic
maintenance is to be delegated to teams, it will be necessary for workers
to be equipped with the necessary maintenance skills. Initially therefore,
it may be more expensive to organise the work into teams. In companies
suffering financial difficulties there may be a reluctance to train the teams
effectively. It may be, therefore, that these teams would fail.
Teamworking also has implications for supervisory style. Where teams
are increasingly responsible for quality, maintenance and planning the
work process, the role of the supervisor will increasingly become one of
facilitator or coach. A directive or authoritative approach will no longer be
appropriate. This reason may explain why coaching is rapidly becoming
the most favoured training method in large companies.
8.6.3 Assessing the impact of team working

There is a great deal within the contemporary literature in relation to
team working that is highly optimistic. Is this optimism supported by the
empirical evidence, however? There is considerable evidence to suggest
that the manner in which teamworking arrangements are implemented
varies considerably between different companies, and that the manner in
which team working is practised will determine its impact. For example,
there is evidence from the 1998 Workplace Employee Relations Survey
in the UK that suggests 65 per cent of workplaces have employees
working in formally designated teams. However, only five per cent of
these workplaces had teams within which the members work together,
were given responsibility for specific products or services, jointly decided
how work was to be done and appointed their own team leaders. (Cully,
O’Reilly, Millward, Forth, Woodland, Dix and Bryson, 1998). It would
seem, therefore, that teamworking in many workplaces does not fit the
‘ideal type’ model depicted earlier. The extent to which teamworking
arrangements can vary between different companies, and the differential
impact that teamworking can have depending upon the manner in which
it is introduced, is explored in the following section.
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Teamworking in action at Volvo

When it opened in 1989, Volvo’s Uddevalla factory was held up as an icon of
humanistic work practices. The factory comprised a huge automated materials
workshop surrounded by six independent product workshops. Each product
workshop had between 80 and 100 workers split into autonomous teams. Each
team had eight to 10 workers, and was responsible for building an entire car.
This was the key feature of the system: there was no production line, and each
team built an entire car on a single workstation. The teams did not have a
team leader, but had a rotating ‘group ombudsman’ who was elected by other
members of the team. The team had control over the pace of work, and how
the work was done. Tasks were distributed within the team depending on
the competencies of the workers within that team. Over time, team members
became highly skilled, to the point that they could be expected to know how to
build a complete car after 16 months (Clarke, 1989).
‘Quality of working life’ was a central concern within the factory. Ergonomics
were considered particularly important, with cars being tilted or lifted on
hydraulic ramps so that all jobs could be performed at a standing height. The
factory was designed in order to maximise the amount of natural light. Noise
levels were carefully controlled and the working environment was extremely
clean. Some commentators commented the environment was closer to that of a
well-equipped gymnasium than to that of a car factory (Clarke, 1989).
Why did Volvo adopt this system, and put such a huge emphasis on humanising
the work process? A major driving force was the labour market. At the time,
unemployment in Sweden was very low (about one per cent) and all companies
were finding recruitment and retention extremely difficult. Volvo could
only hope to recruit and retain high-calibre workers by prioritising quality
of working life, and by making jobs as interesting as possible. This was also
reflected by the emphasis Volvo placed on equal opportunities. In the context
of labour market shortages, Volvo actively recruited women to jobs that were
formerly, or traditionally, viewed as a male preserve. Indeed, women formed
45 per cent of the workforce. Further reflecting the quality of working life
concerns, hand-held power tools were redesigned to make them easier for
women to use.
Teamworking at Nissan
In 1987, Nissan opened its car factory in Sunderland in the north-east of
England. It was soon hailed by Margaret Thatcher, the then prime minister of
the UK, as her favourite factory. The production system is more traditional than
that adopted at Volvo. There is a moving assembly line, and workers are divided
into teams of 16–18 members plus a team leader, who is responsible for his
or her team’s part of the production process. There is considerable flexibility
within the team. There are only two job titles and no job specifications, and
workers are expected to work on any job within the team as the workload
requires. Team members are expected to fill in for absent colleagues, as there
are no spare workers within the system to cover for absenteeism. As a result,
there is considerable peer pressure on workers not to go absent (indeed,
absenteeism is very low). Employees are expected to help their team members
if they are falling behind. They are also responsible for performing simple
maintenance and cleaning tasks.
The work itself is highly standardised, fitting the description of ‘multi-tasking’
or ‘routine variety’ as opposed to ‘multi-skilling’. Cycle times are short and the
work is repetitive. Workers have little control over their own time, and there is
an intense pace of work. Tasks are highly prescribed, and changes to the way
in which tasks are carried out can only be made after being discussed in quality
152
circle meetings and after agreement from the supervisor. Any changes to work
practices are then written into Nissan’s standard operating procedure (Garrahan
and Stewart, 1992).
There are no quality inspectors within the factory, and responsibility for quality
is devolved to teams. The quality ethos and ‘right first time’ principles are
drummed into new recruits. The aim is for quality to be ‘built in’ rather than
‘inspected in’. Individual workers can stop the line if a quality fault occurs, in
order that faults can be dealt with at source. Nissan also employs a ‘neighbour
check scheme’, within which workers are encouraged to report errors made by
their co-workers. These will be discussed within team meetings and attempts
will be made to develop solutions to the problems identified. This is a powerful
disciplinary tool, as the fear of having their mistakes exposed in team meetings
will prevent workers from shirking or slacking.
The system of teamworking as adopted as Nissan fits within the ‘lean
production’ paradigm. The aim is to remove all waste from the system, and to
minimise the downtime of individual workers. The peer pressure within the
team not to go absent, the ‘neighbour check scheme’ and the fact that workers
can be moved around within the team to cover for each other or to help out if a
team member is falling behind, are all important elements of this.
Systems of teamworking at Nissan and Volvo compared

Not surprisingly, the reactions of workers within Volvo and companies such as
Nissan vary considerably. At Volvo, workers described jobs as interesting, varied
and involving responsibility and challenge, and this helped to foster more
consensual attitudes between management and staff. Good attitudes were also
reflected by low rates of turnover and absenteeism.
At Nissan, workers view the work as difficult and heavy, involving considerable
time pressure. They have little choice other than to comply, however, as rates of
unemployment in the local labour market are high and alternative employment
opportunities are scarce. The system is, nevertheless, highly efficient. Indeed,
Nissan’s factory in Sunderland is still 30 per cent more productive than any
other car factory in Europe (Guardian, 10 August 2001).
Is the Nissan approach to teamworking inherently superior?

Faced with overcapacity in the European car market, Volvo took the decision
to shut the Uddevalla factory in 1993. The company argued that the cost of
transporting car bodies, and management and administration costs were too
high (Sandberg, 1994). So, did the closure represent the pre-eminence of ‘lean
production’ teamworking arrangements (as adopted at Nissan) over ‘quality
of working life’ practices at Volvo? Some have argued that it did. For example,
Peter Wickens, formerly the personnel director of Nissan UK, published a book
in 1995 entitled The ascendant organisation, the basic argument of which is that
if companies want to compete in world markets, they will have to adopt ‘lean
production’ manufacturing techniques, or they will simply not be productive
enough to survive (Wickens, 1995). It is fair to say that the productivity rates
at ‘lean production’ plants are considerably higher than at more traditionally
managed plants (Womack, Jones and Roos, 1990). This, however, could be bad
news for workers. As we have seen from the Nissan case, workers operating
within lean production systems find the pace of the work highly stressful, and
the overall work environment oppressive. It is a bleak prospect for workers
therefore, if companies will inevitably have to go down the lean production
route if they are to remain viable.
The BBC news on 10 April 2012 reported that the Sunderland factory is to
produce Nissan’s new hatchback. This could lead to the creation of another 225
153
jobs at the factory. These jobs are in addition to the additional jobs announced
on 6 March 2012 (BBC news), to build the new Invitation model from 2013.
Once the new models are in production the total workforce will stand at 6,225
workers. There will be an additional production shift allowing both lines to
operate round the clock for the first time in the plant’s 26 year history. Nissan’s
chief executive, Carlos Ghosn, who is also the chief of the French car maker
Renault, said ‘the Sunderland plant is setting an important benchmark for
quality and efficiency in Europe and around the world.’
Perhaps the cost to the workers in terms of ‘lean production’ is paying off in
terms of more jobs and more secure jobs. Labour turnover continues to be low,
but there is still not much competition in the labour market in that part of the
UK.
Closure of the Volvo factory: a missed opportunity?

Some commentators have argued that the closure of the Volvo factory
represented a missed opportunity (Sandberg, 1994). First, the Uddevalla
factory reached the same level of productivity as Volvo’s conventional Torslanda
factory in Gothenburg after only three years. It still had some way to go
before it reached the Japanese level of 25 hours per car, but one indication of
Uddevalla’s potential is that one of the workers there had managed to build
a whole car in just 10 hours. Second, the teamworking system at Uddevalla
would have been perfect for building customised cars, to the extent that the
customer could have been present in the factory while their particular vehicle
was being built. Such customised products can command a considerable
mark-up, but this opportunity was never exploited at Volvo. For example, the
company did not even allow the Uddevalla factory to build ambulances and
police cars, even though it would have taken less time to build these cars at
Uddevalla from scratch than it took to strip and refit a standard car at the
company’s conventional Torslanda factory. Third, the Uddevalla system would
have been ideal for making incremental adjustments to output volumes, as
individual workstations could have been opened or closed to meet fluctuations
in production demand. By contrast, in a conventional factory already
operating at full capacity, there is no scope to increase output other than to
add a completely new production line. Fourty, Volvo could have exploited its
‘humanistic work practices’ in its advertising campaigns, as done by General
Motors in its advertising campaigns for its Saturn car.
In conclusion, it may well be the case that the full potential of the teamworking
system as adopted at Volvo’s Uddevalla was never fully realised. The fact that
the Uddevalla factory closed should not therefore be taken as evidence that
the ‘quality of working life’ approach to teamworking is unfeasible, and that
the ‘lean production’ Nissan approach is inherently superior. It may be that the
Volvo factory was not managed in such a way as to bring out the best aspects of
the system. In effect more research is needed!
8.7 Management teams

Having considered the role of teamworking for operators and shop-floor
workers, we now need to consider the role of team working in relation to
management teams. Many commentators believe that we will see a major
growth in the use of management teams in the future (Beaumont, 1993).
Management teams have been found to be particularly effective in the
field of product development, where project teams have been able to cut
the lead-time it takes to bring new products from original conception to
full-scale production.
154
To understand the potential for product development project teams,

it is first necessary to understand how product development has
been traditionally carried out. Traditionally, a specialist research
and development department would have been responsible for the
development work on plans and designs for new products. Having
developed these plans, the research and development department would
then pass them to the purchasing, manufacturing, finance and sales,
and marketing departments. Any objections to the plans could be raised
at this stage. Often, the criticisms would be severe. For example, the
manufacturing department might point out the likely difficulties in terms
of building the product, the purchasing department might argue that
sourcing components for the product will be extremely difficult, or the
sales department might argue that the product design will not appeal to
key customer segments. As a result, the plans would be returned (‘thrown
back over the wall’) to the research and development department, which
would then have to redevelop their plans and designs, sometimes almost
from scratch, to take into consideration the objections raised. In the event,
it would take an extremely long time before the plans were accepted by all
of the departments within the company (Starkey and McKinlay, 1993).
Activity
Why do you think working in teams would speed up the processes needed to produce
something? What skills and knowledge do you think an individual manager needs to
possess to work effectively in a team?
To get around this problem, car companies have increasingly adopted a

product-development project-team approach, which comprises a team
drawn from a range of functions from across the organisation, such as
research and development, production, finance, sales and marketing,
and purchasing. The team is involved at every stage of the project and
the project will not move to its next development phase unless all of the
members of the team are happy for the project to progress. As all of the
functions within the company are represented on the product development
team, this eliminates the possibility of quite far advanced plans being
defeated by objections from just one department that has not been
involved in the development process (see: ‘Simultaneous engineering at
Ford’ below).
Simultaneous engineering at Ford

Product development at Ford was, in the past, handled in a very traditional
manner. Departments such as manufacturing and purchasing were not involved
in the developmental stages of a new project. Much of this was due to the lack
of communication that existed generally between functions within the company.
Indeed, the Ford organisational chart was frequently described as resembling
‘chimneys’, with each of the chimneys representing the hierarchy that existed
within each functional area, but with no reporting channels or channels of
communication across functions. There was a great deal of scope, therefore,
for plans developed by the research and development department to meet
with disapproval when they were finally shown to other functions within the
organisation.
Ford began dealing with these problems in the 1980s by moving to what it
termed ‘simultaneous engineering’ program management. The development of
a new vehicle became the responsibility of a project team comprising managers
and specialists from each functional area within the company, none of whom
155
would allow the project to continue until they were happy with the way it was
progressing. As a result, product development became much less conflictual, and
Ford found it could considerably reduce lead-times in bringing new products into
the market (Starkey and McKinlay, 1993).
Ford was not alone in adopting this type of approach. Land Rover, for
example, used similar project management techniques to bring the Discovery
into the market in only three years. At the time, it typically took between
four and six years to bring a new vehicle into the European market using
traditional product development methods (Beaumont, 1993).
8.7.1 Building a successful management team

While the above examples of Ford and Land Rover demonstrate the potential
for management teams, building a successful management team is far from
straightforward, an issue highlighted by the work of Meredith Belbin.
Belbin argues that effective management teams require individuals with a
wide range of attributes. There is a useful website: www.belbin.com that
outlines Belbin’s theory and which supplies additional material that is useful
when thinking about teams and how they can influence the success of an
organisation. There has, of course, been a lot more research since Belbin’s
original theory was developed. A good summary is contained in Chapter
4 ‘Work and Work Systems’ in Bratton and Gold (2012). This chapter
also includes additional information about work design, including some
examples.
Strength of contribution in any one of the roles is commonly associated with
particular weaknesses. These are called allowable weaknesses. Executives
are seldom strong in all nine team roles.
In particular, Belbin identifies nine roles that need to be played if a
management team is to be effective. It is possible to use a range of
psychological and psychometric tests to identify which of the team roles an
individual is most likely to be suited to (noting that no individuals will be
strong in all areas) (Belbin, 1993).
Activity
1. Looking at Belbin’s team roles, which roles do you think you personally play in
teamwork situations?
2. Thinking of any team you have worked in, do you think it was balanced, in terms of the
roles played by different members of the team?
Belbin’s research has several important implications. First, it has

implications with regard the people who are recruited to the team. For
example, it is highly likely that problems will emerge if a team is made
up primarily of ‘plant’ (who provide creativity and imagination), or
‘resource investigators’ (whose strength is to seek out new methods and
new opportunities) but no ‘completers’ or ‘implementers’ (who are best at
turning ideas into actions and ensuring that deadlines are met). Second, a
team with too many ‘Coordinators’ will more than likely be dysfunctional,
with everybody within the team trying to act as chairperson, and trying
to delegate tasks to each other. It is essential, therefore, that a balance of
‘types’ is recruited to the team.
Belbin’s analysis also highlights the importance of changing the composition
of the team as the project progresses. For example, on a large-scale multi-
stage project in its infancy, there may be little need for ‘completers’, but
a considerable need for people who can contribute a sense of creativity,
156
explore different opportunities or provide specialist skills, such as

‘resource investigators’, ‘plant’ or ‘specialists’. However, as the project
develops, and deadlines become ever closer, it will make sense to change
the balance of the team in order that it comprises a greater proportion of
‘completers’.
Feedback to Activity on skills and knowledge

The following skills and knowledge will be needed by an effective manager:
• communication skills, both oral and written, face to face and electronic
• knowledge of their own professional area
• reputation
• willingness to adhere to deadlines
• willingness to take responsibility
• diplomatic skills
• training skills
• committee skills (e.g. note-taking, chairing meetings).

• explain the term ‘scientific management’ and the problems that
emerged with the system when it was put into practice
• describe what is meant by the term ‘job enlargement’ and the extent to
which job enlargement initiatives proved effective in overcoming the
problems generated by Taylor’s ideas
• outline Herzberg’s two-factor theory of motivation, the implications of
the theory for job design, and the criticisms that have been made of the
theory
• describe Hackman and Oldham’s Job Characteristics Model, the
theoretical criticisms of the model and the empirical evidence that has
been generated with regard to the model
• describe Kelly’s twin-track model and its conceptual underpinnings
• assess the arguments relating to the performance-enhancing qualities
of teams, and the empirical evidence concerning the effectiveness of
different forms of teamworking
• outline the potential for management teams, and appreciate issues
concerning the development of effective management teams.

1. a. Outline Meredith Belbin’s theory on team roles and say how it could
influence the success of a work team. (10 marks)
b. Discuss whether you think teams are a ‘good thing’ for an
organisation. (15 marks)
2. a. What are the five core job characteristics in Hackman and Oldham’s
model? (5 marks)
b. What influences the job characteristics? (5 marks)
c. Justify why you think Hackman and Oldham’s work is useful to a
manager. (15 marks)
157
3. a. Criticise Taylor’s ideas on job design. (5 marks)

b. Outline why Herzberg might have had better ideas about job design
than Taylor. (10 marks)
c. Discuss Hackman and Oldham’s model of job design and say if you
believe it offers the best advice to managers in this area. (10 marks)
158
Part 4: Employment relations
Part 4: Employment relations
159
Notes
160
Chapter 9: Employee involvement and participation
Chapter 9: Employee involvement and

participation
9.1 Introduction
Employee involvement and participation focus upon employee voice. How
do employees make their views known and how do managers find out
about what employees have to say? This chapter is concerned with the
ways in which employees make their voice heard through various forms
of involvement and participation and with the impact the expression
of employees’ views has upon various aspect of work and employment.
Consideration is given to the different forms of voice, distinguishing
between mechanisms associated with employee involvement and employee
participation. Attention is then given to why management introduces these
mechanisms and how they operate in practice. Finally, the spotlight turns
towards the consequences of forms of involvement and participation for
employee and organisational performance.

• The aim of this chapter is to introduce students to the concept of
employee voice, especially employee involvement and participation.

• explain the difference between the various approaches to employee
involvement and participation and the practices associated with them
• state the main managerial objectives underpinning the pursuit of
employee involvement and participation
• explain the difference between employee involvement and employee
participation
• outline the factors influencing approaches to employee involvement
and participation
• discuss the operational difficulties associated with different employee
involvement techniques
• evaluate the impact of employee involvement and participation on
various individual and organisational outcomes.

Bach, S. Managing human resources. (Oxford: Blackwell, 2005) Chapter 15
‘Direct participation’.
approach. (Harlow: Prentice Hall, 2007) Chapter 14 ‘Employee participation
and involvement’.
resource management. (Harlow: Financial Times Prentice Hall, 2009) [ISBN
9780273713067] Chapter 21 ‘Employee involvement’.

management. (Oxford: Oxford University Press, 2007) Chapter 12
‘Employee voice systems’.
161

(Basingstoke: Palgrave, 2012) Chapter 11 ‘Union–management relations’
and Chapter 12 ‘Employee involvement and relations’.
Dundon, T., A. Wikinson, M. Marchington and P. Ackers ‘The meaning and
purpose of employee voice’, International Journal of Human Resource
Management 15(6) 2004, pp.1149–1170.
Frege, C. ‘A critical assessment of the theoretical and empirical research on works
councils’, British Journal of Industrial Relations 40(2)2002, pp.221–48.
Heery, E. ‘Sources of change in trade unions’, Work, Employment and Society 19,
2005, pp.91–106.
Wilkinson, A., D. Lewin, M. Marchington and P.J. Gollan (eds) The Oxford
handbook of participation in organisations. (Oxford: Oxford University Press,
2011) [ISBN 9780199207268].

Appelbaum, E. and R. Batt The new American workplace. (ILR Press, 1994)
[ISBN 0875463193].
Cotton, J. Employee involvement. (Sage, 1993) [ISBN 0803945337].
Cully, M., S. Woodland, A. O’Reilly and G. Dix Britain at work. (Routledge,
1999) [ISBN 9780415206375].
European Foundation for the Improvement of Living and Working Conditions
New forms of work organisation. (European Foundation, 1997).
Farnham, D. and J. Pimlott Understanding industrial relations (London: Cassell,
1995) fifth edition [ISBN 0304330833].
Gospel, H. and G. Palmer British industrial relations (London: Routledge, 1993)
second edition [ISBN 0415084535].
Hyman, J.D. and B. Mason, Managing employee involvement and particpation.
(London: SAGE, 1995) [ISBN 0803987277].
Katz, H. ‘The decentralisation of collective bargaining: a literature review and
comparative analysis’, Industrial and Labour Relations Review 47(3) pp.3–23.
Leat, M. Exploring employee relations. (Butterworth Heinemann, 2001) [ISBN
075064396X].
MacInnes, J. Thatcherism at work. (Open University, 1987) [ISBN
0335155170].
Marchington, M. ‘A review and critique of research on developments in joint
consultation’, British Journal of Industrial Relations 25(3) 1987, pp.339–52.
Marchington, M., J. Goodman, A. Wilkinson and P. Ackers New developments in
employee involvement. (Department of Employment, 1992).
Marchington, M. and A. Wilkinson ‘Direct participation’ Chapter 14 in S. Bach
and K. Sisson (eds) Personnel management: a comprehensive guide to theory
and practice. (CIPD, 2005) [ISBN 9781843980629].
Millward, N., A. Bryson and J. Forth All change at work? (Routledge, 2000)
[ISBN 0415206359].
Ramsay, H. ‘Commitment and involvement’ in B. Towers (ed.) The handbook of
human resource management. (Blackwell, 1992) [ISBN 0631186735].
Richardson, R. and M. Thomson The impact of people management practices on
business performance: a literature review. (IPD, 1999) [ISBN 0852928327].
Salamon, M. Industrial relations: theory and practice. (Harlow: Prentice Hall,
2000) [ISBN 027364646X].

We examine various approaches to employee involvement and
participation. We consider the objectives, factors influencing different
approached, difficulties and drawbacks. The impact of employee
involvement and participation on individual and organisational outcomes
is evaluated.
162

Employee involvement and participation focus on ways in which workers
come to play a role in and influence the process of organisational and
workplace decision-making. The character of this involvement and
participation has taken different forms with the take-up of practices
varying considerably over time and in different countries. Over time,
there have been waves or cycles of practice reflecting factors such as
shifting environmental circumstance, changes in politics, evolving state
policies and changing managerial as well as organisational needs. Across
geographies, there have been variations in corporate approaches often
within the context of markedly different national models.
The corporate interest in employee involvement and participation
reflects suggestions that the use of associated practices can have
positive organisational outcomes. Thus Cotton (1993) defines employee
involvement as:
‘a participative process to use the entire capacity of workers, designed
to encourage employee commitment to organisational success.’
At the same time, governments have been concerned with the social,
political and economic consequences of employee involvement and
participation, a concern reflected in the fact that such activities have often
been subject to considerable state regulation.
In understanding these developments across geographies and time, it
is first important to understand the different approaches, models and
practices associated with employee involvement and participation. In
distinguishing between different types of employee involvement and
participation, Marchington et al. (1992) have highlighted the significance
of the following dimensions:
1. Degree of involvement and participation: How much influence
do employees have over final organisational and workplace decisions?
Employers can:
• inform
• consult
• negotiate with
• their employees.
2. Level of involvement and participation: Where in the
organisation do employees exert their influence? It can take place at
the:
• group or team level, sometimes called shop-floor level
• departmental level
• corporate level.
3. Forms of involvement and participation: It can be:
• direct, employees dealing directly with management
• indirect, employees dealing with management through a third-party
representative such as a trade union or works council.
4. Range of involvement and participation: What issues are dealt
with by the process? It can cover:
• strategic business decisions that affect the whole company
• decisions that affect the organisation of work and employment (i.e.
people aspects of employment)
163
• decisions that affect pay or terms and conditions of employment

• decisions on individual and personal issues (e.g. discipline and
grievance).
Drawing upon these dimensions different approaches to employee
involvement and participation can be identified. These have been
conceptualised in different ways by various commentators but can broadly
be distinguished along the lines described below.
9.2.1 Downward communication

This is perhaps the weakest form of employee involvement in that
employees are told about various organisational developments through
the provision of information from those at senior levels. This information
is usually provided directly to employees and there may or may not be
scope for employees to respond to the information received. Where scope
does exist to respond, communication takes a two-way form. Downward
communication is associated with a range of practices including:
• team briefing: with line managers providing the information to their
staff and sometimes passing it down the organisation on a cascade
basis
• company newsletters
• noticeboards
• company handbook
• one-to-one meeting between manager and employee: for example one
of the purposes of performance appraisal (see Chapter 7)
• site meetings/company presentations
• company TV
• company intranet, including e-mails.
Activity
Make a note of what you think the advantages and disadvantages of downward
communication. Try to think of an example of when a manager would want to use this
method of communication.
9.2.2 Upward involvement

This form of involvement is clearly driven by employees through
mechanisms designed to give them a voice in, and some influence
over, various organisational issues. Employee views on a wide range
of topics might be captured through company attitude surveys. Most
large companies now issue questionnaires to test employee attitudes
and commitment every year. More fundamentally, however, this form of
involvement has usually focused on the tasks, job or production process.
The nature of this involvement has tended to take two forms distinguished
by Appelbaum and Batt (1994) as offline and online involvement or by
the European Foundation for the Improvement of Living and Working
Conditions (1997) as consultative and delegative involvement.
Offline (or consultative) involvement is concerned with giving employees
an opportunity to express their views on work-related matters but with
management retaining decision-making authority. The practices used to
provide employees with this opportunity include:
• suggestion schemes
• quality circles
164
• problem-solving groups.
Online (or delegative) involvement is designed to allow employees greater
discretion and responsibility to organise and carry out their jobs without
any need to refer back to management. This form of involvement has been
given recent effect through the development of teamworking particularly
in the form of self-managed or self-directed work groups. (This form of
involvement is dealt with in greater depth in Chapter 8.)
Activity
Based on what you have read, identify the advantages and disadvantages of upward
involvement. Try to think of an example of when a manager would want to use this form
of communication.
9.2.3 Representative participation

This form of participation gives employees collective influence and a
collective voice through their representatives. These representatives are
accountable to employees as the employees usually take part in electing
their representatives. In addition, such representatives usually derive
their legitimacy and accreditation from broader independent worker
organisations such as trade unions or works councils. This is not, however,
invariably the case. Thus representatives sometimes owe their existence
to management patronage through staff associations established by
management. These staff associations only represent the workers in that
particular organisation and cannot be said to be independent.
Trade unions, in particular, are worthy of more detailed consideration,
as perhaps the most pervasive form of employee representative across
different countries. Salamon (2000, p.93) has defined a trade union as:
‘any organisation, whose membership consists of employees,
which seeks to organise and represent their interests both in the
workplace and society and, in particular, seek to regulate the
employment relationship.’
Trade unions emerge with the economic development of countries, as
workers seek to establish some balance of power with employers and
capital through their collective organisation and strength. Implicit within
this broad definition are different ways in which unions pursue their role.
Thus, a number of different dimensions of the trade union role can be
distinguished:
• economic regulation: maximising wages and improving other
substantive terms and conditions of employment
• job regulation: protecting members from the arbitrary exercise of
managerial prerogative, also includes health and safety
• social change: pursuing a wider, ideologically driven vision of an
alternative social and political system
• member services: providing a range of benefits (insurance, advice,
discounts) to individual members
• self-fulfilment: allowing for the personal development of members
beyond the confines of their jobs through involvement in union
activities.
The balance between these different activities and the emphasis given to
them varies both within and between countries. MacInnes (1987) provides
a typology of trade unions based upon different configurations of union
activities. He suggests that unions can be classified along two dimensions:
165
the degree to which they accept or reject the prevailing political system
(radical opposition or integrative constitutional) and the extent to which
they are primarily concerned with political or economic goals. This
provides for four types of trade union movement which broadly accord
with the movements to be found in different countries:
• instrumental (radical oppositional/economistic): for example,
UK and Ireland
• syndicalist (radical oppositional/political): for example, some
unions in France, Italy and Spain
• business (integrative-constitutional/economistic): for
example, US and Japan
• corporatist (integrative-constitutional/political): for example,
Sweden, Denmark.
The density of trade union membership also vary markedly between
countries. This is reflected in the following table.
Country % of workforce
1970 1980 1995
Sweden 68 80 83
Australia 52 50 33
UK 45 51 33
Italy 36 49 38
Japan 35 31 24
Germany 33 37 30
USA N/A 23 15
France 22 19 11
South Korea N/A 20 14
Singapore 17 23 16
Table 9.1: Union density.
Source: Salamon, 2000.
The table indicates that union density has reduced in most countries
between 1970 and 1995. This reflects a variety of factors combining
in different ways across countries including: changes in the industrial
and occupational composition of workforce, changes in legislation and
broader state policies towards unions and changes in managerial attitudes.
However, there remain striking variations in trade union density between
countries. One can still distinguish between high-density countries
(Sweden), middle-density countries (Australia, Italy, Japan, UK and
Germany) and low-density countries (USA, France, South Korea and
Singapore). Such variations can be traced to fundamental differences in
the social, economic, historical and political development of countries
which have impacted directly or indirectly on the ability and willingness
of employees to join trade unions. It may also reflect the typical size of a
company in particular countries. Where there are many small companies
making up the labour market, there is likely to be less people who join a
trade union.
166
Activity
Investigate trade unions in your country. How many trade unions are there? What
proportion of the workforce is in trade unions? Has this proportion changed over recent
years and if so why do you think this is the case? Are the trade unions more concerned
with fighting for pay (economic goals) or are they concerned with social change such as
encouraging the employment of women?
There are three main processes involved in giving workers an increasing

say in managerial decisions:
1. consultation
2. collective bargaining
3. co-determination.
Each is considered in turn below.
9.2.4 Consultation
Leat (2001) defines consultation as a process by which:
‘employee representatives and the Company’s management
convey and discuss any legitimate concerns relating to
performance, efficiency, operating conditions, and the general
conditions of employment.’
The employee representative may be a trade union member and where
representation on the Joint Consultative Committee (JCC) is provided
by trade unionists this is known as a ‘union channel’ of representation.
However, employee representatives are not necessarily union members
and may be any individual employee elected by their fellow workers. This
is a ‘non-union’ channel of representation. In Britain, where JCCs are set
up on a voluntary basis by employees and management, the union channel
of representation on JCCs tends to predominate. However, in Continental
Europe, for instance in Germany and France, where such committees
have statutory support, the non-union channel of representation is more
common (see below).
The nature and outcome of JCC discussions may take very different forms.
Indeed, Farnham and Pimlott (1995) have distinguished three types of
consultation:
• Pseudo-consultation: with management simply passing on
information without giving employee representatives a chance to
comment or without genuinely listening to the comments that are
made.
• Classical consultation: with the received views of employee
representatives on management proposals or information considered
prior to a decision being made. However, there is no commitment on
management’s part to be bound by the views expressed or to seek any
agreement with employee representatives.
• Integrative consultation: a process of joint decision-making on
a range of subject matters that is wider than the norm for collective
bargaining (see below). In this form the process assumes a form of joint
problem solving between management and employee representatives.
9.2.5 Collective bargaining

Collective bargaining involves negotiation between management employee
representatives on employment-related issues that is assumed to lead to
jointly agreed outcomes. It differs, therefore, from consultation in that,
167
while under consultation management are only bound to discuss and listen
to employee representatives, under collective bargaining they are obliged
to come to some sort of agreement with them This is reflected in Gospel
and Palmer’s (1993) definition of collective bargaining as:
‘a process by which trade unions and similar associations
representing groups of employees, negotiate with employers
or their representatives with the object of reaching collective
agreements.’
The structure of collective bargaining can be defined along a number of
dimensions:
1. Coverage: the proportion of workers in any given country whose
terms and conditions are determined by collectively bargained
agreements.
2. Level: where, in societal and organisational terms, agreement is
reached. A distinction is usually drawn between multi- and single-
employer bargaining. Under multi-employer bargaining, unions
negotiate agreements with a number of companies from a given
industry, region or indeed from across the whole economy. Under
single-employer bargaining, unions and management negotiate terms
and conditions for the employees in just one company. This may take
place at the corporate level or at lower levels within the company,
say, at workplace or factory level. From a management perspective,
multi-employer bargaining provides a ‘level playing field’ for pay and
other terms across an industry or region and saves on bargaining
costs and other resources, particularly for small companies, given
that just one central agreement is reached. On the other hand, single-
employer bargaining is clearly more sensitive to management needs
and company circumstances. From a union perspective, multi-employer
bargaining establishes a standard pay rate for a given job across an
industry which in that sense is seen as a ‘fair’ rate. Moreover, such
bargaining also allows the union to mobilise its collective strength on
a broader and thus potentially more effective scale. On the other hand
single-employer bargaining allows the union to play employers off
against one another to get the ‘best deal’.
3. Scope: the range of issues which is subject to collective agreement.
This might be broad where bargaining covers not only pay but many
other aspects of employment such as hours, holiday entitlement, health
and safety, equal opportunities and redundancy terms.
4. Representation: the range of organisations representing employees
and management. On the employee side there may be a number of
unions representing a given group of employees or a single union.
5. Unit: the types of workers covered by a collective agreement,
commonly referred to as the bargaining unit. Traditionally,
manufacturing organisations would often have three main bargaining
units, for manual, craft and white collar employees. In other words,
there would be three separately bargained agreements covering these
three groups. The tendency now is to have single bargaining units, so
that the employer agrees terms for all the workers in an organisation.
This is more efficient in terms of time and prevents one set of workers
from using the settlement of another set to ‘leap-frog’ and so gain more
money.
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9.2.6 Co-determination
Co-determination is involvement of an employee representative as
an equal with management representatives in decision-making, often
on broadly-based strategic issues. This can be viewed as a form of
industrial democracy with power being shared between employees and
management. In certain countries, such as Germany and Sweden, this
form of involvement is given effect through employee representation on
company boards. These representatives are known as worker directors.
The three broad approaches to employee involvement and participation
that have been outlined (downward communication, upward
involvement and representative participation) represent
particular bundles of practice that have been further conceptualised in
different ways. Marchington et al. (1992), for example, suggest that
forms of employee involvement can be seen as a series of steps providing
employees with progressively more power and influence. Thus, at the
lowest level with the provision of information these steps move through
communication, consultation and co-determination to finally reach control
by the employees.
Another distinction has been drawn between direct and indirect
involvement. Downward communication and upward involvement are
forms of direct involvement. They tend to be based on management
dealing in a direct and unmediated way with employees. This contrasts
with a more indirect approach, reflected in representative participation,
where a third party, often the trade union, plays a key role. The distinction
between direct and indirect involvement can be taken further. Although
these terms are often used together, and even interchangeably, they
can be seen to have very different meanings and be underpinned by
contrasting rationales. As Hyman and Mason (1995) have noted,
employee involvement is a management-driven process founded upon
unitarist principles which assume shared interests between employers
and employees. It is designed to stimulate the individual’s contribution to
improved task and production line performance. In comparison, employee
participation is based on pluralist assumptions which acknowledge
a conflict between worker and management interests, and view
employee representation in the form, say, of trade unions as a legitimate
manifestation of this conflict. Indeed, given these competing interests,
employee participation is much more about power than about influencing
a wider range of issues at a variety of levels within the organisation.
Activity
Find a definition of what unitarist, pluralist and radical approaches in a textbook. What
actions would a manager who believed in a pluralist approach take that a manager who
believed in a unitarist approach would not?
This contrast between employee involvement and employee participation encourages
a closer consideration of different managerial approaches and, in particular, of the
objectives underpinning them. Managers are influenced by the environment in which
the organisation sits. Culture, politics, economics, etc. play a strong part in influencing a
manager’s action in this area.
169
9.3 Approaches to employee involvement and

participation
9.3.1 Employee involvement: the objectives
As suggested at the outset, it is possible to distinguish developments
in Employee Involvement (EI) across both geography and time. Across
the world, different organisations will have very different reasons for
introducing forms of employee involvement. Ramsay (1992) provides a
framework for distinguishing the goals which might inform management’s
use of EI techniques. As the following list (based on Ramsey 1992)
indicates, employee involvement might be used to change employee
attitudes, foster greater business awareness, provide employees with
certain incentives, give workers greater influence and develop different
sorts of relations with the trade unions.
Management may wish to involve employees in the business in order to:
• change attitudes
• improve morale
• increase commitment
• enhance a sense of belonging
• enhance business awareness
• enable employees to be better, more accurately informed
• encourage greater interest in the business
• gain support for management action
as an incentive:
• to encourage the acceptance of changing work practices
• to encourage the acceptance of greater mobility across jobs (i.e. flexible
working)
• to improve quality
• to reduce costs
• to encourage greater personal interest in the job
• to try to give greater job satisfaction
• to give employees increased job control
• to draw on increased employee suggestions for improvement
• to restrict the scope of union dealing and influence
• to win hearts and minds of employees from union influence
• to get union cooperation
• to draw on union advice.
Source: adopted from Ramsay, 1992.
Activity
Look at the list above. Which goals do you think would encourage more participation by
employees? Why do you think this is the case?
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9.4 Employee participation: objectives and patterns at

the micro and macro levels
Employee participation may also have a range of goals and objectives. For
example, Marchington’s (1987) work on Joint Consultative Committees
(JCCs) highlights the way in which the same institution can be used for
very different managerial purposes. Thus, he suggests that four types of
JCCs can be distinguished:
Non-union: explicitly designed to prevent unions from playing a
meaningful role within the organisation. By setting up such a JCC
management seek to undermine the need for unions by providing an
alternative means for representative expression of employee views.
Competitive: seeks to reduce the union influence. JCC members are
usually trade union representatives but they are consulted rather than
given the right to bargain. In this case it would be the intention to reduce
the call for stronger forms of union participation.
Adjunct: plays a prominent but complementary role to collective
bargaining. JCC members are usually trade union representatives but the
JCC works in a cooperative, problem-solving manner rather than in an
adversarial bargaining style.
Marginalistic: assumes a symbolic and largely ritualistic role. While
management is not consciously seeking to undermine the union, this type
of JCC has largely been relegated to dealing with relatively trivial issues.
9.4.1 International variation in employee participation

From a broader, macro-perspective, approach, employee participation
shows marked variations across countries. It is beyond the scope of
this section to provide some detail on these variations. This is the
subject matter of a distinct management discipline: industrial relations.
However, it should be noted that these variations reflect different national
experiences in the development of relations between workers, employers
and the state. While these experiences have led to the emergence over
many years of distinctive institutional and regulatory frameworks in each
country in the world, it is nonetheless possible to distinguish some general
models of employee participation across countries. There are two major
models called an Anglo–American model and a Continental European
model.
In the Anglo–American model the main vehicle for organised employee
representation is the trade union and the main form of employee
participation is collective bargaining. The state plays a limited role
in regulating substantive and procedural dimensions of employee
representation and participation is limited. Certainly, there are legal means
by which trade unions can ensure that they are recognised and dealt with
by management. However, in the main governments have been prepared
to leave management and unions to develop their relationship as they
see fit or in a voluntary way. The result has been that the character and
outcomes of employee representation and participation have been led by
a wish to shift the balance of power between management and the trade
unions. In the absence of state attempts extensively to regulate employer
activity, management has fiercely sought to protect its prerogative to
treat employees at it sees fit and according to its own organisational
needs and circumstances. The historical compromise which has been
reached allows some union influence but only over limited aspects of
work and employment. These aspects relate narrowly to terms and
171
conditions of employment. Even here conflicts of interest have remained,

with the result that such terms and conditions have been determined
through adversarial forms of collective bargaining. Moreover, while such
bargaining has at various points in time covered employees across whole
sectors or industries such as engineering and chemicals, it has often
been supplemented by bargaining on terms and conditions by employee
representatives at workplaces or factory level.
The Continental European model, by contrast, has been based on a
much stronger state regulation of employee participation. In part this
regulation has encouraged the emergence of a dual system of employee
representation in countries such as Germany, France and the Netherlands.
Thus works councils, a non-union channel of representation, have been
given statutory support to operate at the workplace level. This support
has given works councils the right to be involved in discussions on a
wide range of issues related not so much to terms and conditions but
to the more general organisation of work and employment. Such issues
have traditionally been more amenable to more cooperative rather than
adversarial employee–management relations. At the same time trade
unions have continued to represent employees beyond the workplace
in collective bargaining at industry levels over terms and conditions
of employment. State regulation has also, however, been reflected in
statutory support for employee participation at higher levels of corporate
decision-making. Thus in both Sweden and Germany co-determination
mechanisms provide for the involvement of employee representatives as
worker directors at board level and as a consequence in the determination
of key strategic decisions.
The Anglo–American model is adversarial and based on a pluralist
perspective. With the advent of human resource management as opposed
to personnel management, a more cooperative partnership model is
emerging. Most organisations, however, are trying to introduce this model
by eliminating trade unions. In parts of the United States firms of lawyers
are employed to try to derecognise unions. These lawyers practices are
spreading to Europe in some cases (e.g. Walkers Crisps in Britain).
Activity
Is the pattern of employee participation in your country closer to the Anglo-American
or the Continental European model? Are there laws in your country on employee
involvement and participation? Make a note of some examples.
9.5 Changing patterns of employee involvement and

participation
National models of employee participation have remained remarkably
durable over the years. This is not to deny important modification to
regulative frameworks at various points in time and in response to social
and political pressures. For example, in the UK the introduction of a
statutory trade union recognition procedure did not take place until 1997.
In Europe pressures to modify national models have been stimulated by
developments at the level of the European Union. Thus, the European
Works Council Directive now requires companies with over 1,000
employees and at least 250 employees in more than two EU countries
to set up corporate bodies which provide employee representatives with
appropriate information. These enduring national models should not,
however, obscure the scope still available to organisations to develop
mechanisms for employee involvement participation which reflect their
172
own particular circumstances and needs. This scope for discretion or

choice gives rise to questions about the kinds of factors that influence
organisational approaches to involvement and participation and, in
particular, about what drives changes. The dynamic of change has been
analysed in a number of ways. First, Ramsay (1992) sought to develop a
theory of change on approaches to employee participation from a radical
perspective. He suggested that there are cycles of participation which
reflect the nature of the tension between employers and workers. In
evaluating patterns of participation in the UK over the twentieth century,
Ramsay concludes that the amount, scope and extent of formal employee
involvement and participation are likely to expand when tensions between
employers and workers are particularly acute and high. The expansion of
involvement and participation in such circumstances might be seen as an
employer strategy designed to diffuse such tension while retaining control
and authority. Where tensions are lower the exercise of management
control is less problematic and the need to placate employees through
participation is less obvious. Such a theory perhaps over estimates
management’s capacity to think and act in strategic ways. Moreover, it
does not sit particularly easily with what actually happened in employee
involvement, especially in the UK, where a heightened management
interest in such initiatives in the 1980s and 1990s coincided with a period
of employer dominance suggesting limited managerial need to placate
employees.
9.5.1 Waves of employee involvement and participation

Marchington et al. (1992) have similarly sought to characterise patterns
of employee involvement and participation. They have suggested that,
within any given organisation, there are waves of employee involvement
and participation. The notion of waves is seen as more sensitive to
organisational developments than the notion of cycles. It allows for the
disaggregation of different participative mechanisms and the possibility
that different EI initiatives were taken at different times producing a
series of waves. So (for example), in any given organisation, team briefing
may rise and fall in terms of use over a particular period with another
technique such as quality circles rising and falling over a different period.
Clearly the use of the term ‘waves’ also implies that EI initiatives may rise
and fall, never to emerge again if they ‘fail’.
Marchington et al. (1992) do not develop a series of overarching
theoretical propositions which provide a unified explanation of these
waves. However, they do present an analytical model somewhat akin
to the contingency framework identifying the kinds of factors that
might influence organisational approaches to employee involvement
and participation. This framework is not as sophisticated or refined as
the contingency framework presented in the discussion pay systems
(see Chapter 6). However, it does identify the following ‘environmental
factors’ which might influence organisational approaches to employee
involvement:
Product market conditions
• Where the company is facing market decline or uncertainty they
are often more willing to involve employees, for instance, through
downward communication exercises. This is sometimes referred to as
‘lifeboat democracy’.
• Where the company is seeking competitive advantage through eliciting
employee commitment it may use employee involvement techniques to
generate such commitment.
173
• Where the company is seeking to compete through the production of

high-quality goods and services it may use involvement techniques to
draw upon the tacit skills of employees needed to support this quality
strategy.
Labour market conditions
Organisations might use the scope for employee involvement and
participation as a means of attracting or recruiting employees in tight
labour markets.
Technology
The capital–labour ratio in an organisation might influence the viability
of certain employee involvement techniques. It has been suggested that
capital-intensive technologies provide a more stable regime for EI to
operate in while in labour-intensive organisations there is perhaps less
scope to give priority to the development of EI.
Organisational characteristics
The size of an organisation has been linked to forms of employee
involvement and participation. Thus the size of an organisation has been
associated with the formalisation and variety in the use of EI techniques.
The smaller the organisation, the greater the reliance on less formal and
fewer forms of EI. Larger organisations clearly require more structured and
formal involvement mechanisms.
The balance between centralisation and decentralisation in organisational
decision-making might influence approaches to employee involvement. For
example, where decision-making is centralised the organisation may have
to rely on downward or cascade forms of communication.
A company’s history and culture might influence the appropriateness
of different types of employee involvement. A participative style of
management might have developed and become accepted over many
years. Thus some companies, for example the old ICI in the UK, fostered a
distinctive and well-developed approach to joint consultation which came
to characterise its employee relations.
Activity
Make a note of why you think that these factors influence the willingness of managers to
encourage employee involvement and participation.
9.6 Employee involvement and participation in practice

In general terms, evidence suggests that organisations face a number of
difficulties in seeking to put employee involvement and participation into
practice.
First, there is sometimes a discrepancy between what organisations say
they are going to do (that is, their ‘espoused policy’) and what they actually
do in practice (in other words, their ‘operational policy’). Organisations
might, therefore, give the impression (through, for example, statements
in their annual reports) that they have a well-developed employee
involvement strategy, while in reality this strategy has very little substance.
Thus, there is evidence to suggest that participation rates in quality circles
and team briefings can be very low, suggesting that while these techniques
appear to be in place their diffusion within the organisation is limited.
Second, given the range of EI techniques available there is a danger that
any given organisation may adopt a range of techniques which do not
necessarily sit easily with one another. Marchington et al.’s (1992) study
174
of some 30 companies found each organisation adopting on average

five or six such techniques. Moreover, their wave analysis revealed that
these were often introduced at different times and by implication for very
different reasons.
Third, a number of EI techniques founder on the problems faced by line
managers in implementing them. As will be noted below, some of these
techniques often require considerable effort on the part of such manager.
Team briefing, for example, places a responsibility on them to regularly
meet with their staff. ‘Busy’ or ‘overloaded’ managers may be disinclined to
hold such meetings. Other techniques, such as quality circles, may actually
challenge managerial authority by giving employees influence over
important operational decisions.
Finally, trade unions may also resist certain employee involvement and
participation mechanisms. It is important to note that direct and indirect
forms of employee involvement can be present in the same organisation.
Indeed, an analysis of survey data in the UK suggested that direct forms of
communication were more likely to be found where unions were present.
However, union views on EI clearly depend on the objective underlying
it. As Ramsay (1992) noted, EI mechanisms can be used to undermine,
complement or even reinforce, union presence. Direct communication in
organisations with unions present may be designed to by-pass unions and
weaken employee allegiance to them. In such circumstances the unions
will be hostile. Alternatively, such communication may be more acceptable
to and trusted by employees where unions are present.
Some of the difficulties become more apparent in considering each of the
approaches to employee involvement and participation in turn.
9.6.1 Downward communication

Evidence from Britain suggests that forms of direct communication are
fairly widespread and have become increasingly popular. In a large-scale
survey of more than 1,500 workplaces in 1998 around a half were found
to have company newsletters and regular meetings of the whole workforce
(Cully et al., 1999). Moreover, almost two-thirds had a system of team
briefings, an increase from around a third of workplaces having such a
system in 1984.
This expansion and increasing popularity of direct communication
should, however, not detract from the operational difficulties faced in
implementing such techniques. These difficulties include:
• loss of momentum after initial enthusiasm
• too little information – employees want to know more
• too much information – employees get overloaded, ‘turned-off’ and
unable to distinguish the important from the unimportant information
• employee mistrust, particularly if communication is used as the basis to
rationalise the implementation of harsher employment measures (e.g.
redundancies)
• lack of training of presenters and of recipients of information –
recipients may well need some training to understand technical
information on say, company finances
• lack of line management commitment or time
• over-formality – there is evidence to suggest that the best way to
communicate is through informal rather than formal employee-
management contacts.
175
9.6.2 Upward involvement

Drawing again upon UK evidence it is clear that forms of upward
involvement are markedly less common than forms of downward
communication. For example, the survey referred to earlier (Cully et al.,
1999) finds suggestion schemes and problem-solving groups in around a
third of workplaces, with the incidence of the former increasing slightly over
the last decade. This relative lack of popularity may reflect the difficulties
faced in introducing these techniques and indeed these difficulties suggest
that even when in place they may not be working as intended. Ramsay
(1992) highlights problems associated with quality circles:
• Middle-management attitudes: as implied, one of the greatest
barriers to quality circles is middle-management resistance, with such
techniques being seen as threat to their managerial authority.
• Loss of momentum: quality circles appear to commence vigorously
but then run out of steam. It may be that there are only so many ways in
which given task and production processes can be improved.
• Non-application: often disillusionment sets in when
recommendations emanating from quality circles are not implemented.
• Training: quality members are sometimes not given the necessary skills
and knowledge to work effectively in quality circles.
In addition to these specific operational difficulties, a more general debate
has been under way as to the underlying rationale for and consequences
of direct forms of involvement. Two schools of thought have emerged. The
first views direct involvement in positive terms, describing it as a form of
‘empowerment’ and suggesting that employees have more discretion and
therefore find their jobs more enriching. Others have been more critical and
see direct involvement as exploitative and a form of work intensification. As
Marchington and Wilkinson (2005) note:
‘Rather than gaining greater power, employees assume higher
levels of accountability and responsibility, and can be more easily
blamed when things go wrong.’
Such observations have been based on studies in certain Japanese
transplant companies in the UK such as Nissan. However, some care
is needed in generalising across production systems and companies.
Indeed, Applebaum and Batt’s (1994) distinction between online and
offline involvement was designed to highlight the different consequences
of various approaches to direct participation for the employees’ work
experiences. Thus, offline involvement in the form of quality circle and
problem-solving groups, typical of Japanese production systems, may
well provide little scope for employee enrichment or discretion in what
remains a highly structured and regimented work regime. However, online
involvement, characterising advanced US manufacturing systems, in the
form of self-managed teams, is more likely to provide this scope.
Activity
Review the different operational problems associated with different employment
involvement practices. What steps would you take to try to address these problems?
9.6.3 Representative participation

Focusing on joint consultative committees, it is clear that in Britain the
incidence of this mechanism is limited and, at workplace level, slightly
declining. The proportion of workplaces with such committees has fallen
from around a third in 1980 to a quarter 20 years later.
176
The operation of JCCs clearly depends on their purpose. Thus, drawing

upon Marchington’s (1987) distinctions, they might be expected to
work in very different ways depending on whether they are non-union,
competitive, adjunct or marginalistic. In Britain, where as already noted
such committees do not have statutory support, the non-union and
marginalistic JCCs have been seen as perhaps the most problematic forms.
Non-union representatives sitting on such committees have often lacked
the authority, legitimacy and supportive infrastructure to handle issues in
a meaningful and effective way. Marginalistic JCCs are often condemned
to deal with relatively trivial issues which fail to excite the interest or
enthusiasm of workers.
More fundamentally perhaps, there have been important changes in the
structure of collective bargaining. In the UK, for example, the coverage
of bargaining has narrowed. Over a 30-year period, the proportion of the
workforce covered by collectively bargained-agreements has fallen from
around two-thirds to under a half. The scope of bargaining, in terms of
the range of issues discussed, has also narrowed over the same period.
(Millward et al., 2000). In broader terms, there have been changes in the
level of bargaining. Katz (1993), in a review of bargaining structure across
a range of countries including the UK, Sweden, Germany, the US and
Italy, concluded that bargaining had become more decentralised, in other
words, had moved from multi- to single-employer bargaining. He suggests
that such a trend might be related to two main factors:
• Shifts in bargaining power: on balance management has
traditionally preferred single employer bargaining while unions have
favoured multi-employer bargaining (see above). Over recent years the
balance of power has shifted from unions to management, allowing the
latter to impose its preference.
• Productivity coalitions around work changes: as organisations
have sought to respond to increasingly intense competition, attempts to
boost productivity have involved company-specific agreements which
have often provided for sophisticated trade-offs between new working
arrangements and improved employment terms and conditions. Multi-
employer bargains have not been sensitive or flexible enough to allow
for such agreements.
9.7 Impact and outcomes

A number of studies have been undertaken which seek to evaluate the
impact of employee involvement and participation techniques on various
outcomes. More specifically, studies can be distinguished which look at the
relationship between these techniques and:
• organisational performance
• employee attitudes in the form, for example, of job satisfaction and
commitment
• employee behaviours in terms, for instance, of productivity.
Many of these studies have highlighted positive relationships although
the findings also suggest that such relationships need to be qualified in
important respects.
9.7.1 Organisational performance

Two sets of studies have focused on the relationship between employee
involvement and participation and organisational outcomes. The first has
concentrated on what have been labelled ‘high involvement management
177
practices’. These studies have overlapped somewhat with those which

have focused on high commitment practices (see Chapter 1). However,
a number of researchers in this field have placed particular emphasis on
practices which are founded on considerable employee involvement as a
route to improved organisational performance.
In the USA this work has often included problem solving, team briefing
and teamworking in its bundles of practices and has found positive
relationships between such practices and various organisational outcomes
such as profit, wastage rates, average return on assets and average return
on equity (for a summary of this research see Richardson and Thomson,
1999).
Research in the UK has similarly established positive relationships (Cully et
al., 1999). Thus the Workplace Employee Relations Survey found that the
presence of problem-solving groups was positively related to a company’s
financial performance and labour productivity, and negatively related
to the level of voluntary resignation rates. However, these studies also
suggest that this positive relationship with organisational performance is
largely accounted for not by individual practices but by the way in which
these EI practices interact with other aspects of work and employment
(such as job design and production technologies) to form a coherent and
integrated package. In others words, employee participative techniques
need to fit with aspects of job design and production to have this positive
effect on organisational performance.
A second sort of study carried out by the European Foundation for the
Improvement and Living Working Conditions (1997) on various forms
of participation across 10 European Union countries also found a strong
relationship with various measures of organisational performance. The
study concluded that:
• all forms of participation were shown to have a strong impact on
economic performance
• the more forms used, the greater the reported effects
• the greater the scope of the form, in others words the aspects of work
and employees covered by it, the greater the reported effects.
However, one of the striking findings from this study was the low
take up of participative techniques across these countries. All but one
of the six participative mechanisms covered were used in a minority
of organisations, while few organisations adopted a number of these
mechanisms to develop an integrated or coherent approach to employee
participation. In short, employee participation mechanisms appeared to
improve organisational performance but few organisations in Europe were
adopting such mechanisms.
Activity
Why do you think organisations might not adopt employment involvement and
participation techniques?
9.7.2 Employee attitudes and behaviours

Evidence on the impact of employee involvement and participation on
employee attitudes and behaviours is less clear-cut and it is perhaps
best to view such a relationship as dependent on a number of factors
(Marchington and Wilkinson, 2005):
178
• The technique in question. Cotton found that self-directed work

teams had a strong positive impact on employee commitment while
quality circles and representative participation had a much weaker
effect.
• The range of techniques used. The use of an isolated employee
involvement technique is unlikely to have a major impact upon
employees. As Marchington has pointed out, being subject to a team
briefing for a few minutes every week would not be expected to have a
profound effect on employees’ working lives and outlook. The use of a
range of techniques in a coherent fashion might do.
• Employee disposition and experience. Some employees may
not expect or even desire to be involved at the workplace. At the same
time, a newer employee may be more enthusiastic about an employee
participation initiative than a more experienced employee who has
‘seen it all before’.
• General management approach. Employee responses to employee
participation may well be conditioned by worker perceptions of how
it relates to management’s broader approach. Thus, if it is introduced
in the context of other measures suggesting a harsher management
regime it may be viewed negatively. On the other hand if it is part of a
raft of measures seeking to support and develop employees it may be
viewed more positively.
The recent and projected performance of the organisation. (Marchington
et al., 1994) have found that employee responses to involvement and
participation have been influenced by organisational context and in
particular how well the organisation is performing and expected to
perform in the future. As the authors note:
‘It is relatively easy for management to maintain a consultative
style in an environment where competitive and employment
prospects look good…On the other hand where the future
looks bleak or where there have been a spate of redundancies
in recent times, it is much more likely that employees will react
in a negative manner to attempts by management to introduce
participation.’

• explain the difference between the various approaches to employee
involvement and participation and the practices associated with them
• state the main managerial objectives underpinning the pursuit of
employee involvement and participation
• explain the difference between employee involvement and employee
participation
• outline the factors influencing approaches to employee involvement
and participation
• discuss the operational difficulties associated with different employee
involvement techniques
• evaluate the impact of employee involvement and participation on
various individual and organisational outcomes.
179

1. a. How do the approaches and practices to employee involvement and
participation differ? (5 marks)
b. How does collective bargaining differ from consultation? (5 marks)
c. Why would managers want to encourage employee involvement
and participation? (15 marks)
2. a. As a manager, why would you want to involve your staff in the
running of your business? (10 marks)
b. Discuss what the drawbacks might be in practice. (15 marks)
3. a. What is the difference between employee involvement and
participation? (5 marks)
b. What methods can be used to encourage employee participation?
(10 marks)
c. Explain why the form of participation for employees may vary
between countries. (10 marks)
180
Chapter 10: Organisational justice
10.1 Introduction
‘It’s not fair’ – how often do you hear this or how often do you say it? Why
are some acts, but not others perceived to be fair? How do individuals react
to unfairness?
This chapter examines the concept of fairness1 in organisations and how 1
The terms ‘fairness’
employees react to perceived injustices. In addition, we look at two human and ‘justice’ are used
resource practices, selection and appraisal, through the lens of justice but synonymously in this
chapter.
you can also look at how employees react to any organisational decision
through the lens of justice. The focus of this chapter is what is fairness?
Does it matter? How do individuals respond to unfairness?
The phenomenon of justice is pervasive in all organisations. However, it is
invisible until attention is focused on it by the experience or perception that
an injustice has occurred. Concerns about justice are likely to be triggered:
• when people receive negative outcomes
• under conditions of change
• when resources are scarce
• when people having different levels of power interact.
The following are examples in which one person benefits, or is harmed, in a
way that might be considered unfair:
• A manager gives different performance reviews to two people who have
similar responsibilities and appear to perform equally well.
• An employee is dismissed arbitrarily.
• A man who possesses less job relevant experience is paid more than a
woman for doing the same job equally well.
In keeping with a social science tradition, the treatment of justice is
descriptive in orientation – focusing on people’s perceptions of what
constitutes fairness. When the term justice is used, it generally refers to an
individual’s perceptions, one’s evaluations as to the appropriateness of a
given outcome or process – it is inherently subjective (i.e. in the eye of the
beholder).
A justice framework can be used to understand how individuals within
organisations respond to a variety of human resource practices and also can
be used prescriptively in designing the procedures and enactment of human
resource practices (a justice perspective is applied to performance appraisal
and selection later in this chapter). The principles of justice outlined in
this chapter can be applied in order to understand the consequences of any
human resource practice.

• To explore how a justice framework can be used to understand how
individuals respond to a variety of human resource practices.

• define the different dimensions of organisational justice
181
• explain why procedural justice is important

• discuss the consequences of injustice
• show how procedural justice adds to the predictions of equity theory in
understanding motivation
• evaluate how a justice perspective contributes to understanding human
resource practices such as selection and performance appraisal.
Books
Folger, R. and R. Cropanzano Organizational justice and human resource
management. (Thousand Oaks, CA: Sage, 1998) [ISBN 0803956878]
Chapter 1 ‘Equity and distributive justice as outcome fairness’, Chapter 2
‘Process as procedural and interactional justice’, Chapter 4 ‘Organisational
justice and staffing decisions’ and Chapter 5 ‘Organisational justice and
performance evaluation’.
Journal article
Ambrose, M., R.L. Hess and K.S. Law ‘The relationship between justice and
attitudes: an examination of justice effects on event and system related
attitudes’, Organizational Behavior and Human Decision Processes 103(1)
2007, pp.21–36.

Kim, T. and K. Leung ‘Forming and reacting to overall fairness: a cross-cultural
comparison’, Organizational Behavior and Human Decision Processes 104(1)
2007, pp.83–95.
Loi, R., N. Hang-yue and S. Foley ‘Linking employees’ justice perceptions
to organizational commitment and intention to leave: the mediating
role of perceived organizational support’, Journal of Occupational and
Organizational Psychology 79, 2006, pp.101–20.
Tekleab, A.G., K.M. Bartol and W. Liu ‘Is it pay levels or pay raises that matter
to fairness and turnover?’, Journal of Organizational Behavior 26(8) 2004,
pp.899–921.

Adams, J.S. ‘Inequity in social exchange’ in L. Berkowitz (ed.) Advances in
experimental psychology. (New York: Academic Press, 1965) Volume 2 [ISBN
0120152029] pp.267–99.
Bies, R.J. and J.S. Moag ‘Interactional justice: communication criteria of
fairness’, Research on Negotiation in Organizations 1 1986, pp.43–45.
Blader, S.L. and T.R. Tyler ‘What constitutes fairness in work settings: a four
component model of procedural justice?’ Paper presented at the annual
meeting of the Academy of Management, Toronto, 2000.
Byrne, Z.S. and R. Cropanzano ‘To which source do I attribute this fairness?
Differential effects of multi-foci justice on organisational work behaviours’,
Paper presented at the annual conference of the Society for Industrial and
Organisational Psychology, New Orleans, April 2000.
Colquitt. J.A. ‘On the dimensionality of organisational justice: a construct
validation of a measure’, Journal of Applied Psychology 86 2001, pp.386–
400.
Fryxell, G.E. and M.E. Gordon ‘Workplace justice and job satisfaction as
predictors of satisfaction with union and management’, Academy of
Gilliland, S.W. ‘The perceived fairness of selection systems: an organisational
justice perspective’, Academy of Management Review 18 1993, pp.694–734.
182
Greenberg, J. ‘The seven loose can(n)ons of organisational justice’. In

J. Greenberg and R. Cropanzano (eds) Advances in organisational justice.
(Stanford: Stanford University Press, 2001) [ISBN 0804741328].
Greenberg, J. ‘Using socially fair procedures to promote acceptance of a work
site smoking ban’, Journal of Applied Psychology 79 1994, pp.288–97.
Leventhal, G.S. ‘What should be done with equity theory? New approaches to
the study of fairness in social relationships’ in K. Gergen, M. Greenberg and
R. Willis (eds) Social exchange: advances in theory and research. (New York:
Plenum Press, 1980) [ISBN 0306403951].
McFarlin, D.B. and P.D. Sweeney ‘Distributive and procedural justice as
predictors of satisfaction with personal and organisational outcomes’,
Academy of Management Journal 35 1992, pp.626–37.
Skarlicki, D.P. and R. Folger ‘Retaliation in the workplace: The roles of
distributive, procedural and interactional justice’, Journal of Applied
Psychology 82 1997, pp.434–43.
Tyler, T.R. ‘The psychology of procedural justice: a test of the group value
model’, Journal of Personality and Social Psychology 57 1989, pp.830–38.

This chapter examines the concept of fairness in organisations and how
employees react to perceived injustices and the impact this can have on
organisations.
10.2 Different conceptualisations of justice

The study of organisational justice has focused on two major issues:
individuals’ responses to the things they receive (that is, the outcomes),
and the means by which they obtain these outcomes.
10.2.1 Distributive justice

Distributive justice theories focus on the content or outcomes of a decision
– that is, on the fairness of the ends achieved. These theories make
predictions about how people will react to the outcomes of allocation
decisions. For example, performance appraisal that results in some rating,
pay review that results in a pay rise, or a selection interview that results
in a hiring decision. Outcomes can be negative as well as positive – whose
contract to terminate as a result of cutbacks. In looking at outcomes, some
people get more and others get less and how individuals evaluate these
outcomes is referred to as distributive justice.
The origins of distributive justice can be traced to equity theory, which is
briefly presented here.
Adam’s (1965) equity theory
Adam’s equity theory incorporated the following idea of social comparison.
The basic proposition of the theory is that when individuals work for an
organisation, they present certain inputs (ability, effort, performance)
and, based on what they put in, people expect to get something out
which Adams expressed as a ratio of outcomes to inputs. In determining
whether this ratio is fair, individuals compare their ratio to a similar other
(e.g. a co-worker or the organisation). People are motivated to avoid the
tension that results from states whereby the ratio of one’s own outcomes
compared to one’s inputs is unequal to that of the ‘comparison other’.
There are two major components to the theory:
• Determinants of perceived equity: the factors which influence
the degree to which people feel they are being equitably treated.
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• Methods for restoring inequity: the kinds of activities which

individuals might be motivated to engage in to restore feelings of equity.
10.2.2 Determinants of perceived equity

People are constantly engaging in making two types of comparison. First,
people compare the inputs they make in their job to the outcomes they
receive from their job and the organisation. Inputs include education,
training, experience, effort, etc. Outcomes include pay, promotion, praise,
recognition or feelings of personal accomplishment.
The second comparison involves comparing the ratio of outcomes to inputs
in comparison to someone else. Equity theory does not specify who the
comparison other is; it need not be a person the individual knows, it might
even be the organisation (comparing what they give to employees to what
they get from employees).
According to equity theory, people do not merely compare their own
outcomes to inputs and feel satisfied if these are perceived to be in balance
with one another. Rather, they compare their own outcomes to inputs and
then compare this ratio to the corresponding ratio of the comparison other.
It is the second comparison that determines whether or not people feel
equitably treated.
The theory argues that people will feel inequitably treated and hence
motivated to engage in activities aimed at restoring perceived equity
when:
• they feel their ratio of outcomes to inputs is less than that of a
comparison other
• they feel their ratio of outcomes to inputs is greater than that of the
comparison other.
The first situation predicts that individuals will feel unfairly treated; for
example, when an individual perceives that their inputs and the inputs
of the comparison other are the same yet the individual perceives the
comparison other to be receiving more outcomes from the organisation.
The second situation predicts that individuals will feel uncomfortable or
guilty if they perceive their ratio of outcomes received in return for inputs
is greater than the comparison other. Either way, the theory predicts that
individuals will be motivated to re-establish equity.
Perceived inequity creates tension within the individual – the amount
of tension is proportional to the magnitude of the inequity. The tension
created within the individual will motivate him or her to reduce it – the
strength of the motivation to reduce inequity is proportional to the
perceived inequity.
10.2.3 Methods for restoring inequity

Six methods for restoring inequity are listed below:
• Altering inputs: people may choose to put more or less effort into
the job.
• Altering outcomes: ask for a pay rise.
• Cognitively distort inputs or outputs: people may change
their perceptions of what they are putting into or getting out of the
organisation. (For example ‘I used to think I only worked at an average
pace but now I realise I work a lot harder than anyone else.’)
• Leaving the field: getting out of the organisation.
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• Taking actions to change the inputs or outcomes of the

comparison other: (saying to a co-worker, ‘You should not work so
hard, it is not worth it’).
• Changing the comparison other.
Activity
Read Folger’s (1998) Chapter 1 ‘Equity and distributive justice as outcome fairness. Note
ways in which individuals might respond to perceived unfair outcomes.
Contemporary studies have found that people tend to be less satisfied

with outcomes they perceive to be unfair than with those they perceive to
be fair. It is not simply the case that people’s perceptions of fairness are
determined exclusively by self-fulfilling motives – the more one gets, the
more satisfied one is. Rather individuals base their evaluation not only
on what they receive but rather on what they receive relative to some
standard or referent. People may evaluate the fairness of their pay by
comparing it to the pay believed to be received by someone else. There
are other referent standards that could be used such as the adequacy of
the pay compared to expectations, needs or societal norms – this practice
is quite plausible in organisations as the value of many organisational
outcomes cannot be objectively classified.
Consequently, these evaluations can be based on social comparisons.
The fairness of pay is difficult to evaluate in the absence of information
about job title and the pay of similar others. It is only by reference to such
standards that pay outcomes can be judged to be adequate or inadequate.
10.2.4 The allocator’s perspective

We can also consider distributive justice from the perspective of the
individual making the allocation decision. All of the allocation rules have
as their goal the achievement of fairness, they attempt to create this
through the use of different rules. There are three criteria that can be used
as the basis of how outcomes should be distributed:
• equity
• equality
• need.
Equity theory advocates the use of the equity rule to determine fairness
and many organisations use this rule to allocate rewards; those who
contribute the most earn the most. The principle of deciding outcomes
based on the equality principle means that outcomes are distributed
equally among individuals. Whereas allocation based on need means that
those who have the most to lose would get the most in terms of outcomes
(older workers being laid off may get more help, etc. in terms of finding
another job).
One variable shown to influence the making of reward allocation decisions
is national culture. While concerns about justice are universal, the details
may be particular to types of culture. Studies have shown that Americans
prefer the norm of equity in allocation decisions, whereas people from
India favour the norm of need and people from the Netherlands prefer the
norm of equality to be used in allocation decisions (see Greenberg, 2001).
Activity
What decision rule would you adopt in distributing outcomes?
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10.3 Procedural justice

Procedural justice is concerned with the fairness of the processes by which
a decision is made. A good example is an American or British court trial
where the judge is responsible for ensuring the trial is conducted fairly
and according to legal procedures; the jury is responsible for deciding the
verdict or outcome.
Empirical research confirms the distinction between distributive and
procedural justice and they may be evaluated independently of each
other. The distinction is not purely a conceptual one invented by theorists
but arises in how people think about justice – people themselves make a
distinction between issues relating to distributive justice and procedural
justice.
Activity
Think about a decision that affected you. Did you distinguish the outcome of that decision
from the procedures adopted to make that decision?
Research conducted using simulated legal decisions consistently found

that verdicts resulting from procedures offering process control (amount of
control given to disputants over the procedures to settle the dispute) were
perceived as fairer and better accepted than identical decisions resulting
from procedures that denied process control.
In organisations, substantial evidence has demonstrated that procedurally
fair treatment makes individuals more accepting of a variety of
organisational practices. For example, Greenberg (1994) found that
smokers more strongly accepted a smoking ban when they believed it was
introduced following fair procedures than following unfair procedures.
Employees reacted less negatively to a pay freeze when the pay freeze was
implemented in a procedurally fair fashion than when it was implemented
in an unfair fashion.
When people make evaluations about procedures, they seem to be
sensitive to two distinct focal determinants: structural and social.
10.3.1 Structural/formal aspects of procedural justice

These are the formal procedures by which decisions are made. Leventhal
(1980) identified six general procedural justice rules. Procedures are fair if
they show:
• Consistency. For a procedure to be fair, it must be applied
consistently across persons and across time. Consistency across persons
generally takes the form of equal treatment for all affected by the
procedure. In practical terms, all parties must believe that they have
the same rights under the procedure and are treated similarly. For
example, when laying off employees, if one decides that the criteria is
performance then this must be used throughout the organisation.
• Bias suppression. There may be many biases that could arise in
allocation procedures. Leventhal only mentions two. First, procedures
are unfair if the decision-maker has a vested interest in any specific
decision. Second, procedures are unfair if the decision-maker is so
influenced by his or her prior beliefs that all points of view do not
receive adequate and equal consideration.
• Accuracy of information. Procedures are perceived to be unfair if
they appear to be basing decisions on inaccurate information.
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• Correctability. Leventhal suggests that the fairness of a procedure is

enhanced to the extent that it contains some provision for correcting
bad decisions – grievance and appeals procedures.
• Representativeness. Leventhal says that the representativeness
rule ‘dictates that all phases of allocation process must reflect the basic
concerns, values, and outlook of important subgroups in the population
of individuals affected by the allocation process’. In other words, the
interests and concerns of all parties affected must be represented.
• Ethicality: Decisions following moral and ethical standards. Age,
gender and nationality should have no bearing on who is laid off.
However, although cultural differences are important in preferences for
allocation rules, there seems to be consensus across societies in terms of
the process adopted to make allocation decisions.
10.3.2 Interactional justice/social aspects of justice

A third type of justice has been proposed by Bies and Moag (1986), which
they call interactional justice: the communication criterion of fairness. This
perspective argues that people are sensitive to the quality of interpersonal
treatment they receive during the enactment of organisational procedures.
Researchers initially treated this as a third type of justice but recently
researchers now treat it as one component of procedural justice:
Procedure » interaction » outcome.
Each part of the sequence is subject to fairness considerations and thus
may create potential injustice. The inclusion of interactional justice
matters as communication may help explain why people feel unfairly
treated even though they perceive the procedures and outcomes of a
decision to be fair.
The authors found four attributes based on some research with MBA
students on what constitutes fair communication:
• Truthfulness: being lied to was one of the most frequently cited
reasons for perceived unfairness.
• Candidness: being treated in an open and forthright manner and
presenting an accurate picture of how it really is.
• Respect: treating individuals in a polite and respectful manner – not
insulting or hurling abuse at them.
• Propriety of questions: not asking improper questions. Not making
prejudicial statements (e.g. racist or sexist comments).
Justification (sometimes called explanation or social accounts) comes into
play following negative outcomes or unfair treatment. This is consistent
with the concept of due process whereby fairness requires decisions be
justified so that the action may be understood and found acceptable. It
may therefore be possible to rectify an injustice with adequate justification.
There is some evidence to suggest that it is possible to enhance fairness
judgements by giving adequate justification.
The first three aspects of interactional justice relate to interpersonal
sensitivity, which is a subpart of interactional justice. The second relates to
justification/social accounts.
Colquitt (2001) divides interactional justice into two components:
interpersonal, which encompasses respect and propriety and
informational, which encompasses truthfulness and justification.
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10.4 Why does procedural justice matter?

Two theories have been put forward to explain the effects of procedural
justice:
10.4.1 Self-interest model/instrumental or control model

The self-interest model suggests that people seek control over processes
because they are concerned with their own outcomes. In other words, it
accepts the traditional notion that economic incentives promote fairness. It
claims that individuals may take a long-term focus when evaluating their
economic gains. Therefore, people may be tolerant of short-term losses as
long as they expect that future gains will be forthcoming in the future.
Fair procedures offer individuals the potential to have their views
considered (‘process control’). The opportunity to exercise voice over
procedures enhances procedural justice because it may lead to more
equitable outcomes in the long term (‘win some, lose some’). In other
words, this explanation focuses on the fairness of procedures as a way to
explain why people respond in a particular manner to the outcomes they
receive. This view assumes that giving people the opportunity to have
some voice in the procedures that make decisions will lead to a fairer
outcome, in the eyes of the beholder. However, this view is disputed by
Tyler (1989) who argues that people may value process control even when
they find out that it does not make a difference to the outcomes or when
people don’t think their voice will make any difference to influencing
the outcomes. This suggests that something other than an egotistic
resource motive is operating. In other words, people don’t necessarily
adopt an instrumental motive in influencing outcomes – there is a second
explanation: the value of speech (the opportunity to state one’s own case).
10.4.2 Relational/group value model

The underlying premise of the group value model is that voice (an
individual’s influence) over procedures satisfies a desire to have one’s
views considered and not because it is believed that it will have an effect
on the outcome. Fair procedures communicate to people that they are
being treated in a dignified and respected way thereby enhancing their
feeling of self-worth. When a person is treated fairly, it says something
about the importance they have to the group; it conveys to the individual
that he or she is valued by a significant group, for example, the
organisation. This view is instrumental in the sense that it provides us with
something we want – status, respect and esteem.
Tyler (1989) suggests that individuals are assumed to have three relational
concerns stemming from their desire for dignity and worth:
• Neutrality: is the decision-maker free from biases, do they use facts
and not opinions, are they open and honest?
• Trust: this refers to the degree to which people believe that the
decision-maker intends to act in a fair manner.
• Standing (or respectful treatment): this is something that an
individual possesses but it is conveyed by the decision-maker – treating
an individual with politeness and care.
Procedural fairness perceptions are enhanced when these three relational
concerns have been fulfilled.
This perspective argues that procedural justice communicates to
individuals the extent to which, for example, the organisation values them.
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Thus, this perspective is not outcome-focused as in the control model

but focuses more on how an individual feels about themselves and the
organisation they work for.
10.5 Outcomes of justice

A considerable amount of research looking at the outcomes of distributive
and procedural justice has been conducted in a legal setting. Research
has found that perceptions of distributive justice were related to specific
outcomes such as satisfaction with the verdict. The fairer the decision,
the more satisfied an individual is with the outcome. On the other hand,
procedural justice was a better predictor of the judicial system as a whole.
In other words, in cases where the defendant received an unfavourable
verdict but was fairly treated, the individual had an unfavourable opinion
of the outcome but not of the court system.
There are two views regarding the relationship between distributive and
procedural justice. One view is to focus on the independent consequences;
the other is to consider the interaction between them.
10.5.1 Do distributive and procedural justice have independent

consequences?
One view is that distributive and procedural justice operate independently
and appear to have different consequences: procedural justice is linked
to system satisfaction whereas distributive justice is linked to outcome
satisfaction. This has been labelled the two-factor model – although
procedures and outcomes are both important determinants of justice, they
affect different factors.
For example, regarding pay, if you believe the outcome to be fair, you are
more likely to be satisfied with the pay system. In contrast, procedures
primarily influence attitudes and behaviours that are relevant to the wider
organisation such as commitment or trust in management. Therefore,
evidence suggests that when pay decisions are made using fair procedures,
people are likely to remain committed to the organisation even when the
outcome decision is unfavourable. If an individual thinks that the outcome
pay system in an organisation is unfair, they are likely to report that
they are dissatisfied with the pay system. However, if they think that the
procedures adopted to decide who gets what pay level are fair, regardless
of the unfairness they feel regarding the outcome they received, they are
likely to be committed to the organisation.
In an organisational setting, these results seem to be supported whereby
procedural justice was a more important predictor of outcomes relating to
the evaluation of the organisation as an institution or its representatives.
In contrast, distributive justice was found to be a more important predictor
of personal outcomes such as satisfaction with pay.
McFarlin and Sweeney (1992) looked at the effects of procedural and
distributive justice on:
• pay satisfaction and job satisfaction – personal outcomes
• organisational commitment and evaluation of the supervisor –
organisational outcomes.
They found that:
• distributive justice was a more important predictor of pay and job
satisfaction, and that
• procedural justice was a more important predictor of organisational
commitment and evaluation of the supervisor.
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Fryxell and Gordon (1989) examined grievance systems in organisations

and found that procedural justice was a better predictor of employees’
satisfaction with the grievance system than distributive justice. Since
grievance systems are institutionalised, this confirms previous findings that
procedural justice is more important than distributive justice in affecting
attitudes about institutions and authorities, while distributive justice is
more important in explaining specific personal outcomes.
Byrne and Cropanzano (2000) investigated the outcomes of procedural
and interactional justice and, based on their empirical findings, argue that
organisational, formal, procedural justice and interactional justice predict
attitudes and behaviours directed at the organisation (organisational
citizenship behaviour directed at the organisation and organisational
commitment). On the other hand supervisory, formal, procedural justice
and interactional justice best predict organisational citizenship behaviour
directed at others, and commitment to the supervisor.
Thus, the evidence suggests that:
• Distributive justice affects outcome satisfaction (how satisfied people
are with the outcome of any decision – pay, selection, promotion,
training, etc.).
• Procedural justice affects attitudes and behaviour toward the
broader organisation (organisational commitment and organisational
citizenship behaviour).
• Interactional justice affects attitudes and behaviours towards an
individual boss.
10.5.2 How do distributive and procedural justice interact to

affect outcomes?
Interaction between procedural and distributive and procedural justice can
be described in three ways:
• As long as the outcomes associated with the decision are more
positive (or not so negative) then the impact of procedural justice on
individuals’ reactions is relatively small. (The ends justify the means.)
• As long as the procedures used to make or implement the decision
are fair or just, then the impact of outcome negativity on individuals’
reactions will be relatively small. (The means justify the ends.)
• The most negative reaction will occur when individuals believe the
outcomes are relatively negative and the procedural fairness is low.
Skarlicki and Folger (1997) examine the interaction between the different
components of justice in predicting employee retaliation in organisations.
The authors define retaliation as an individual’s attempt to ‘get even’ or
‘punish’ the organisation and include the following:
• taking supplies home without permission
• wasting company materials
• calling in sick when not ill
• failing to give a co-worker required information
• taking extended breaks
• spending time on personal matters at work
• disobeying a supervisor’s instructions.
The authors found that the relationship between unfair outcomes and
retaliation is only significant when people perceive there to be low
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procedural and interactional justice. In other words, unfair outcomes are

likely to lead to maximum retaliatory behaviour when employees also
perceive low procedural and interactional justice. They also found that
high levels of interactional justice make employees more tolerant of unfair
procedures and unfair outcomes.
These findings support the interaction between the different components
of justice and suggest that organisations need to pay particular attention
to the procedures used to make decisions and also how managers treat
employees at the interpersonal level.
10.6 Procedural justice applied to motivation

Folger and Cropanzano (1998) present procedural justice as a supplement
to equity theory thereby overcoming the exclusive emphasis on the
fairness of outcomes received. They present a two-component model of
justice in an attempt to integrate procedural justice with equity theory:
one component involves a person’s perception of having received an
inequitable or negative outcome (distributive justice). The second involves
perceptions of the events leading up to and the decision by which an
outcome is decided (procedural justice).
The two-component model assumes that the perception of an unfair or
negative outcome (the distributive component) energises behaviour. In
other words, when people receive outcomes that they don’t want, they are
motivated to do something. What an employee is motivated to do depends
on whether the procedures were perceived to be fair or unfair. Therefore,
this two-component model suggests that although the distribution of
outcomes provides the motivational force, the procedures determine the
direction that behaviour will take. The possibilities are:
• Fair distribution with unfair procedures: the research seems
to suggest that people are not concerned with procedural fairness
following a fair distribution. Individuals do not become upset with
unfair procedures until a negative outcome occurs. Thus, in this case,
individuals will be relatively unmotivated to take any action to alleviate
the problem of unfair procedures.
• Unfair distribution with fair procedures: individuals express
some dissatisfaction with their outcomes but they do not report much
unfairness. As the procedures are deemed to be fair, this prevents
employees from retaliating in a negative way.
• Unfair distribution and unfair procedures: once an inequitable
outcome is a consequence of an unfair decision rule, employees became
motivated to engage in some action. Employees, when faced with an
unfair outcome and unfair procedures, expressed an intent to organise
into a group and to take action against those who had wronged
them. Collective action can be a prominent response used to correct a
procedural injustice that caused poor outcomes. Distributive injustice
tends to involve more individualised perceptions whereas procedural
injustice is more likely to involve the treatment of a substantial number
of employees and since many people are affected simultaneously,
collective action should be facilitated.
Activity
How does procedural justice contribute to our understanding of how individuals respond
to unfair outcomes?
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10.7 Organisational justice and HR practices

The following section highlights the contribution of a justice perspective to
two human resource practices: selection and performance appraisal. These
sections should be read in conjunction with the chapters on selection and
performance management.
10.7.1 Organisational justice and selection

Chapter 2 covers the predictive validity of different methods of selection.
In other words, to what extent can different selection methods predict
subsequent performance? A justice perspective offers an alternative
framework to that of the prediction paradigm. Organisations begin a
relationship with applicants from the moment of contact and the nature
of this relationship can have a profound effect on the future of the
relationship (e.g. an applicant who does not like the selection methods
may be less likely to accept a job with the organisation and more likely to
criticise the organisation).
Folger and Cropanzano (1998) argue that selection methods may have
high statistical validity2 but at the same time have low social validity (i.e. 2
A selection method
fairness). For example, Folger and Cropanzano (1998) argue that with high statistical
validity is a better
assessment centres and work samples have high statistical validity and
predictor of performance
high social validity but cognitive abilities tests (intelligence tests) are likely than selection methods
to be perceived as unfair by interviewees particularly if they are not that have low validity.
relevant to the job.
Consequences of perceived unfairness of selection procedures include the
following:
• Poorer attitudes towards the organisation: there is some
empirical evidence suggesting that if job applicants view the selection
procedures as unfair, they are likely to be less committed to the
organisation.
• Decreased likelihood of accepting a job offer: if job applicants
are offered a job, they will be less likely to accept the job if they feel
the selection procedures are unfair.
• Poor subsequent job performance: if interviewees accept a
job when they view the selection procedures as unfair, they will be
more likely to underperform than employees who view the selection
procedures as fair.
10.7.2 Implications for selection

Folger and Cropanzano (1998) rely on Gilliland’s (1993) model as the
most comprehensive model available in increasing justice of selection
procedures. The model outlines three sets of attributes that are essential to
fair selection procedures:
• the formal characteristics of the personnel system
• the interpersonal treatment received by the applicant
• explanations provided regarding the system.
These are dealt with in turn below.
The formal characteristics of the selection procedures include:
• Job relatedness. The selection procedure should assess criteria that
are related to the job in question (job candidates should be able to
clearly deduce what characteristics are being assessed and why they
are being assessed). For example, a secretary should be able to type
192
so a typing test is relevant to the job but if he or she is given a test on

mechanical ability, this would be seen as less relevant and hence less
fair.
• Opportunity to perform. Applicants like selection procedures that
allow them to show their job-relevant competencies. They also like
a reconsideration opportunity, seeing procedures as fairer if they are
given a second chance to do well on a test.
• Consistency of administration. Selection methods will be
perceived as fairer if they are administered consistently. In other
words, justice is greater when the organisation uses the same selection
procedure for all applicants.
Perceptions of interpersonal treatment during the selection process depend
on:
• The interpersonal effectiveness of administration. Folger
and Cropanzano (1998) suggest that three behavioural dimensions are
likely to be important. Applicants preferred:
• interviewers who referred to candidates’ feelings, made interesting
comments and summarised what candidates said
• interviewers who talked less and who were able to listen
• an open and honest exchange with interviewers.
• Two-way communication. Allowing applicants to participate by
giving them some voice (present information that is relevant) regarding
the selection decision will enhance the fairness of the selection method.
• Propriety of questions. Interviewers who ask improper or invasive
questions (this would also include making prejudicial statements) are
likely to negatively influence the perceived fairness of the process.
• Being provided with information regarding the
organisation. There is some evidence to suggest that selection
systems are considered fairer if the employer explains the requirements
of the job and also is open about the strengths and weaknesses of the
organisation.
Providing explanations regarding the selection system included:
• Receiving feedback. Applicants preferred selection systems that
provide them with timely and useful information regarding their
selection performance.
• Selection information. Applicants prefer when they receive an
explanation of the selection procedure.
• Honesty. Organisations should be honest in their interactions with
applicants.
Activity
a. Read Folger and Cropanzano (1998) for an elaboration on how organisations can
achieve statistically and socially valid selection methods.
b. Note ways in which organisations can achieve statistically and socially valid selection
procedures.
193
10.8 Organisational justice and performance appraisal

Folger and Cropanzano (1998) argue that most research on performance
evaluation/appraisal is concerned with how valid the performance
appraisal instrument is in representing how an individual is behaving
(which they label the test metaphor). Researchers have been concerned
with the validity of performance appraisal methods or examining the
source of rater bias (these issues are dealt with in more detail in Chapter 7
on performance management).
A number of assumptions underlie the test metaphor, including the
following:
• ‘Work arrangements allow for reliable and valid performance
assessment.’ For performance appraisal to accurately reflect
performance, the rater needs to understand and have the opportunity
to observe task-related behaviours. However, there are many jobs,
which do not produce a tangible output, or job incumbents may not be
easily observable.
• ‘Raters can assess performance accurately.’ Raters tend to make
inferences by putting people into categories (good/bad performance),
which makes the process of judgements quicker, but not necessarily
reliable.
• ‘A rational, unitary criterion exists.’ What is being measured? Raters
when they make a performance assessment are making a value
judgement that some kinds of behaviours are more important than
others. What gets assessed in organisations is what individuals in
power value.
Activity
What kind of job may it be difficult to make a valid observational judgement on?
10.8.1 Bringing justice into performance appraisal

Folger and Cropanzano (1998) outline seven suggestions for doing
performance appraisal fairly:
• If you promise to do performance appraisal, do it.
Organisations say they conduct performance appraisals yet employees
don’t remember having one. This can reduce employee satisfaction with
the performance appraisal system.
• Appraise subordinates on the appropriate criteria.
Performance appraisals will be seen to be fairer if an individual believes
that they are being appraised on fair criteria. Some empirical evidence
suggests that allowing employees to participate in the design of the
performance appraisal system will enhance the perceived fairness as it
is more likely that fair performance criteria will be used.
• Have knowledgeable appraisers. Regardless of method,
performance appraisal is only as good as the person conducting the
appraisal.
• Use a fair rating format. Folger and Cropanzano (1998) suggest
that a fair performance appraisal method has three characteristics: it
provides for the setting of performance and developmental goals, it is
based on behaviours and it is based on detailed information.
• Consider the source of ratings. Under most conditions, the
supervisor is usually the person who conducts the performance
194
appraisal. Two other rating sources exist: peer ratings and self-rating.
When peers are used, there are some concerns regarding friendship
bias and lack of feedback value. However, peer evaluations are more
likely to considered fair if they are perceived to be lenient,
developmentally focused and free from friendship bias. Folger and
Cropanzano (1998) argue that self-ratings are more likely to be
perceived as fair but the psychometric evidence is not particularly
good.3 3
See Folger and
Cropanzano (1998)
• Maintain interpersonal fairness in the performance
for the compromise
appraisal interview. The recommendations above primarily draw between psychometric
on the principles of interactional justice outlined earlier. Allowing validity and justice.
employees to participate in the performance appraisal is important for
enhancing the fairness of procedures. Folger and Cropanzano (1998)
argue that it is possible to pursue developmental and evaluative
objectives into one session. This is achieved by delivering negative
feedback in a constructive manner.
• Train subordinates to participate. Subordinates should be given
the skills they need to obtain justice for themselves.
Activity
What explanation is provided by Folger and Cropanzano (1998) in their argument that
developmental and evaluative objectives can be pursued simultaneously?
10.9 Summary
Organisational justice has a number of components: distributive,
procedural and interactional that have different effects on employee
behaviour.
Individuals are concerned about the fairness of the outcomes they receive
as well as the procedures adopted to reach an outcome decision.
A justice framework can be used prescriptively in the design and operation
of human resource practices.
Note that it will be useful to read this section on justice and performance
appraisal in conjunction with Chapter 7 of this guide, on performance
management.

• define the different dimensions of organisational justice
• explain why procedural justice is important
• discuss the consequences of injustice
• show how procedural justice adds to the predictions of equity theory in
understanding motivation
• evaluate how a justice perspective contributes to understanding of
human resource practices such as selection and performance appraisal.
195

1. What can managers do to enhance employees’ perceptions of justice in
organisations?
2. Why does justice matter? Give reasons for your answer.
3. What are the implications of a justice framework for the design of a
performance appraisal system.

Why does justice matter? Give reasons for your answer.
196
Chapter 11: Diversity and equal opportunities
Chapter 11: Diversity and equal

opportunities
11.1 Introduction
This chapter focuses on a range of key issues surrounding equality and
diversity. In order to understand the difference, we will look at some
definitions. This chapter concentrates on gender equality as an example, but
remember that equality and diversity can apply to any aspect of a human
being such as age, race/ethnicity, religion, disability and not just gender.
Indeed in order to manage people effectively we need to understand what
influences the way they behave at work. If we understand what influences
peoples’ behaviour, then we will be able to predict how they might behave
in particular circumstances. People differ in ability, intelligence, skill,
personality, culture, personal circumstances as well as the differences we
can see in different human beings. One of the most powerful influences on
increasing the diversity of a workforce in an organisation is to be found in
the ‘business case’ and we will look at this in greater detail later.
Let us begin with some definitions. Bloisi (2007) says that equal
opportunities is ‘the idea that everyone can be treated equally and should
be given the same opportunities as those who have traditionally held
power’. On the other hand she says that diversity is the recognition ‘that
people are different and that these differences should be valued and used
to enhance the workplace’. You can see there is a difference between the
two concepts. The idea of equality of opportunity can be traced back to the
Universal Declaration of Human Rights Preamble, which was accepted by
the UN General Assembly on 10 December 1948. In business organisations
it is usually the HR manager who is responsible for legal and ethical aspects
of employment. However ethics, which can be defined as ‘doing things
right’ is determined by culture and custom and will vary from country to
country and organisation to organisation. What is acceptable in the private
sector may not be acceptable in the public sector and vice versa. Geert
Hofstede was a Dutchman who carried out a study into an organisation
that had offices in many countries in the world. He tried to find out if
people behaved according to the culture of their country or according to the
culture of the organisation that they worked for. In other words he wanted
to find out which culture had the most influence on a worker’s behaviour.
He found that the culture of the country was the strongest influence. This
research is important when we are looking at international companies and
how expat workers might behave. If you want to look at Hofstede’s work in
detail, then he has a very good website www.geert-hofstede.com. If we say
then that we all behave differently according to our values how can we talk
about equal opportunities with any meaning? We will explore the position
of women in the labour market as an example and use the United Kingdom
for our information, so that we can see why we should take an interest in
this area and why it is in employers’ interests to pursue diversity policies.
In the next section there is a description of the position of women in the
UK labour market. The section after that considers the reasons why women
may experience disadvantage within the workplace. We will then consider
possible solutions to the problem. The solutions that are suggested are:
• first, whether the introduction of formal equal opportunity policies in
organisations is likely to have an impact
197
• second, whether there is a ‘business case’ with regard to employing

people with a wide range of characteristics
• third, whether stronger government legislation is likely to prove
effective in widening the range of people in employment
• fourth, whether there is a role for trade unions to encourage employers
to take equal opportunities more seriously
• finally, whether self-employment can provide a viable alternative by
which women and ethnic minorities can advance their labour market
position.

• To introduce students to ideas about equality of opportunity and
diversity and to explore why organisations might agree to change their
policies to become more diverse.

• discuss the ways in which women experience disadvantage in the
labour market, with regard to pay issues, and horizontal and vertical
segregation
• explain the reasons for the disadvantages that women experience in
organisations, from the point of view of both person- and situation-
centred perspectives
• describe the differences between liberal and radical approaches to
equal opportunities policy, and explain the shortcomings of each
approach
• explain the ways in which sound equal opportunities policies can make
good business sense, and understand the limitations of the ‘business
case’ for equal opportunities
• demonstrate awareness of initiatives that governments can introduce to
promote equality of opportunity, including changes to the law
• describe how trade unions and self-employment can help the
promotion of equality of opportunity.

Bach, S. Managing human resources. (London: Blackwell, 2005) Chapter 7
‘Walking the talk? Equality and diversity in employment’.
approach. (Prentice Hall, 2007) Chapter 7 ‘Managing equality and
diversity’.
(Harlow: Financial Times Prentice Hall, 2011) [ISBN 9780273756927]
Chapter 20 ‘The legal framework of work’ and Chapter 21 ‘Equal
opportunities and diversity’.

American Association of University Women (AAUW) ‘The Simple Truth about
the Pay Gap’ 2012 edition (www.aauw.org).
Dickens, L. ‘Beyond the business case: a three-pronged approach to equality
action’, Human Resource Management Journal 9(1) 1999, pp.9–19.
Dickens, L. ‘Re-regulation for gender equality: from “either/or” to “both”’,
Industrial Relations Journal 37(4) 2006, pp.299–309.
198
Hoque, K. and M. Noon ‘Equal opportunities policy and practice in Britain:

evaluating the “empty shell” hypothesis’, Work, Employment and Society
18(3) 2004, pp.481–506.
Jewson, N. and D. Mason ‘The theory and practice of equal opportunities
policies: liberal and radical approaches’, Sociological Review 34(2) 1986,
pp.307–34.
Kirton, G. and A.-M. Greene The dynamics of managing diversity: a critical
approach. (Oxford: Elsevier Butterworth-Heinemann, 2005) second edition
[ISBN 9781856178129] Chapters 5 and 6.
Liff, S. ‘Diversity and equal opportunities: room for a constructive
compromise?’, Human Resource Management Journal 9(1) 1999, pp.65–75.

Ashley, J. ‘The new girls’ network’, Management Today September 2000.
Bevan, S. and M. Thompson ‘Merit pay, performance appraisal and attitudes
to women’s work’, Institute of Manpower Studies Report No. 234, 1992,
Chapter 6.
Bloisi, W. An introduction to human resource management. (London: McGraw
Hill, 2007) [ISBN 9780077109684].
Bogan, M. ‘Women work: history of fight for an equal chance’, Independent 3
December 1996.
Davies, A. and R. Thomas ‘Gender and human resource management: a critical
review’, International Journal of Human Resource Management 11(6) 2000,
pp.1125–36.
Deeks, E. ‘Campaigners rush to defend beleaguered women’s unit’, People
Management 11 January 2001.
Edwards, C., O. Robinson and J. Woodall ‘Lost opportunities? Organisational
restructuring and women managers’, Human Resource Management Journal
9(1) 1999, pp.55–64.
Equality and Human Rights commission ‘Who runs wales? 2012 update’,
Available from www.equalityhumanrights.com/wales
Gracie, S. ‘In the company of women’, Management Today June 1998.
Hakim, C. Key issues in women’s work: female heterogeneity and the polarisation
of women’s employment. (London: Athlone Press, 1996)
[ISBN 0485801094].
Hoque, K. and M. Noon ‘Equal opportunities policy and practice in the UK:
testing the “empty shell” hypothesis’, paper presented to the Dutch HRM
Network conference, University of Nijmegen, 15 November 2001.
Independent on Sunday ‘Alarming rise in sex discrimination cases’, 29 July 2001.
Industrial Relations Services ‘Solicitors’ organisation calls for new equality
laws’, IRS Employment Trends 715, 2000.
Industrial Relations Services ‘EOC calls for mandatory pay audits’, Pay and
Benefits Bulletin 518, 2001a.
Industrial Relations Services ‘Part-time workers: in from the periphery’, IRS
Employment Trends 725, 2001b.
Industrial Relations Services ‘Equality information service launched’, IRS
Employment Trends 724, 2001c.
Industrial Relations Services ‘Government announces plans to close gender pay
gap’, IRS Employment Trends June 2001d.
Labour Market Trends ‘Labour Market Spotlight’, August 2001.
Liff, S. and L. Dickens ‘Ethics and equality: reconciling false dilemmas’ in D.
Winstanley and J. Woodall (eds) Ethical issues in contemporary human
resource management. (London: Macmillan, 2000) [ISBN 0333739663].
Levene, T. ‘Stepping up the Glass war’, Guardian 4 December 1999.
Mason, B. ‘What women want’, People Management 8 March 2001.
McCracken, D. ‘Winning the talent war for women: sometimes it takes a
revolution’, Harvard Business Review 78(6) 2000.
199
Metcalf, D. ‘The British national minimum wage’, British Journal of Industrial

Relations 37(2) 1999, pp.171–201.
Rice, M. ‘Sex in the city’, Management Today September 2000.
Rosenthal, P. ‘Women in Management’, Chapter 1 in ‘Women’s managerial
career progression: an attributional analysis in three organisations’,
PhD thesis. (London: London School of Economics, 1994).
Simpson, R. ‘Presenteeism, power and organisational change: long hours as a
career barrier and the impact on the working lives of women managers’,
British Journal of Management 9 1998, pp.37–50.
Sly, F., T. Thair and A. Ridson ‘Women in the labour market: results from the
Spring 1997 labour force survey’, Labour Market Trends 196 1998, pp.97–
119.
Trades Union Congress (1994) HRM: A Trade Union Response. Chapter 4.
Universal Declaration of Human Rights (1948) available on www.un.org
Wajcman, J. Managing like a man: women and men in corporate management.
(St Leonards: Allen and Unwin, 1998) [ISBN 0271018488].
‘Women in management: the spare sex’, The Economist 28 March 1992.
11.1.6 Synopsis of chapter contents

We look at reasons why inequalities exist in the labour market, particularly
in the employment of women, using the United Kingdom as an example.
We look at the business case for devising sound HR policies on equality
and diversity as well as the different approaches to the topic.
11.2 What is the current position of women in the labour

market?
The following section provides a detailed account of the position of
women in the labour market in the UK. Although it is focused on one
country, do women face similar disadvantages in other countries around
the world? While reading this section, you might want to consider the
extent to which women in your own country take part in the labour
market and whether they experience disadvantages similar to that
experienced by women in the UK.
Activity
Read the report at www.managers.org.uk/news/equal-pay-women-still-57-years-away
from the Chartered Management Institute, based on research it carried out in 2010,
which suggested that it will be 57 years before the pay of women managers equals that
of their male colleagues.
Looking at hourly earnings, the pay gap in the UK between men and
women has narrowed from 31 per cent at the time the Equal Pay Act
was introduced in 1970, to about 18 per cent currently (in other words,
women now earn 82 pence for every £1 earned by men). However, where
part-time work is concerned, the pay gap between males and females is
39 per cent (Industrial Relations Services, 2001a). Research released in
February 2000 by the UK government’s Women’s Unit revealed that an
average woman, educated to GCSE level (the school exams taken at 16
years of age in the UK), will earn £241,000 less than men over the course
of their lifetime, regardless of whether or not they have children. This has
a knock-on effect in many areas, not least in terms of pension provision,
with female average retirement income being 45 per cent below that
of men (Mason, 2001). In addition, women tend to have less access to
company benefits such as private health care, company cars and pension
schemes. Looking at management grades, women managers are paid even
200
less fairly – they receive only 70 per cent of the pay received by male
managers.
Activity
Read the report at www.eurofound.europa.eu/eiro/2002/01/study/tn0201101s.htm from
eiroline (European Industrial Relations On-line) which reports on the position of women
regarding their pay in a wide variety of European countries (see www.eurofound.europa.
eu/eiro/2002/01/study/tn0201101s.htm).
It can be seen that the UK is not alone in the way that women are treated
at work.
The data provided by EIRO national centres for this comparative study
very much confirm the impression that the pay gap is closing, although
slowly – see (Table 1 in the eironline report cited above).
The reasons why this pay gap exists might be accounted for by the jobs
that they do, We call this horizontal segregation.
Women’s work clusters into the following areas in particular (source: The
Economist, 1992):
• healthcare sector (nursing)
• teaching
• hotels and catering
• retailing.
This horizontal segregation explains a considerable proportion of the pay
gap between men and women. It is not the case, therefore, that men and
women are paid differently where they are working alongside each other.
Instead, the pay gap is explained, at least in part, by the fact that women
do different types of jobs from men, and the types of job that women do
are low paid jobs. In the recommended reading the report on the pay gap
in the USA published by the AAUW contains useful additional information
in this area.
11.2.1 Vertical segregation

Not only are women horizontally segregated in the sense that they tend
to cluster into certain occupational categories, but they are also vertically
segregated. Vertical segregation concerns the clustering of women at
lower levels of the occupational hierarchy (the glass ceiling issue). This
phenomenon is demonstrated by official statistics. In the UK, in 1997,
32.4 per cent of managers were female. This figure has risen very slowly,
from about 30 per cent in 1991 (Sly, Thair and Ridson, 1998). However,
less than five per cent of directors of UK companies are female (Gracie,
1998). Even in female-dominated areas, the evidence suggests that women
are failing to secure the top jobs. For example, where the personnel
function is concerned, 80 per cent of junior personnel managers are
women. However, only 15 per cent of personnel directors are women (The
Economist, 1992). Possibly the most striking example, however, relates
to nursing. Ninety per cent of qualified nurses are women. However, it
typically takes 18 years (without career breaks) for a female nurse to reach
the managerial post of nursing officer, compared with 8.5 years for a male
nurse (Rosenthal, 1994).
An article in The Times 2 October 2012 ‘Big four firm juggles the numbers
to address lack of diversity’ contains a report that Ernst and Young has
pledged that within three years at least 30 per cent of its new partner
appointments should be women. (See www.thetimes.co.uk/tto/business/
201
industries/supportservices/article3555384.ece – please note that website

is behind a paywall). This is because as Britain’s largest professional
services firm, they feel they need to address the lack of diversity in their
top ranks. They have also said that they wanted at least a tenth of their
new partners to be black or from other ethnic minorities, so that the upper
ranks are more reflective of the companies it serves and society at large.
Currently 17 per cent of Ernst and Young’s 549 partners in the UK and
Ireland are women and four per cent are from ethnic minorities. Steve
Varley, Ernst and Young’s UK and Ireland managing partner, said it was
implementing measures such as greater flexible working and mentoring
programmes to encourage more young women and ethnic minorities to
join its partnership. He said: ‘We think a more diverse business makes
better business decisions.’
According to The Times research (quoted in the same article) other
companies have the following percentage of female partners:
• Deloitte: 990 partners – 14 per cent women
• PwC: 900 partners – 15 per cent women
• KPMG: 592 partners – 14 per cent women
• Grant Thornton: 206 partners – 14 per cent women
• BDO: 193 partners – 10 per cent women.
11.2.2 Women and non-standard employment

Looking at the proportion of males and females working part-ime, figures
from the July 2012 Labour Force Survey show that of the 13.7 million
women within the labour market in the UK, nearly six million were
working part-time. Where men are concerned, of the 15.83 million men in
the labour market, only 2.3 million were part-timers (www.ons.gov.uk).
Why is this the case? It is not often that women want to work full-time
but cannot secure a full-time employment. Indeed, the evidence suggests
that very few women who work part-time would actually prefer a full-time
job. Furthermore, the 1998 Workplace Employee Relations Survey in the
UK shows that the group of employees that expresses the highest level of
job satisfaction is part-time employees (the majority of whom are female).
This may, however, be explained by the fact that employees within this
category have lower expectations of work. Nevertheless, the fact that so
many women work on a part-time basis demonstrates the extent to which
they still accept the burden of family responsibility, and their need to
balance their family and work commitments. Of the 8.12 million people
working part-time however, it is reported that 1.42 million wanted to work
full-time, but they could not get a full-time job. This may be explained by
the fact that the number of part-time jobs has grown, compared with the
number of full-time jobs. There are more men proportionately speaking
now doing part-time jobs. Not all women doing part-time jobs have
children.
11.2.3 Is the situation changing?

The number of gender discrimination and equal pay claims brought to UK
employment tribunals in 2000, according to figures released in July 2001
(Independent on Sunday, 2001) numbered nearly 40,000. The figures for
2011 to 2012 show a similar story with 10,800 gender discrimination
cases and 28,800 equal pay cases, making 39,600 cases in all. The figures
have reduced from the previous year’s total of 52,900. It may be therefore
that equality measures are beginning to make a difference. However,
it is important to remember that the figures include not only women
202
complaining of discrimination, but men too. Men can be discriminated

against in terms of gender (e.g. if wanting bar work) where an employer
may think it better to employ beautiful young women to attract male
customers.
Gender discrimination cases range from instances of women being made
redundant for becoming pregnant, instances of bullying and harassment,
and instances of women being barred from promotion on the grounds of
gender. The Equality and Human Rights Commission believes the official
figures disguise the true extent of the problem, as many cases still go
unreported. In a review of gender equality in Wales, (one of the countries
in the United Kingdom), it was reported that 75 per cent of the teachers in
Wales are female, but only 32 per cent of secondary school headteachers
are female. The report also highlighted that in the UK as a whole over half
of the FTSE 250 businesses do not have a single female board member.
It can be concluded then that women continue to face considerable
disadvantage within the labour market, despite the fact that the UK has
had equal pay legislation in place for the past 25–30 years.
Activity
Before reading the next section, think about the extent to which women in organisations
in your own country experience disadvantage. Then write down the reasons why you
think they face this disadvantage.
11.3 How can we explain the disadvantaged position

faced by women?
11.3.1 Person-centred explanations
The argument here is that women are somehow ‘different’ from men in
several respects and, as such, they may well be less suited to managerial
or leadership positions. The social-psychological premise of this argument
is that men and women are differently socialised, and this results in
fundamental differences in behaviour. It has been argued, for example,
that women desire success less than men, in the sense that they are less
ambitious, that women lack leadership ability and that women are less
self-confident than men. This section looks at these arguments in turn.
• Are women less ambitious than men? Catherine Hakim has
recently argued that women’s disadvantaged position in organisations
stems from the fact that they consciously make different life choices
from men. For example, they choose to work part-time, in order to be
able to balance their work and family life, and this is something they do
willingly, rather than being forced into it. In addition, she argues that
women may be under-represented in managerial grades as they choose
not to have to deal with the stress and anxiety that high-powered
management roles bring (Hakim, 1996). Hakim is, however, pretty
much alone in arguing this point, and there is considerable evidence
that suggests women are just as ambitious as men. In addition, her
argument can be easily criticised from the point of view that she ignores
the circumstances that frame women’s preferences and choices. If they
did not have primary responsibility for childcare, for example, their
preferences and orientations to work might be very different (Davies
and Thomas, 2000).
• Do women lack leadership ability? There is considerable
evidence to suggest that female management style differs from male
management style. The evidence suggests, for example, that women
203
tend to be more team oriented than men, that they operate in a

more consensual and participative manner, take a greater interest in
the development of subordinates, are better at delegating and are
better able to empathise with co-workers. Where men are concerned,
the evidence suggests that they are more comfortable with direct
supervisory styles and in environments within which there are clear
lines of authority and control. The problem for women is that as men,
over time, have had the primary responsibility for the development
and the shaping of organisations, the male management approach has
come to predominate and to be viewed as ‘superior’. It could be argued
however, that the female approach is not ‘inferior’ but simply ‘different’
(Wajcman, 1998). This is a point we will return to later when we look
at the issue of emerging best-practice approaches to management style.
• Are women less self-confident than men? One way to consider
this issue is to examine ‘attribution theory’. This theory states that men
and women attribute success and failure to themselves in different
ways. For example, in the event of a successful work outcome, men
will attribute that success to themselves, stating that the success was a
result of their own personal efforts. Women, by contrast, will attribute
the success to the team they are working within, or they will attribute
it to luck. Similarly, when problems emerge, women are more likely
to blame themselves rather than blame other people or unforeseen
events. If this is transmitted within performance appraisal situations,
for example, the result could be that women become viewed as less
confident of their own abilities than men (Rosenthal, 1994).
11.3.2 Situation-centred explanations

The second set of theories in terms of explaining the position of women in
organisations suggests that women experience disadvantage as a result of
certain organisational practices, structures or systems. There are a number
of practices that could have potentially discriminatory effects. Each of
these areas will now be explored in turn.
• Training and development programmes. These are often held
after hours or at weekends. In situations where women carry the
burden for domestic responsibility or for childcare, it may be difficult
for them to attend.
• Informal networks. The argument here is that women lack access
to ‘old boy networks’ (in the bar or on the golf course, for example)
within which a great deal of business is conducted and decisions
made. One reason that women lack access to these informal networks
is that the networks often require the out-of-hours socialising that
many women may not be able to participate in as a result of childcare
responsibilities. It has been suggested, however, that women should
set up their own social networks and network with each other. There
is evidence that this is beginning to happen. For example, one such
organisation, called ‘Gather’, which operates in London, is a women-
only networking group for high-ranking professionals in new-economy
and ‘new-media’ jobs. Similar networks exist in the legal field, politics
and journalism (Ashley, 2000). Such arguments, however, overlook the
fact that informal decision-making power lies within male networks.
The establishment of female-only networks will not assist women in
gaining access to these.
• Mentoring. Research suggests having an effective mentor is a key
determinant of how quickly people progress within their organisation.
Women tend to lose out here: there is evidence to suggest they find
204
it more difficult to find a suitable mentor. One reason for this is that
there are very few senior female managers to perform the mentoring
role.
• Devolution of the personnel/HR function. In recent times,
certain HR activities, including grievance handling, have been devolved
to line managers. Traditionally, the personnel department would play
the role of independent arbiter. In relation to equal opportunities
issues, questions have been raised as to whether line managers possess
the expertise and have undergone the training necessary to handle such
issues sensitively (Trades Union Congress, 1994).
• Performance appraisal and merit pay systems. The evidence
suggests that women receive poorer performance appraisal ratings
than men do (Bevan and Thompson, 1992). This issue relates to the
argument stated earlier, that women are less inclined to attribute
success to themselves in performance appraisal situations. The result
is that, as well as receiving lower merit pay awards, women could also
find themselves overlooked in terms of promotion opportunities.
• Notions of organisational commitment. This has implications
particularly for women who bear the main burden for childcare.
It may be the case that they become viewed as less committed if
they take time off as a result of domestic responsibilities, or if the
main mechanism by which ‘commitment’ can be demonstrated is by
working late or unsocial hours. This is a particular problem in the UK
where the concept of ‘presenteeism’ has taken hold in recent times.
‘Presenteeism’ relates to the concept of employees (typically managers
and professionals) being in the workplace when they do not really need
to be there, in order to try to appear committed to their organisation.
Women who have domestic responsibilities will be unable to engage
in such ‘presenteeism’, and they may appear to be less committed as a
result (Simpson, 1998).
• Lack of family-friendly practices. To highlight this issue, only 16
per cent of women in top jobs are mothers, although in the UK in 2010
66.5 per cent of mothers worked. This compares to the 67.3 per cent
of women who work, but have no children. This suggests that in order
to be promoted they have had to sacrifice motherhood. By contrast,
the proportion of men in top jobs who have children is about 84 per
cent. This demonstrates the extent to which motherhood continues to
make a significant difference to women’s opportunities. Women are still
in a position of having to choose between having a family and having
a career. This situation is worsened by the lack of family-friendly
policies, such as crèches or help with the cost of childcare. See also the
report published by the AAUW on the pay gap for information on the
‘motherhood penalty’.
How widespread is the adoption of family-friendly initiatives? The
evidence demonstrates that the UK has the worst childcare provision in the
EU (Mason, 2001). For example, the 1998 Workplace Employee Relations
Survey demonstrates that where women under the age of 40 with at least
one dependent child are concerned (in other words, those who are most
likely to need access to family-friendly practices) only seven per cent have
access to a workplace nursery or help with childcare costs, only 36 per
cent have the right to parental leave, and only 27 per cent have access to
job-sharing. The situation for non-management staff is particularly poor:
only five per cent have access to a workplace nursery or help with the cost
of childcare, and only 24 per cent have access to job-sharing. Even among
205
those employees most in need of family-friendly practices, therefore,

access to those practices is limited (Hoque and Noon, 2001).
To summarise this section, there is a range of both person-centred and
situation-centred factors that explain the disadvantages that women
experience within organisations. The following sections explore whether it
is possible to address this issue.
11.4 Equal opportunities policies

The likely impact of an equal opportunities policy depends very much
on the approach that is taken. There are, broadly speaking, two main
approaches to equal opportunities policies. There are ‘liberal’ and ‘radical’
approaches (Jewson and Mason, 1986).
11.4.1 The liberal approach to equal opportunities

This approach is based on the premise that everyone within the
organisation should be able to compete freely for rewards or for
promotion on the basis of ability. In other words, all decisions relating to
developmental opportunities, promotion and pay awards should be based
on procedural impartiality, and not decided through the ‘old boy’ network
or other informal networks. Formal systems or procedures should be put
into place to ensure that the process by which decisions are made is fair.
Also, recruitment and promotion opportunities should be publicised widely
to make sure that everyone has the opportunity to apply. In addition, in
order to allow women to be able to compete on a level playing field, the
organisation should provide a range of family-friendly practices such as
crèches, extensive maternity leave and assistance with childcare costs. As a
result, by removing all of the obstacles from the organisation that prevent
men and women from being able to compete on equal terms, pay and
promotion opportunities will be governed by ability alone.
How effective are liberal approaches to equal opportunities policy likely to
be? The argument put forward by many commentators is that they leave
several of the key problem areas facing women untouched. For example,
they do not address the following issues:
• Traditional stereotypes concerning management style. The
argument here is that liberal equal opportunities policies do nothing
to address stereotypes concerning the supremacy or superiority of
typically ‘male’ management styles over female management styles.
Women will still have to compete, therefore, on men’s terms, by
adopting a more ‘male’ leadership style, if they are to progress career-
wise.
• Informality in organisations. Not all aspects of work can be
governed by formal procedures. For example, procedures do nothing
to solve women’s difficulties in terms of gaining access to ‘old boy’
networks. Such informal channels of communication will always
remain outside the scope of equal opportunities procedures.
• The problem of ‘lip service’. It is possible to have equal
opportunities procedures and practices in place on paper, but that
in reality have little impact on the actual decisions made, in terms
of who gets promoted or who gets recruited. Managers can make
exactly the same decision they would have made anyway, so long as
they can demonstrate they have fulfilled all the relevant procedural
requirements in terms of the way interviews were handled and new
opportunities advertised.
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11.4.2 Radical approaches to equal opportunities policies

The radical approach to equal opportunities starts from the premise
that men and women are essentially the same, in the sense that they are
equally talented and equally effective in terms of leadership. As such, if
there are more male managers than female managers or if men are being
paid more than women, this is, in itself, evidence of discrimination. Where
such situations arise, therefore, organisations should take direct action
(or positive discrimination), by deliberately and consciously recruiting
more women into management grades, or by putting quotas into place to
equalise the proportion of female to male managers at each level of the
management hierarchy. A further aspect of the radical approach concerns
the implementation of education and training initiatives focusing on
raising the consciousness of managers within the organisation of issues
and situations that can give rise to gender discrimination.
Is the radical approach likely to prove effective in improving the position
of women within organisations? The following problems exist with the
radical approach:
• Legality of positive discrimination. In some countries positive
discrimination may be illegal. In the European Union, this issue is still
very much open to interpretation. For example, it is legal to introduce
positive action that focuses on female developmental training, but it
is difficult to judge the point at which such action becomes positively
discriminatory (which is illegal), in the sense that it excludes men
from developmental opportunities (Dickens, 1999). The issue has been
complicated further in Europe by the EU equal treatment directive,
which suggests that a degree of positive discrimination is lawful. Just
how much positive discrimination is lawful, however, remains open to
question.
• Efficiency concerns. Positive discrimination suggests that in order to
fill quotas, basic entry requirements for the job may have to be waived.
As such, there is the scope for women to be recruited or promoted
who do not possess the necessary skills, experience or qualifications to
do the job. If this occurs on a large scale, organisational effectiveness
could well be adversely affected. Moreover, female managers may be
undermined if they are not seen as having been promoted or appointed
on their own merits, and they may find it difficult to acquire the
credibility and respect that is necessary to be able to perform their jobs
effectively.
• Problems relating to a ‘re-educative’ approach. The emphasis
on re-educating and re-socialising managers, in terms of raising their
awareness of behaviour or decision-making that is likely to prove
prejudicial, may be effective in changing the attitudes and behaviour
of some managers, but others may be less willing to accept that their
past behaviour may have had a discriminatory effect. As a result,
there are doubts in terms of whether the re-educative aspect of the
radical approach is likely to prove effective in bringing about a genuine
attitude change towards women.
• Shifting the pattern of discrimination. In situations where
women are given special treatment, discrimination is not removed – it
is simply shifted onto males. In such a situation, male attitudes towards
women could become increasingly negative.
As will be clear from the above discussion, there are limitations with both
the liberal and the radical approaches to equal opportunities policies
in terms of what they are likely to achieve. Neither approach is able
207
to address some of the key difficulties faced by women, particularly in

relation to the stereotypes that men make better managers and that male
managerial styles are superior.
Activity
Thinking about an organisation with which you are familiar, do you think the organisation
operates a liberal or radical approach to equal opportunities?
To what extent did the problems highlighted above exist with regard to the equal
opportunities policy in the company you have in mind?
11.5 The business argument for equal treatment

It is possible to argue that a sound approach to equal treatment can make
good business sense. The quote above (p.202) from Steve Varley of Ernst
and Young is an example of modern business thinking.
Activity
Before reading the next section make a list of all the reasons you can think of as to why it
might make good business sense to implement sound equal opportunities policies.
The types of business arguments that commentators have put forward are
as follows:
• labour market issues
• retention issues
• company image
• product development
• changing management styles.
We consider each of these issues below.
11.5.1 Labour market issues

Women form a large proportion of the current workforce, and this
proportion is set to grow. By discriminating against women, companies
are, in effect, reducing the talent pool of candidates in their search for
suitable recruits. This is a very important issue when labour markets are
tight, or in sectors of the economy where there is a labour shortage (see
‘Equal opportunities recruitment and selection at British Telecom’ below).
Equal opportunities recruitment and selection at British Telecom1 1

Adapted from Liff
(1999).
British Telecom (BT) has introduced several initiatives aimed at increasing the
proportion of women employed within many its core job roles, which in the
past have proved to be heavily male-dominated.
First, in terms of graduate recruitment and graduate development, BT has
deliberately targeted women when recruiting to male-dominated areas.
Second, BT has become involved in initiatives such as ‘Take our daughters
to work’, focusing in particular on technical-male dominated jobs. This was
seen as a highly symbolic action that indicated that the company was aware
of the barriers to access that women faced in getting into traditional male-
dominated areas and also that the company was willing to recruit women into
these areas. The initiative changed in later years to become ‘take our children
to work’ as the fact that only daughters were included in the scheme was itself
discriminatory. If all children could see a wide variety and range of jobs, then it
would encourage them to think about a wider choice in their careers.
208
The initiative to recruit women into traditionally male-dominated areas did,

however lead BT to realise the need to provide ongoing support to their
female recruits once they are in role. For example, it introduced development
programmes to help women enhance their leadership skills and to raise their
self-confidence. In addition, the company established an intranet site aimed at
helping women to network within the company.
The company has also realised the need to question certain prevailing norms
with regard to job design. In particular, difficulties emerged in terms of
finding women with the narrow specialised technical qualifications that the
company had traditionally sought. To deal with this problem, BT broadened job
specifications, so that jobs became structured in such a way that people were
no longer performing just a narrow range of technical tasks. In this sense, jobs
have been redesigned to suit the skills that female recruits possess, rather than
female recruits being expected to fit into predetermined job roles.
11.5.2 Retention issues

Sound equal opportunities policies can play an important part in
maximising return on the investment made in relation to recruitment,
training and development costs. For example, given the costs involved in
training and developing management staff, it makes sense to retain contact
with female managers who leave the organisation to have children, and
provide them with occasional training to keep their skills up to date. In
this way, the company will be in a position to rehire their female managers
in the future, and they will not have lost the initial investment made in
training them in the first place.
By way of further example, it makes good business sense for companies
to ensure women have access to ongoing management development and
networking opportunities. If women perceive they are being discriminated
against in terms of these issues, they are more likely to leave the
organisation to seek employment elsewhere. When labour markets are
tight, and skills are in short supply, it does not make sense to lose valuable
talent to competitor organisations in this way (see ‘Developmental
opportunities for women at Deloitte and Touche’ below).
Developmental opportunities for women at Deloitte and Touche2 2

Adapted from
McCracken (2000).
In the early 1990s, extensive systematic employee reviews undertaken at
Deloitte and Touche found that a great many of their female employees were
leaving the company as they felt they were not being provided with adequate
developmental opportunities. In particular, women were not being assigned to
the high-profile accounts that it was essential to gain experience of in terms
of career development. Much of this was the result of the assumptions being
made with regard women’s preferences, for example, that they would not want
to work in tough manufacturing or financial services environments, or that
they would not want to work on a client site that was too far away from home.
Instead, women were being assigned to accounts that were perceived within the
organisation as less attractive – in non-profit, retail or healthcare sectors, for
example. As a result, much more care began to be taken to ensure women were
given the opportunity to work on the more attractive accounts, with the gender
mix of staff allocated to different accounts becoming closely monitored.
The company also went to great lengths to ensure that the career development
of staff on flexible work arrangements to assist in balancing their work and
domestic responsibilities would not be hindered. When a woman on a flexible
work arrangement was admitted to partnership in 1995, this sent an important
message to the rest of the company. By 1999, more than 30 people on flexible
209
work arrangements had reached partnership level. However, the figures quoted
above (Deloitte had 990 partners of whom 14 per cent were women) for 2012
show that even companies who take steps to develop their female workforce
still face an uphill struggle.
11.5.3 Company image

Being seen to be a good equal opportunities employer is extremely
important in terms of a company’s image within the labour market, in
particular, whether it is seen as a good company to work for. In addition,
equal opportunities can be critical in terms of protecting the company’s
brand image (see ‘Sexual harassment at Deutsche Bank’ below).
Sexual harassment at Deutsche Bank3 3

Adapted from Rice
(2000).
In January 2000, Deutsche Bank was ordered to pay Kay Swinburne, one of
their investment bankers, £1 million when her boss falsely accused her of
sleeping with one of the firm’s clients and made references to her being ‘hot
totty’.
The tribunal’s decision to award Dr Swinburne (who has an MBA and a PhD)
such a huge payout sent shock waves through the city. Banks are typically very
publicity shy, and they do not like to see their names dragged through the
mud. Adverse publicity as a result of poor equal opportunities practice can be
highly costly to the firm, in terms of their reputation with clients as well as their
reputation in the jobs market. In the wake of the tribunal’s decision, Deutsche
Bank and other city investment banks have introduced diversity programmes,
quotas for female graduate intake, crèches and flexible working schemes. The
threat of adverse publicity and damage to company image has, therefore, had a
huge impact in terms of the approach taken to equal opportunities.
11.5.4 Product development

The argument here is that male-dominated organisations are likely to
produce male-oriented products or services. To demonstrate what is meant
by this, female business travellers make up the fastest-growing sector of
the airline market. British Airways has deliberately brought women in
to the field of product development in order to assist in the creation of
services that are more ‘female friendly’. It is easier to tailor the service to
meet the needs of women, if women play a part in the development of that
service.
11.5.5 Changing management styles

As discussed earlier, researchers have highlighted several differences
between male and female management styles. In traditionally run, male-
dominated organisations, female approaches have tended to be viewed as
inferior. However, it may well be the case that management styles typically
associated with women are becoming increasingly sought after within
more progressive organisations. As discussed earlier, the research suggests
that women are better at working in teams, better at empathising with
subordinates and happier with a delegative, non-directive participative
management style. This is increasingly the management style that many
companies, in moving away from hierarchies, bureaucratic structures
and systems of direct management control, are trying to develop. Such
developments may well provide new opportunities for women (Edwards,
Robinson and Woodall, 1999).
210
11.5.6 Evidence for the business case

To what extent have companies taken on board the notion that a sound
approach to equal opportunities can make good business sense? There is
evidence to suggest that a few leading-edge companies are increasingly
taking this view (see, for example, the earlier examples of British Telecom,
and Deloitte and Touche).
11.5.7 Limitations to the business argument

There are several limitations to the business argument, which suggest
even in companies that subscribe to the view that equal opportunities
makes sound business sense, women may still continue to be subject to
disadvantage.
First, the business argument is contingent. It is only at certain times, or
within certain parts of the organisation, that there will be a business case
for equality of opportunity. For example, it might make sense to bring
women into areas such as product development, in order to help develop
‘female-oriented’ products and services, but there might not be a case
for equality across the organisation as a whole. Similarly, it might be the
case that at certain times, when labour markets are particularly tight for
example, it makes sense to attempt to attract more female applicants.
However, when labour market conditions worsen, and the pool of
potential recruits increases, companies may well become less interested
in specifically targeting applications from women. As such, the business
case does not imply the need for a general equal opportunities programme
across the organisation as a whole. It simply suggests that in certain
functions, or under certain labour market conditions, it might make sense
to focus on the recruitment and retention of women (Liff and Dickens,
2000).
Second, it is much harder to make a business case for sound equal
opportunities in relation to women working in unskilled and semi-skilled
jobs, where there is nothing particularly special about the contribution
made by women over and above that made by males. This is particularly
the case where there is no problem with labour supply (Dickens, 1999).
Third, there is a risk that the argument that male and female management
styles differ can be used to justify the discriminatory treatment of women.
If the argument is that females possess a more delegative, empathetic
and consensual management style, it then becomes possible to put a case
that in certain macho or male-dominated environments, women will be
considered inferior precisely because their management style will not ‘fit
in’ with prevailing norms. The argument that female management styles
are ‘different’ could, therefore, be used to justify the inferior treatment of
women (Davies and Thomas, 2000).
Fourth, the adoption of a business case approach implies a change of
culture with regard to the acceptance of female management styles, the
redesign of jobs to suit women’s skills, the elimination of prejudgements
about women’s preferences and a full appreciation of the differential
contribution that women can make in terms of creativity and innovation.
This implies a considerable change of attitude and culture throughout the
organisation. As is widely acknowledged within the culture management
literature, changing the culture of an organisation in this manner can be
extremely difficult. For example, some people might simply pay lip service
to the new culture, and certain subcultures might resist the corporate
culture that the company is attempting to create. As such, getting everyone
in the organisation to buy into a culture that treats equal opportunity
211
issues as central to business development, rather than being marginal to

the central functioning of the business, may well prove extremely difficult
(Davies and Thomas, 2000).
The business case for equality and diversity may be better made if it
applies not just to women but to all people regardless of their ethnicity,
age, religion or disability. If all applicants for jobs are treated fairly and
with respect then organisations are more likely to reflect their customers
and to be able to meet the customers’ needs.
11.6 The role of the government in promoting equality

of opportunity
11.6.1 Legislation
If we accept that equality of opportunity will disadvantage those people
who traditionally have received more favourable treatment and that
it is not in their interests to give up their favoured status, then there
needs to be an external influence that can help the disadvantaged. The
most obvious source of external influence on organisations comes from
social, technological, economic, environmental, political and legislative
influences. Of these the political decisions that become law have a very
powerful influence. In the UK, over the period 1979–1997, the attitude
of the Conservative government towards equal opportunities legislation
stemmed very much from free market notions that companies should be
left alone to decide themselves whether or not they wanted to implement
equal opportunities initiatives. If it was not in their interests, they should
not be compelled to do so by government intervention. In other words, the
then government thought that economics should be the driving influence.
As such, the 1980s and 1990s saw very little change, with there being
no addition to the basic framework of the Equal Pay Act and the Sex
Discrimination Act that had been introduced in the mid-1970s.
The Labour government which was elected in 1997 decided that
legislation would be the way to influence organisations for the benefit of
women. They introduced a national minimum wage and three quarters of
the two million people who have benefited from the introduction of the
national minimum wage are female (Metcalf, 1999).
Second, the Labour government signed up to the Social Chapter of the
Maastricht Treaty (though it has tended to implement European directives
in a somewhat minimalist fashion). The aim of the Social Chapter is to
ensure that common minimum standards with regard to employment
legislation are applied across the EU. The following directives are
particularly important with regard to equal opportunities:
• The Parental Leave Directive. This introduced a right for parental
leave and the right to take time off for domestic incidents. This came
into force in the UK as part of the Employment Relations Act (1999).
The aim is to make it easier for women to take time off to balance
home and working life.
• The EU Directive on Part-Time Workers. The aim of this
directive is to protect part-time workers (the vast majority of whom
are female) against discrimination. This was implemented in the UK
in the form of the Part-Time Workers (Prevention of Less Favourable
Treatment) Regulations 2000. This law introduces the principle
that part-time workers should not receive less favourable treatment
than full-time workers at the same location under the same type of
contract, and also that employers should allow full-time workers to
212
shift to part-time contracts should they desire (Industrial Relations

Services, 2001b).
• European Directive on the Burden of Proof in
Discrimination Cases. When this is introduced, it will be up to
the employer to prove that no discrimination has occurred (providing
evidence of the measures they took to prevent it) rather than it being
up to the individual to prove they have been discriminated against. As
a result, it will become considerably easier to win discrimination cases.
• Maternity and paternity leave. In addition to the adoption of
various European directives, Successive governments have amended
the UK law on maternity leave. The current UK government have
indicated (2013) that they intend to consult with interested parties
(usually employers) and to introduce more flexible maternity and
paternity leave. This is intended to happen in 2015.
The above section gives examples of where legislation has tried to
influence equality of opportunity but as with all legislation it takes time
for the impact of the legislation to be seen. In addition to introducing
legislation, governments can generate initiatives to try to influence
organisations in the area of equal opportunities.
11.6.2 Non-legislative government initiatives

Initiatives that would come under this heading would include
commissioning reports such as the one for the Welsh Government on
‘Who runs wales”, establishing strong policies and leadership for equal
opportunities for their own employees (i.e. civil servants), making sure
that the population at large has sufficient information about their rights,
giving financial or legal help to claimants who want to bring a case
to court and making sure that all government policies take account of
equality and discrimination. The easiest way for a government to carry
out these activities is to establish a separate department that takes the
responsibility for ensuring these things happen. In the case of the United
Kingdom, the government established the Equality and Human Rights
Commission (EHRC) in 2006. In fact this ‘non-departmental public body’
replaced three other separate organisations: the Commission for Racial
Equality, the Disability Rights Commission and the Equal Opportunities
Commission. The EHRC is responsible for discrimination in the following
areas:
• Age
• Disability
• Gender, sexual orientation and gender reassignment
• Race
• Religion and belief.
In some ways it makes sense for there to be a single organisation
responsible for all areas of discrimination, since it is possible that people
may be discriminated against for two reasons at once, for example,
for being female and disabled. It is much more efficient for all the
discrimination expertise to be held together in one organisation. It is better
that individuals need only go to one place to get advice and to seek help
with a legal case. In the case of the EHRC in the UK, they also have powers
to force organisations to fulfil their legal equality responsibilities. If the
EHRC suspects that an organisation is not doing so, then it has the power
to carry out an enquiry or investigation.
213
There is, therefore, a range of initiatives, both legal and non-legal, that
governments can introduce to either encourage or compel companies
to take equal opportunities issues more seriously. These initiatives are
important not simply in terms of forcing companies to adhere to the law,
but also from a symbolic perspective. Government policy and the law set
the tone concerning the minimum standards by which employers and
society as a whole should treat women. By introducing new initiatives
and new legislation, the government is sending an important message to
employers that it is not acceptable to discriminate against women, and
that discrimination is viewed as socially unacceptable behaviour.
Activity
In relation to your own country, to what extent has the government introduced initiatives
to promote equality of opportunity? To what extent do you think these initiatives have
been successful?
11.7 The role of trade unions

Activity
Before reading this section, list the ways in which you think trade unions can play a role
in terms of encouraging firms to implement sound equal opportunities policies.
Is there a role for unions to bring about a change in the way in which
equal opportunities issues are handled? The argument here is that trade
unions can use their influence in several ways to secure improvements in
equal opportunities practice (Dickens, 1999):
• Basing their arguments on the principle of fairness and justice, not just
on a business case, the union can ensure equal opportunities policies
are implemented for everyone across the organisation, and not just for
managerial or professional employees.
• The union can encourage companies not to withdraw their support
for equal opportunities when it no longer makes business sense (for
example, when the labour market weakens).
• The union can monitor when companies are living up to the letter of
the law and give financial and legal support to those members who
take an equal opportunities case to an employment tribunal.
• Union representatives can provide a communication channel by
which the views of women with regard equality initiatives can be
taken into account. Because the union rep need not say who exactly
raised an issue, members are more likely to use this channel as it gives
anonymity to aggrieved employees.
It may well be in the interests of unions themselves to promote equal
opportunities issues more vigorously. Typically, unions have been bad at
this. However, as the proportion of women in the labour market continues
to increase, and as the sorts of jobs (in engineering and manufacturing,
for example) from which unions have traditionally drawn their members,
continue to dry up, it makes sense for them to take equal opportunities
issues more seriously, as a mechanism by which they can appeal to new
female members.
214
11.8 Self-employment
Self-employed women say they particularly value the independence and
flexibility that self-employment gives them in terms of combining work
and home life. They also see self-employment as an opportunity to escape
organisations dominated by male senior management and male-oriented
attitudes (Gracie, 1998).
However, there are some potential problems for women wishing to
go down this route. For example, there is evidence that women face
difficulties in terms of securing access to venture capital from banks. Many
of the women who have been successful in building their own businesses
have done so without a great deal of support from the banks or stock
market. As such, there may be limitations as to the extent to which self-
employment is a viable option for women.

• discuss the ways in which women experience disadvantage in the
labour market, with regard to pay issues, and horizontal and vertical
segregation
• explain the reasons for the disadvantages that women experience in
organisations, from the point of view of both person- and situation-
centred perspectives
• describe the differences between liberal and radical approaches to
equal opportunities policy, and explain the shortcomings of each
approach
• explain the ways in which sound equal opportunities policies can make
good business sense, and understand the limitations of the ‘business
case’ for equal opportunities
• demonstrate awareness of recent changes to the law governing equal
opportunities in both the UK and the European Union, and of other
non-legislative initiatives the UK government has introduced to
promote equality of opportunity
• describe the role of trade unions in promoting equality of opportunity
• outline issues surrounding self-employment with regard to female
career opportunities.

1. a. Explain the reasons that women may be disadvantaged in the
labour market. (10 marks)
b. Make the case for a business to employ a diverse workforce
(15 marks)
2. a. What is the difference between the radical and liberal approaches to
equality of opportunity? (10 marks)
b. Discuss ‘The position of women in organisations is unlikely to
improve unless stronger equal opportunities legislation is enacted’.
(15 marks)
215
Notes
216
Part 5: Work organisation
Part 5: Work organisation
217
Notes
218
Chapter 12: Labour economics
12.1 Introduction
This chapter continues with the analysis of how firms use the labour they
employ (first discussed in Chapter 1). Specifically, how much flexibility
should they build in to their deployment of labour, and should they, as far
as possible, rely on promotions to fill vacancies rather than always hiring
from the external labour market?
Before looking at these two very important issues, however, it is sensible
to look at the more basic question of the firm’s demand for labour. Every
organisation has to decide:
• how many people to employ
• how many hours per week they want from their different employees
• what sorts of people to hire
• what sorts of contractual arrangements to have with their different
types of employees.
In order to discuss these decisions we need to analyse what forces
influence the amount of labour a firm wants at any time, how it reacts
to changes in those forces and how it wants to deploy the labour it
engages. This is a complex discussion based on principles drawn from
labour economics. This chapter’s special focus is captured in the following
sections, which cover:
• the standard theory explaining the firm’s demand for labour
refinements to that standard theory
• the analysis of numerical flexibility
• the merits of internal labour markets.

• The aim of this chapter is to introduce students to some basic topics in
labour economics.

• describe the standard economic theory of what determines the firm’s
demand for labour
• explain the notion of organisational slack and different forms of
numerical flexibility
• describe internal labour markets, the arguments for and against them,
and their different forms.

There is no truly Essential reading for this chapter. It will, however, be very
useful to help your understanding of some of the material if you look at a
text like:
Baron, J. and Kreps, D. Strategic human resources – frameworks for general
managers. (Hoboken, NJ: John Wiley & Sons, Inc., 1999) [ISBN
9780471072539], Chapter 4 ‘Employment and Economics’ and Chapter 8
‘Internal Labor Markets’.
219

Aoki, M. Information, incentives and bargaining in the Japanese economy.
(Cambridge: Cambridge University Press, 1988) [ISBN 0521386810]
Chapter 2.
Doeringer, P. and M. Piore Internal labor markets and manpower analysis.
(Lexington, Massachusetts: DC: Heath & Co., 1971) [ISBN 0669635294]
especially Chapters 2 and 3.
Osterman, P. ‘Internal Labor Markets in a Changing Environment’ in D. Lewin
Research frontiers in industrial relations and human resources. (Maddison,
IRRA, University of Wisconsin, 1992) [ISBN 0913447536].

In this chapter we discuss the standard economic model explaining
the demand for labour. We look at refinements to the standard model,
taking into account the heterogeneity of labour, non-wage labour costs
and organisational slack. We discuss out sourcing and the significance of
internal labour markets
12.2 The standard economic theory explaining the firm’s

demand for labour
If you ask managers what determines the number of employees they
wish to employ at any time you will generally be told about some target
‘establishment’ or head-count level (i.e. some figure for which the
managers had previously budgeted). If you dig a little deeper you will
often be told that this target level depends on a combination of existing
production arrangements and the state of the business, which usually
means the level of sales or orders.
An academic analysis of labour demand would come up with similar
categories, but add some others and be more rigorous. The social science
discipline that has been most interested in the question of labour demand
is economics. What follows is the bare bones of the elementary analysis
from economics on this issue.
The orthodox economic analysis of a firm’s demand for labour is drawn
from the framework of the standard economic theory of the firm, and
is most easily grasped under the simplifying assumption that labour is
homogeneous (i.e. that everyone is equally productive). According to the
textbooks, a firm’s demand for labour is then said to depend on three
things:
• the demand for the firm’s output
• available technology, or production methods
• ‘factor’ or input prices (i.e. wages, the cost of capital, etc.).
In economics textbooks, ‘technology’ is normally thought of as the set of
‘efficient’ or ‘best practice’ production techniques.1 Economics textbooks
1
Expressed more
formally, a particular
usually assume that a firm adopts the appropriate best practice, reasoning
technology or
that if it does not it will be undercut by competitors and be driven out of production technique is
the market. This assumption is a particular example of a more general ‘best practice’ if, for any
assumption that economists often make, which is that managers are very specified level of output,
well informed about technical possibilities and have very substantial and for any given
control over what goes on inside the workplace. quantities of the other
n-l input, it uses the
Economists tend to be interested in long-run market tendencies rather least possible amount of
than the policies or fortunes of individual firms, so this may be a the nth input.
reasonable assumption for their particular purposes. But HR policy is
centrally concerned with what best practice is, so for our purposes it is
220
not very interesting to assume that it is always in place. We therefore

want to stress the importance of a fourth influence on the demand for
labour, which is precisely that there is usually a gap, and sometimes a
very big gap, between actual practice and best practice. This gap is really
an index of organisational competence (here in deploying labour), and
we might call it the amount of ‘organisational slack’. We will, however,
begin by putting this fourth influence to one side and concentrating on the
economists’ usual trinity.
12.2.1 The demand for labour and the demand for the product
The demand for labour moves in the same direction as product demand
(e.g. it goes down when product demand falls). Product demand itself
depends on a number of determinants such as the price of the product,
income levels and, for any one firm, competition from others (e.g. through
changes in the quality of products). The major reason for a change in a
firm’s demand for labour in the short and medium term (say, over a typical
business cycle) is usually a change in the demand for its products.
12.2.2 The demand for labour and technical change

The theoretical relationship between changes in technology and the
demand for labour is tricky but important to understand properly because
the main cause of changes in the demand for labour in the longer run is
almost certainly technical change.
For the purposes of the standard theory, technical change is taken to
mean a change in ‘best practice possibilities’; alternatively, it could mean
a belated adoption of best practice. Either way, technical change can have
two very different effects on the demand for labour:
1. By definition, technical change directly raises labour productivity.
So that, for any given level of output, it reduces a firm’s demand for
labour (e.g. the original amount of output can now be produced with
less labour).
2. But technical change can also lead to a rise in sales. By itself, this
will raise the demand for labour. The rise in sales is not guaranteed
to happen. Because technical change reduces the amount of labour
needed to produce each unit of output, it will normally reduce
production costs. Firms may then choose to lower the prices they
charge for their products. If they do, they are likely to enjoy a rise in
the demand for what they make.
In theory, the second of these effects could be stronger than the first, so
that technical change could, on balance, raise the demand for labour in
those firms where it is introduced. Whatever the theoretical possibilities,
however, most analysts and nearly all managers, probably think that
technical change in practice reduces the demand for labour. This is even
more likely when it raises the productivity of labour by more than it raises
the productivity of the other inputs.
There are surprisingly few good studies of the actual effects of technical
change in practice. But manufacturing is widely thought to be an area
where technical change has been profound (and perhaps biased in
a labour-saving way); much of the service sector is thought to have
had fewer possibilities for technical change. If so, it is no surprise that
employment in manufacturing has fallen while that in the service
industries has risen. (Things may now be changing; the spread of
computer technologies may now mean that many service industries, for
example, banks are beginning to experience a major technical change that
will lead to profound job losses there too.)
221
Activity
Think of an example of technical change and assess whether it resulted in job losses or
job gains.
12.2.3 The demand for labour and the price of labour

The demand for labour will tend to be low when the price of labour (the
wage) is high, and high when the wage is low. As illustrations, consider:
• the greater labour intensity of production in poorer countries: they use
more labour per unit of capital because wages are low and capital is
expensive
• the falling price of computers and the consequent fall in the demand
for labour in many trades: capital goods have become (relatively)
cheaper, leading to substitution away from labour
• the finding that trade union wage mark-ups usually cost jobs: as trade
unions successfully negotiate wage increases for their members, jobs
are lost.
The rough consensus from recent empirical findings is that the wage
elasticity is between -0.15 and -0.5; in other words, a one per cent rise
in the real wage (all other things constant) eventually leads to job loss
of between 0.15 per cent and 0.5 per cent, or around 0.3 per cent on
average.
12.3 Refinements to the standard theory

The standard framework can be extended to address a whole range of
specific issues; here we look briefly at three such issues of particular
interest to HR policy:
• the fact that labour is heterogeneous rather than homogeneous
• the issue of non-wage labour costs
• changes in organisational slack.
12.3.1 Heterogeneous labour

So far we have made the simplifying assumption that everyone’s
productivity is the same. This is clearly untrue. There are, for example,
different skill groups, each with its own average level of productivity.
By itself, allowing for different skill groups does not change the analysis
too much. The same principles as before can be used to explain the
demand for each skill group, but we now have more cross-relationships
to consider when determining the level of demand for any one of them.
One difference is that each skill group is now a potential substitute for the
others; this normally means a larger responsiveness (or wage elasticity) of
demand. A very common finding is that when the wage elasticity is smaller
(i.e. there is less responsiveness to wage changes) the more skilled is the
labour.
In a similar way, the demand for some types of labour might be less
responsive to changes in product demand over the business cycle; thus,
when sales fall off, direct production workers might be laid off whilst
many ‘indirect’ workers, like sales personnel, are kept on. Different skill
groups might also be differentially susceptible to technical change, some
being more threatened by it and others tending to benefit from it.
Skill is not the only source of heterogeneity. Employees differ, or might be
perceived to differ, according to their personal characteristics (e.g. their
222
sex, age, race, religion or disability). This could take us on to a discussion

of labour market discrimination and equal opportunities policy. Here
we just note that each of these characteristics may in practice affect the
demand for particular types of labour.
12.3.2 Non-wage labour costs

Wages are only one type of labour cost. Other important labour costs
are labour taxes paid by employers (in some European Union countries
these can easily exceed 25 per cent of the wage), and fringe benefits like
employers’ pension contributions. In the US, for example, health insurance
is a major non-wage labour cost for many employers.
Such costs are likely to influence the demand for labour in a number of
ways. Within the European Union, for example, there are often heated
discussions on whether some firms shift production away from countries
like France, where ‘social contributions’ (i.e. taxes on labour) are high, to
countries like the UK, where they are much lower.2 It is also claimed that 2
Such shifts are refered to
non-wage costs encourage firms to substitute away from labour towards as ‘social dumping’.
more capital-intensive methods of production.
Non-wage labour costs are not always proportional to wages; some fringe
benefits are given only to the lower paid, while others (e.g. company
cars, private medical insurance) may be given only after a certain level of
seniority has been reached. To the extent that they are not proportional to
wages they will tend to make one type of labour more expensive relative
to another, and so encourage firms to substitute between types of labour.
In addition to these variable labour costs (i.e. costs which are directly
tied to wages and change when the wage bill changes) there are others
that are much more in the nature of costs incurred on a once-and-for-all
basis; these are usually called fixed labour costs. When, for example, a
firm pays to train an employee, the cost is incurred just once. Many areas
of HR policy involve precisely such costs (recruitment, selection, training,
appraisal, etc.). Because of the growing complexity of HR policy, it is quite
likely that they are becoming more important over time.
Fixed labour costs like these have two obvious and important effects on
the demand for labour:
1. They tend to raise labour productivity and reduce the number of people
the firm wants; think, for example, of a training programme that
enhances worker performance and means that the firm can make do
with fewer employees.
2. They represent an investment by the firm in the employee, and so give
the firm an additional incentive to keep the employee, so as to realise a
return on its investment.
Activity
Think of three examples of fixed labour costs and indicate precisely how and why they are
likely to affect levels of labour productivity and labour demand.
12.3.3 Organisational slack

In addition to technical change as it is normally conceived (and which
is often embodied in new types of machines), we should also consider
various ‘organisational changes’ (e.g. a whole variety of production
rearrangements, on changes in work practices or new ways of working).
These are usually designed to raise efficiency and labour productivity,
often without substantial capital investment.
223
Firms experience such organisational changes all the time. There is always
some gap between the ideal and the reality but, from time to time, the gap
is attacked more vigorously. When a firm faces a crisis, for example, it is
likely to look at its organisational slack with greater urgency. In principle,
such changes have the same twin effects as those described above for
orthodox ‘technical change’ but in practice they are very likely indeed to
result in a fall in labour demand. This is why the scale of redundancies
that firms announce is so often larger than would be justified by the
immediate loss of sales – essentially, firms often use recessions as the
occasion to squeeze out some organisational slack as well.
12.3.4 The analysis of numerical flexibility

The standard theory discussed so far seeks to enumerate what determines
the steady state target demand level for labour. But firms are rarely in
a steady state. In the real world they are continually having to react
to shocks in the form of changing market conditions, new technical
possibilities and reorganisations, all of which have an impact on their
target level of labour demand. So, how do they adjust to ‘shocks’ (e.g. to
a sudden fall in sales)? In practice, they do not immediately lay people off
as soon as there is a fall in sales; nor do they start hiring as soon as sales
increase. Instead, they wait for a while so as to get a better idea of the size
and likely duration of the shock.
When shocks are expected to be both large and regular, the firm will
normally develop a strategy on how it will adjust its labour use when
any shock actually materialises; in the HR jargon, it will want policies to
achieve numerical flexibility. This notion is often expressed in physical
terms (e.g. as the number of people to be let go or taken on in the face
of a shock). Analytically, however, it is more of a financial issue than a
physical one. The firm is essentially trying to adjust its total labour costs in
the face of outside shocks. If it is not sufficiently flexible, it will be forced
to carry too much labour (i.e. have too high a wage bill) when its sales
fall off somewhat; similarly, it may be unable to get enough of the kinds of
labour it wants when business suddenly picks up (and will lose business by
not meeting all its orders effectively). So, numerical flexibility should be
thought of as a firm’s ability to adjust the amount of labour it hires or pays
for when its demand for labour services changes.
Numerical flexibility is one aspect of a general flexibility which, it is
widely claimed, firms need in order to cope with the greater risks and
uncertainties of modern commercial life that are said to come from more
volatile product markets and more rapid technical change. Whatever the
facts about greater risks and uncertainty, it is certainly true that if product
demand is unpredictable there is a financial incentive for the firm to have
arrangements in place to reduce the costs of adjusting its labour force.
So what can firms do to secure numerical flexibility? There are at least
four actions they can take. They can vary:
• the pace of work
• the average number of hours its employees are required to work
• the number of people it employs
• the contractual status of its employees.
The obvious first reaction is to meet any change in the demand for labour
by varying either the pace of work or the number of hours. So if demand
suddenly picks up, for example, the firm will initially ask its employees to
work a little harder and/or a little longer per week. This is generally
224
cheaper than hiring more people (even if the firm has to pay premium
wage rates for overtime work3) because hiring normally involves 3
Many production
substantial fixed labour costs (you have to advertise for staff, interview workers are paid ‘time
them, train them, etc.). There are many variations on this hours of work and a half’ or ‘double
time’ when their actual
theme; for example, rather than specify hours to be worked per week,
hours of work exceed
some firms specify the number of hours to be worked per year (annual an agreed basic working
hours contracts). This gives them considerable flexibility to deploy their week.
labour within the year without necessarily paying premium wage rates for
overtime working.
A second contractual arrangement that is often linked to numerical
flexibility is hiring part-time rather than full-time workers. It is sometimes
claimed that firms find it easier (which really means cheaper) to hire and
fire part-timers.
If the change in sales is durable the firm will typically start to adjust the
number of people it employs. This distinguishes the short-run from the
longer-run demand for labour. It is commonly thought that it takes more
than a year for the typical employer to adjust employment fully to a lasting
change in sales.
A third arrangement is to hire new employees but to offer them a contract
of fixed duration, say, six months. The normal expectation might be that
they will leave at the end of the six months, so that separation costs will
be low. A rolling plan of such contracts gives the firm a greater degree
of numerical flexibility because there is more built-in ‘natural wastage’
(of course, it has the disadvantage of raising total hiring costs because
eventually more people have to be interviewed, entered into the firm’s
records, etc.).
The fourth arrangement and a flexible alternative to hiring or firing is to
use different types of employment contract. The traditional contract in very
many labour markets is for someone to be employed as a full-time worker
for an indefinite duration. It is commonly claimed nowadays that a good
way to secure numerical flexibility is to make more use of ‘outsourcing’4, 4
See next section 12.3.5
of part-time workers or of fixed-term workers. In fact, the analysis of these on outsourcing
alternatives is very complex. The key thing to remember is that although
they are sometimes used to achieve numerical flexibility, they are also used
for other purposes too. So we have to be extremely careful not to confuse
these purposes when we are trying to understand them.
It is very important to realise that these arrangements, all very frequently
used, are not as straightforward as they might seem at first glance. First,
they might not succeed in delivering numerical flexibility, or at least not as
we have defined it. More important, they are very often used for purposes
that have nothing to do with numerical flexibility. To see this we will
examine outsourcing and part-time working in the way that managers do
in the real world.
12.3.5 Outsourcing
Outsourcing is where a firm uses the employees of another firm to perform
some of its work. So, if a firm’s order book improves it can choose to take
on more employees itself or to subcontract some of the work to another
firm. Doing the first of these imposes commitments; if the order book
subsequently deteriorates, the firm has to lay people off (so that, having
incurred the costs of hiring and induction, and possibly of training as
well, it now faces the costs of separation). Outsourcing, or subcontracting,
promises greater flexibility, in that the outsourcing contract can simply
be not renewed. A common form of outsourcing is the use of agency staff
225
(i.e. temporary workers or ‘temps’) who are the employees of some outside
agency and come to work in the firm for a stated period; some ‘temping’
labour markets (e.g. for secretarial services) are very well developed and
one can hire a temp for a month, a week or even for a single day.
Some forms of outsourcing can certainly give numerical flexibility. But this
is not automatic. Recall that numerical flexibility is not fundamentally the
physical matter of taking on or getting rid of employees; rather it is the
financial matter of containing the costs of adjustment so that unit costs are
on average contained in the face of business fluctuations.
Temporary staff are often expensive; for example, an agency secretary in
London might easily be paid 25 per cent more per week than a regular
secretary. But the hiring and separation costs are generally a lot lower for
the agency secretary. So, the variable labour costs of temps can be high
and their fixed labour costs can be low; on the productivity side, temps
might be more or less costly depending on the situation. The balance of
costs for the two types of labour, therefore, depends on circumstances.
So this kind of outsourcing certainly allows the firm to adjust its physical
labour supply easily but it is not guaranteed to contain unit labour costs,
and hence truly secure numerical flexibility in the way we have defined it.
Activity
Find out how, and precisely why, an example of outsourcing in the city where you live
would raise or lower labour costs.
An even more important point about outsourcing is that it very often has
nothing to do with flexibility as such. A firm may outsource, say, its IT
function because the outside IT supplier is larger and more specialist – it
may therefore be much cheaper, on a permanent basis. This has nothing
to do with a sensible response to risks and uncertainties or to shocks, but
plenty to do with economies of scale and specialisation.
Another reason for outsourcing is that many firms develop a rigid
internal wage structure (i.e. a set of relative wages within the firm which
employees use to establish their entitlements). It is often difficult for such
a structure, once established, to be easily altered (and it often becomes
a part of the psychological contract). In the external labour market,
however, relative wages may well change more frequently. The result may
be that parts of a firm’s internal wage structure cease to reflect external
realities. Thus, large firms often find themselves paying their low-skilled
workers far more than the external labour market; as another example,
the wages for IT specialists in the public sector often lag far behind market
reality. These misalignments are a source of inefficiency; the firm’s low-
skilled labour costs are unnecessarily high in the first example, and it can’t
hire or retain enough competent people in the second. One solution is to
outsource and get back in touch with market reality.
So, outsourcing often (and maybe even usually) has nothing to do with
numerical flexibility. We should certainly not make the mistake of equating
the two.
12.3.6 Part-time working

The analysis of part-time workers is different again. There are indeed
circumstances in which part-timers are cheaper to lay off. Some countries,
for example, have elaborate legal protections for full-time employees but
not for part-timers. This may mean that the separation costs for the latter
are much lower. In that case, they will be a source of numerical flexibility
226
in the sense of being a cheap way to respond to external shocks. But the
full analysis of part-time employees is far more complex.
There has been a very large expansion in the use of part-time workers
in many countries, often over many years. Much of this growth concerns
women, often mothers, who prefer to work only part-time. Many
employers always want at least a fraction of their labour force only on a
part-time basis. But this is not necessarily connected with flexibility, in the
sense of adapting to unexpected external shocks; rather, it is a permanent
situation.
Take the example of a retail shop that enjoys a peak demand in the
evenings and on weekends. The shop will always want to employ
part-time sales assistants to work at those peak times (they would be
underemployed for the rest of the time if they were employed on a full-
time basis). If the economy goes into recession and sales fall off, it is not
clear that the shop’s managers would then wish to lay off mostly the part-
timers; there would still be a concentration of demand at peak times for
which part-timers are still the obvious solution. The managers may prefer
to lay-off full-timers.
The preferred option clearly rests on a careful examination of the
differential unit labour cost implications. This means comparing hiring
costs, separation costs, labour costs and productivity of the two groups.
The costs of hiring part-timers might be below those of full-timers, but it
is not obvious why this should be so; the labour costs (wages and fringe
benefits) of part-timers might also be lower, but that would argue against
keeping any full-timers at all; and relative productivity would turn on
things like the pattern of peak demand. In general, the use of part-timers
seems to have little to do with growing risk and uncertainty and much
more to do with underlying labour supply preferences and employers’
demands about precisely when they wish their labour to be available. It
is therefore no surprise to learn that very many part-time workers are
‘permanents’ (i.e. they work for the same employer for a very long time
but always on a part-time basis).
12.3.7 A summary of numerical flexibility

To summarise the discussion of numerical flexibility:
• Numerical flexibility refers to the arrangements which produce lower
labour costs in the face of external shocks.
• It may be more important for firms to have such arrangements as
change in the world generally becomes more rapid.
• There are a number of particular policies which firms can adopt to
achieve numerical flexibility.
• But, and this is vital to understand, all of these policies have other
purposes too, and these purposes are often much more important than
the flexibility considerations.
12.4 Internal labour markets

When an army wants to appoint a new general it doesn’t advertise in the
newspapers. Rather, it promotes a more junior officer. Very many firms do
the same, having a clear policy of filling most of their vacancies by internal
promotion rather than by direct hiring from the external labour market.
Such firms are said to be operating an Internal Labour Market (ILM).
Clearly every firm must hire from the outside to fill vacancies at the lowest
job level; for the other levels, however, firms have the choice of using the
227
external labour market or promoting existing employees from below. A

firm that hires externally only at the lowest level (i.e. has only a single
‘port of entry’) and then offers a series of job ‘ladders’ to its employees, is
operating a strict ILM. A firm that hires freely at all levels would be using
a completely open labour market policy. Other firms would be in-between
these two extremes, perhaps giving some preference to internal candidates
but hiring some people externally; such firms would have a partial ILM
policy.
Defining the term in this way reflects how it was used when it was first
introduced in the 1950s by Clark Kerr and John Dunlop. Since then some
analysts have defined it more broadly; for example, the US analyst Paul
Osterman prefers the definition of ILMs to include the choice of wage
system, job classification and rules regarding the deployment of labour
and employment security.5 These other definitions often reflect what often 5
See Osterman (1992)
accompanies an internal labour market. We prefer, however, the older, p.275.
narrower definition.
In discussing ILMs we want to answer a number of questions. In particular,
we want to know their likely advantages and disadvantages, and what
their use implies for other HR policies. Doing this makes it clear that
internal labour markets are tightly bound up with a firm’s policy on
training.
12.4.1 The likely advantages and disadvantages of ILMs

It is easy to see that employees usually want their firm to operate a
strict internal labour market. Once they are inside it, their chances of
winning the promotion ‘tournament’ are improved (because they don’t
have outside competitors). They can, after all, always leave the firm for
external possibilities but they have a privileged position as far as internal
promotions are concerned. So it is obvious that an ILM can benefit a firm’s
workforce. But it is firms that create ILMs, so what’s in it for them? To put
it another way, why do firms so frequently choose to ignore the external
labour market when filling so many vacancies?
First, who is covered by ILMs? Only some organisations operate strict
internal labour markets. The military in almost all countries seems to rely
on them, as do many parts of the traditional public sector, including the
Civil Service.6 Many large private firms have also tended to use them, for 6
In fact, it is common
example large financial institutions like banks and insurance companies. for such internal
labour markets to be
They can cover both manual and non-manual employees. It is likely that
segmented and to
the job ladders for manual employees are usually short (i.e. there might be have separate ports of
only a few manual job grades), whereas those for non-manuals, entry and separate job
particularly in managerial roles, are longer (and the change in income and ladders for the different
job responsibilities more dramatic as people go up the ladder). It also segments; for example,
seems to be the case that job ladders have frequently been reduced in the army will typically
have one job ladder for
length in recent years. Phenomena like functional flexibility, multi-skilling
officers and another for
and de-layering (e.g. eliminating certain supervisory or management job other ranks.
grades entirely) all mean that the form and scope of ILMs have been
changing, sometimes dramatically. ILMs, however, have certainly not
disappeared.
Why, then, do firms use them? One reason is that sometimes the only
source of suitable labour is from within, so that organisations are obliged
to rely on promotion. But this is clearly not true for all situations where
ILMs exist, so there are other explanations at work. The fact that ILMs
are not universal probably means that there are both advantages and
disadvantages in the arrangement, and that the balance varies among
firms and for different types of employee.
228
Four potential advantages to firms of ILMs

Four advantages of ILMs can be summarised as follows:
1. An ILM improves the promotion chances of insiders. This may well
motivate employees to put in greater effort and stay longer with the
firm. It might also make them more committed to the firm, which
might lead them to perform better (note that I have deliberately used
the word ‘might’ twice in this sentence).
2. If employees do stay longer, a whole series of HR investments in people
(e.g. training, careful selection, etc.) will generally be more profitable
and might raise quality levels. This might be an especially powerful
argument for firms that emphasise product quality.
3. Internally promoted employees carry with them knowledge of how the
organisation works, so they are likely to be fully effective in their new,
more senior, posts sooner than someone brought in from outside.
4. The firm is very likely to know more about the promoted person than
about someone from outside; so there can be less risk in selection.
These are strong arguments but they are not sufficient for us to conclude
that ILMs should be the norm. There is also much to be said for using the
external labour market too.
Four potential advantages of outside hiring

In contrast, four advantages of outside hiring are:
1. Outside hiring means that the firm has a bigger and better field of
recruits, so it can hire new blood, and attract new perspectives and
new ideas; of course, this advantage may be more relevant for some
positions than for others, and it remains an advantage only if the firm’s
hiring policy is sufficiently effective to allow it to identify the better
people with some accuracy.
2. The firm stays in better touch with external market developments
so that, for example, its internal wage structures may remain more
flexible (recall our previous discussion of outsourcing and the role that
rigid internal wage structures can play).
3. The rule of internal promotion might become promotion by seniority
rather than merit; the US literature is full of examples of internal
labour markets ‘degenerating’ into promotion by filling dead men’s
shoes, often as a result of trade union pressure. If this happens,
the motivational potential of internal labour markets is lost (and
demotivation could set in) and the firm might be obliged to promote
unsuitable candidates.
4. With internal promotion, employees may no longer have the
opportunity to use the task-specific knowledge they have built up; their
new post may not require it, so some specialised knowledge may be
unused. Think of what happens in a school when the excellent teacher
is promoted to headteacher and never has the chance to teach again.
To summarise, there is in general no logic that says internal labour
markets are necessarily good or bad. There is clearly the danger that they
become a source of inefficiency; equally, they may be a way in which a
vibrant culture can be achieved.
Activity
In which firms are ILMs likely to be useful, and where are they likely to be a source of
inefficiency?
229
A final, and very important point on internal labour markets is that they
are not the same thing wherever they are used. This takes us on to their
implications for HR policy.
12.5 The HR implications of ILMs

The most important HR implication of internal labour markets is that they
are likely to make the rest of a firm’s HR policy much more complex. At
a minimum, the firm operating an ILM must have a career development
programme, which usually implies greater training expenditures. The firm,
after all, cannot expect the people it hires at the port of entry to possess at
that time all the skills it will wish them to have during their whole careers.
So in-house training will loom larger. This also has a natural implication
for hiring policy. If the firm is going to develop its employees it will want
to be confident when hiring them that they are capable of development –
its hiring criteria will therefore be more likely to include such an aptitude
test.
Part of career development is regular performance appraisal; you have
to know how your people are performing to see whether they are worth
promoting, so regular assessment arrangements are more profitable when
the firm has internal labour markets. A further point concerns the link
between internal labour markets and wages. The fact that more people are
going to stay with the firm for longer, and be promoted, means that the
firm acquires an extra degree of freedom for its internal wage structure:
it has less pressure to tie wages exactly to current market levels; it can
instead think about the stream of earnings over a longish period.
In addition, the longer-term relationship between the firm and employee
might well mean that there is a pay-off in consciously making that
relationship more complex and subtle. The firm might see more virtue
in developing a fruitful ‘psychological contract’ between itself and its
employees. It might be more important to secure their loyalty and
commitment; in seeking to do this it might, for example, be wise to use
various techniques of employee involvement.
12.5.1 Different types of ILMs

Precisely what a firm does, or should do, to extract the maximum out
of its internal labour market will depend in part on how it views the
arrangement. This is just another way of saying that there are different
forms and ways of taking advantage of the basic institution. To highlight
this we can consider two generic forms of ILM; following Aoki (1988), we
can refer to A-firms and J-firms. It should be stressed that these are both
cartoons; it is certainly not the case, for example, that all ILMs in the USA
are A-firms, and all those in Japan are J-firms; but there does seem to be a
tendency for internal promotion to have been used differently in those two
economies.
7
Taylorism, sometimes called
A-firm arrangements can be exemplified by a US steel mill example from
Scientific Management,
Doeringer and Piore’s path-breaking book of 1971. What they described was an extremely influential
was a series of job ladders, each linked to a different stage in the steel- school of management
making process; strict seniority applied to both promotions and lay-offs; thought; it began at the
there was also very little lateral movement between the ladders. end of the 19th century
Employees eventually became highly skilled but their skills remained and, among other things,
advocated the use of experts
narrowly focused on their stage of the whole process. This looks to me like
to define jobs ‘scientifically’
a product of Taylorism7 and trade union pressure, giving job protection and very narrowly, with tight
and valuable seniority rights to insiders, and it hints that ILMs are not supervision and relatively
always valued by cost-conscious managements. high pay rates.
230
In J-firms, however, there can be equally clear internal labour markets

but managers seem to remain fully in control of labour deployment. So in
J-firms, staff are regularly rotated from one part of the whole operation
to another; this enables them to develop wide-ranging skills. They are
not confined to a single, narrow job ladder but may go almost anywhere.
Multi-skilling and broad job descriptions are natural consequences. This
means that we must go behind the internal labour market label and look
at the reality. When we do this we can see a variety of accompanying
practices, which may be a basis for different HR strategies.
12.6 Summary
To reinforce a point made in the first chapter, HR policies in one area have
important implications for those in another. If a firm decides that an ILM
has advantages it must tailor its other HR policies to make sure that there
is overall consistency. Further, and this is again a typical feature of HR
arrangements, the fact that a firm has an ILM is only the beginning; ILMs
come in more than one form, so that the firm still has important detailed
decisions to make when it decides precisely how to use such an institution.

• describe the standard economic theory of what determines the firm’s
demand for labour
• explain the notion of organisational slack and different forms of
numerical flexibility
• describe internal labour markets, the arguments for and against them,
and their different forms.

1. The number of people employed in many large organisations in the
service sector has fallen over the last few years and is projected to fall
substantially in the future. Why might this be happening, what HR
problems might it pose for managers, and what HR policies could be
adopted to limit these problems?
2. What theoretical and practical considerations should an organisation
take into account when deciding whether to go for part-time and
temporary, as opposed to full-time and permanent, workers when
hiring new employees?
3. Comment on the proposition that, these days, no rational organisation
would continue to operate an internal labour market.
4. What advantages and disadvantages face an organisation pursuing a
policy of very extensive employee outsourcing?
5. a. What is the difference between an ‘Internal Labour Market’ and the
‘External Labour Market’?
b. Discuss the advantages and disadvantages for organisations in
operating an internal labour market.
231

1. What is the difference between an ‘Internal Labour Market’ and the
‘External Labour Market’?
2. Discuss the advantages and disadvantages for organisations of
operating an ILM.
232
Chapter 13: HR strategies and high performance work systems
Chapter 13: HR strategies and high

performance work systems
13.1 Introduction
This chapter examines what is meant by ‘HR strategy’ and how good HR
strategies should embrace all the main issues which have been raised in
previous chapters.

• The aim of this chapter is to describe the important concept of ‘high-
performance work systems’ and to introduce students to HR strategy.

• explain what is meant by the terms ‘HR strategy’ and ‘high performance
work system’ (sometimes referred to as a ‘high commitment work
system’)
• discuss how the context of HR decisions is changing
• describe what factors must be at the heart of an HR strategy
• explain how the wish for HR flexibility can create problems for high
commitment HR strategies.

Bamberger, P. and I. Meshoulam Human resource strategy. (Thousand Oaks, CA:
Sage, 2000) [ISBN 9780761914259].
approach. (Harlow: Prentice Hall, 2007) Chapter 15 ‘HRM trends and
prospects’ and Chapter 17 ‘International HRM’.

Bach, S. Managing human resources. (Oxford: Blackwell, 2005) Chapter 2
‘Managing human resources in multinational companies’.
Baron, J.N and D.N. Kreps Strategic human resources: frameworks for general
managers. (John Wiley & Sons, 1999) [ISBN 9780471072539] Chapter 9
‘High commitment HRM’.
management. (Oxford: Oxford University Press, 2007) Chapter 21 ‘Service
strategies: marketing, operations and human resource practices’, Chapter
23 ‘HRM and the new public management’ and Chapter 24 ‘Multinational
companies and global human resource management’.

Chadwick, C. and P. Cappelli (1998) ‘Alternatives to generic strategy typologies
in strategic human resource management’ in P. Wright, L. Dyer, J.
Boudreau and G. Milkovich (eds) Research in personnel and human resource
management. (Greenwich CT: JAI Press 2000).
Macduffie, J. ‘Human resource bundles and manufacturing performance’,
Industrial and Labour Relations Review 48(2) 1995, pp.197–221.
Miles, R.E. and C.C. Snow ‘Designing strategic human resource systems’,
Organisational Dynamics 8 1980, pp.36–52.
233
Pfeffer, J. The human equation. (Boston: Harvard Business School Press, 1998)
[ISBN 0875848419].
Schuler, R. and S. Jackson ‘Linking competitive strategies with HRM practices’,
Academy of Management Executive 1(3) 1987, pp.207–19.
Walton, R. ‘From control to commitment in the workplace’, Harvard Business
Review 63(2) 1985, pp.77–84. (HF5001: OC, P1482).

This chapter explains the terms ‘HR strategy’ and ‘high-performance (or
high-commitment) work system. It describes the main elements of an HR
strategy and the context in which HR strategies are decided. It discusses the
potential trade-off between flexibility and high-commitment HR strategies.
13.2 Human resource strategies

We can now turn to a more focused discussion of a centrally important
development of recent years, that of a growing concentration on what are
called ‘HR strategies’.
Until the 1990s, HR discussions were mostly somewhat piecemeal. The
usual focus was on particular policy areas such as hiring or training. More
recently, starting about 20 years ago and steadily gathering pace since,
there has been a growing tendency to see HR issues as a coherent collection
of activities, where the links and interactions between the individual
policies are just as important as the policies themselves. This meant looking
at HR strategies.
By the late 1990s, HR strategies became a hot topic, mostly because of a
series of empirical studies which claimed to find dramatic links between
certain HR strategies and objective performance outcomes like profit levels
or labour productivity. These seemed to demonstrate with authority that
HR really is important and can contribute powerfully to the bottom line.
Perhaps the single best-known study is by Huselid (1995); it is based on a
large sample of US companies, and it concludes that an uncompromising use
of a particular HR strategy is associated with:
• much higher sales levels per employee (by more than $27,000 per
annum),
• much greater profits (for example, shareholder value that is about 14
per cent higher).
These are impressive numbers, large enough to grab the attention of people
who would not normally be very interested in the detail of HR policies.
Rather than looking at the technical detail of this and other studies (about
which a considerable controversy continues to rage), we want to lay some
groundwork and provide a context for the remainder of this chapter.
We have four considered topics:
1. What is an HR strategy?
2. Is there one best HR strategy?
3. High performance work practices or high commitment practices.
4. Possible contingent factors.
234
13.3 What is an HR strategy?

We want to discuss this in three stages, first asking what a strategy is and
then consider more specifically what an HR strategy is. We will then discuss
an example of an HR strategy.
13.3.1 Strategy: definition

‘Strategy’ is a tricky word that people take whole books to define. Given
that we are providing only an introduction to the topic we take a more
prosaic view and say that any strategy is a result of a combination of
analysis and action.
The analysis part addresses at least three elements:
1. What is the organisation trying to achieve? In other words what are its
mission, goals or objectives?
2. What stands in the way of it achieving what it wants? This might
cover various aspects of the external environment as well as what the
organisation is itself already doing.
3. What can it do to improve its chances of achieving what it wants?
The action part flows from the analysis and results in policies and practices;
it consists of:
1. The organisation making its choices from the various possibilities on
offer.
2. Its attempt to implement that choice (the actual implementation,
whether of individual policies or strategies, is nearly always complex
and problematic).
We could elaborate on all this at great length. We could explore the
differences between mission, goals, objectives, etc., could discuss the
different time frames for different elements in the strategy, could explore
the strategy-making process, or could consider whether strategies can be
‘rational’. But none of that would be useful for our present purposes. Let us
just note that not every firm has a strategy for anything, not all strategies
are successful; and a strategy might be long term or short term, partial or
comprehensive.
13.3.2 The specific elements of an HR strategy

We now want to turn from strategies in general to HR strategies in
particular. Applying what we have said so far, an HR strategy is a set of HR
policies and practices (the ‘actions’) designed and implemented by the firm
to help overcome the obstacles it sees as standing in the way of its achieving
its HR or organisational objectives (like minimising unit labour costs).
This is helpful but it does not take us far enough. Every organisation has a
policy for every important HR area, whether it be hiring policy, pay policy,
training policy or whatever. In many instances the choice is not to have an
active policy (e.g. many firms choose not to train their employees or not to
have a formal policy of frequent communication with them). But a policy
(in some sense) exists, if only by its absence.
Having an HR strategy, therefore, is not merely having a position on each
HR policy area. If it did mean this, every firm would have a strategy and
the term would have no useful meaning. So firms have HR positions, and
make HR choices, even if they don’t have an HR strategy.
Where firms differ is in the content of and the reason for their HR policies,
as well as in the process they go through when arriving at them. When
235
we define HR strategy, therefore, we should also focus on its content and

rationale. In particular, we should look at whether the parts meet certain
criteria. Consider the following example.
13.3.3 An example of an HR strategy

Jeffrey Pfeffer of the Graduate School of Business, Stanford University, in
his book The human equation (Pfeffer, 1998) has advocated an HR strategy
with seven elements:
1. employment security
2. careful hiring
3. self-managed teams and decentralised decision-making as basic
principles of organisational design
4. comparatively high pay which is also contingent on organisational
performance
5. extensive training
6. low-status distinctions and barriers
7. extensive sharing of financial and performance information throughout
the organisation.
In what sense is Pfeffer’s approach a strategy at all? Its most obvious claim
to being a strategy is that all seven elements look to be re-enforcing one
another. They are said to make a harmonious whole – in the jargon, they
are said to display ‘internal fit’; and the firm is said by Pfeffer to require
all seven elements if it is to reach its profit potential. ‘Fit’ turns out to be
an important criterion in the literature when deciding whether a set of HR
policies and practices constitutes a strategy.
13.3.4 Internal coherence

Let us underline this by imagining a firm that operates an internal labour
market, in other words it has a series of job ladders, only hires people at
the bottom rung of each ladder, and relies heavily on internal promotion
to fill vacancies further up the ladder. Imagine too that it provides little
or no training to its people but relies instead on them as individuals to
develop their own skills. You might think that these two policies would
be contradictory, that they would not be consistent with one another, and
that the internal labour market needed to be complemented by a complex
training regime. If so, you would say that the firm’s arrangements did
not display ‘internal fit’. In that sense, they could not be part of a strategy
(unless one wanted to talk about an incoherent strategy). In a strategy, the
constituent policies should display coherence or internal fit.
Let us probe a little further and ask in what precise sense do Pfeffer’s
seven policies display internal coherence? We have already suggested that
the way HR generally helps to minimise unit labour costs is by managing
to get employees who are both able and willing (i.e. are competent and
properly motivated). Pfeffer suggests that his package is indeed the way
to deliver the desired combination of competence and motivation. Of
the seven, 1, 4 and 6 look to be designed to motivate, 2 and 5 to secure
competence while 3 and 7 are designed to do both. It is in this sense
that the package might be thought to display internal fit because of its
underlying rationale.
For many people, then, a strategy has to have both a consistency and an
interdependence between the constituent parts; if one item is neglected
there will be a disproportionate failure; very high values for, say, 2, 3 and
5 won’t compensate enough for a very low value of, say, 1. This suggests a
236
role for well-thought-out ‘bundles’ of policies which generate a synergy.

So we might modify our definition and say that an HR strategy is a set
of interdependent HR policies chosen to display internal fit and generate
the appropriate amounts of ‘competence’ and ‘motivation’ amongst the
workforce.
13.4 Is there one best HR strategy?

Pfeffer is one of those who claims that the evidence provided by studies
like those of Huselid shows that there is, in some sense, a one best HR
way, a ‘universal’ best HR approach; that his seven steps are clearly the
best way to secure competent and motivated employees.
The more traditional approach to HR strategy is that what firms do, and
should do, depends on their circumstances; in the jargon, the optimal
choice of HR strategy is ‘contingent’ on those circumstances.
As an example, universities do not generally use Pfeffer’s arrangements
for their academic staff. They do normally offer high job security, but the
seriousness and sophistication of the hiring process varies hugely (and
often depends heavily on an interview, which is notoriously unreliable).
Self-managed teams are not common, and decentralisation (‘academic
freedom’) is extreme. Profit sharing is non-existent. Training provision
by the university is usually small or non-existent. Status distinctions are
simultaneously large and small, and information sharing varies (and may
be largely irrelevant).
Pfeffer might reply that universities are making systematic and huge
mistakes with their HR. But maybe not. Maybe competence and motivation
can be achieved through a variety of different policy routes. Academics, for
example, usually organise and pay for their own training; this means that
competence can be hired rather than internally developed – so universities
may not need to provide training programmes for their faculty. Academics’
motivation might come from a complex pattern of intrinsic motivation
to do with the nature of the work and the search for promotion, often
external (they work in a market where they can readily transfer their skills
from one employer to another).
This suggests that there is a range of potentially successful HR strategies,
the virtues of each depending on the context within which they are used.
Many analysts do indeed still claim this. Would you, they ask, pursue the
same HR strategy (and therefore the same HR policies) for, say, the Civil
Service as for, say, finance houses? In each case you would surely be trying
for an optimal combination of competence and motivation, but you might
think that you would want different HR policies to elicit these responses
from the two very different groups of employees (e.g. because they are
thought to be differently motivated).
Pfeffer seems to disagree. It is worth looking at his position in greater
depth because he is representative of many of those who are at the heart
of modern HR.
13.5 High performance work practices or high

commitment practices
Pfeffer claims that his package has internal fit and can deliver employee
competence and motivation. A further argument that some people
would make is based on the possibility that ordinary employees can have
knowledge, for example about their part of the production processes,
237
which managers do not have. In other words, ordinary employees can

have competencies that can easily stay hidden and under-used. These
competencies may be potentially valuable. If they can be harnessed they
might be a basis of durable competitive advantage. It is in this sense that
firms might genuinely describe their workforce (at least potentially) as
their most important asset.
But this competence may well stay hidden unless the workforce is
somehow encouraged or motivated to reveal it. Employees will not do
this automatically. The hypothesis is that managers need to pursue certain
(HR) policies if the firm is to take advantage of their employees’ full
competencies. Pfeffer might claim that his policies 1, 3, 4 and 6 are likely
to be precisely such policies.
Another way of stating this is to say that you need your employees to be
committed to the organisation, which means that you must develop a more
complex and ‘trusting’ relationship with them than the traditional arm’s-
length relationship between employer and employee. This distinction takes
us back to Walton’s notions of ‘control and commitment’.
So Pfeffer’s universalist position (i.e. his claim that there is a one-best
way) can rest on a high commitment view.7 Other analysts think the world 7
The high commitment
is much more complicated. What firms do, and should do, they say, label is generally used in
the UK. In the USA the
depends on the circumstances. First, they might reject the starting point by
usual label is high work
claiming there are many work situations where ordinary employees have performance practices
little or no hidden knowledge. Here, they say, the expert or manager can but that doesn’t reveal
accurately know how work should be organised, and how workers should why they might be high
be directed or controlled. Workers certainly have to be appropriately performance practices.
trained but competence is not too great an issue. Nor is motivation;
performance in these circumstances can come from a combination of
precise task definition, effective supervision and the incentive provided by
the appropriate wage arrangements (which may or may not be linked to
individual or organisational performance).
Competence and motivation are still important but, say, those who prefer
a contingent approach, the emphasis is often much more on effective
task definition and control than on innovative, subtle, and intangible HR
arrangements directed at generating commitment and trust. This is the
Control HR strategy. It would not use Pfeffer’s seven elements and – say
those who see its merits – it is optimal for many situations. Managers
must choose the approach that suits their own situation. Those who
take a contingency approach would certainly not deny that there are
circumstances where Pfeffer’s package will pay off; but they would also
say that there are circumstances where it would be an expensive waste of
time.
A ‘high performance work system’ is an organisational construct involving
some or all of the following:
• self-managed work groups
• employee involvement, participation and empowerment
• total quality management
• integrated production technology
• ‘learning organisation’ practices.
Baron and Kreps (1999) (who talk in terms of ‘high-commitment HRM’)
identify a longer list of work practices, including employment guarantees,
egalitarianism in word and deed, an emphasis on self-managed teams and
team production, job enlargement, premium compensation and efficiency
238
wages, incentive compensation based on teams, productions units or

firmwide performance, extensive socialisation and training of employees,
job rotation, open information, open channels of communication, a strong
culture of egalitarian team work, extensive screening of prospective
employees, and a strong emphasis on ownership both symbolically
and in financial terms (e.g. through stock participation schemes). They
cite potential benefits of high commitment HRM in terms of having a
well-integrated and highly motivated workforce, leading to superior
business performance, but they also warn that the cost of operating high
performance work systems can be significant and the benefits hard to
achieve and sustain.
13.5.1 HR policies or practices?

There is a further issue, one that raises a distinction between HR ‘policies’
and HR ‘practices’. Pfeffer and his colleagues do not claim that all firms
should have HR policies that are identical in detail. Each of his seven
elements covers a range of possible detailed practices; so, for example, it is
not enough to announce a policy to make pay contingent on organisational
performance; you also have to make decisions on such matters as what
percentage of the total rewards on offer should be ‘at risk’, and what are
the precise rules of the system (e.g. does it matter whether people are
paid in share options or in cash)? As another example, precisely what
do you look for when you hire, and precisely which battery of selection
techniques should you employ? So a practice is the narrow specification
or embodiment of a policy. The dividing line is not always clear, but the
intuitive distinction should be easy to grasp.
So neither Pfeffer nor anyone else can claim to have truly settled the
content of optimal HR strategy. Everyone would allow for considerable
variation in HR ‘practices’ (i.e. the precise concrete form of HR ‘policies’)
under their broader strategic umbrellas. Nevertheless, the Pfeffers of this
world still claim that there is, let us call it, an ‘orientation’ to HR issues
that should be followed everywhere.
13.6 Possible contingencies

If some think that optimal HR strategy depends on certain contingencies,
what do they have in mind (apart from the control versus commitment
issue)? A lot of the literature talks about the notion of external fit, or the
integration between HR and the organisation’s policy choices in other
areas.
There are two areas of external fit that the literature has identified, and
we will discuss these in turn:
1. links with product market strategy
2. links with production arrangements.
13.6.1 Links with product market strategy

A starting point is the well-known analysis of Michael Porter of Harvard
Business School, which suggests three generic business strategies that can
be adopted:
1. Cost leadership: requires aggressive construction of efficient-scale
facilities, vigorous pursuit of cost reductions from experience, tight cost
and overhead control, avoidance of marginal customer account and
cost minimisation in areas like research and development, service, sales
force, advertising, etc.
239
2. Differentiation: means creating a unique design or brand image,

technology, customer services or dealer network. Differentiation usually
implies a trade-off with costs, and may preclude a high market share.
3. Focus means concentrating on a particular buyer group, segment of
the product line or geographic market. It has many forms.
Other approaches use other labels for not dissimilar categories. One, for
example, talks of three business strategies: Defender, Prospector and
Analyser (see Miles and Snow, 1984). These too are product market
driven. Defenders have narrow and relatively stable product markets;
prospectors continually search for new product and market opportunities;
analysers are hybrids but in their innovative capacities they watch the
pioneers and feed off them. Each of these product market strategies is said
to have implications for other functional areas of strategy such as HR.
Yet another study emphasised the links with HR by claiming that different
product market strategies required different complexes of behaviour
from employees. Schuler and Jackson (1987) came up with the labels
Cost reduction, Quality enhancement and Innovation. They said that,
for example, innovators want a ‘bundle’ with a great deal of creativity, a
long-term focus, extensive cooperation, a taste for risk-taking and a high
tolerance for ambiguity. Cost reducers want very different bundles. If true,
this means that different HR policies and strategies are in order for the
three different product market approaches.
13.6.2 Links with production arrangements

Some research focuses on the choice of production arrangements rather
than on the product market. In a widely quoted (and very technical)
paper, MacDuffie (1995) looked at production choices in the car industry,
as follows. In ‘mass’ production arrangements various disruptions to
production are very costly. One response is to build in ‘buffers’ (large
inventories, product rectification sections, etc.); these too are costly but
they are an insurance against disruption. Another response is to design
out the disruptions, thus saving on insurance. You therefore have a
fundamental choice in production between ‘mass’ systems and ‘flexible
production systems’. The former lives with buffers, the latter tries to find
another way.
‘Flexible production systems’ reduce inventories and other ‘buffers’;
but they also increase production interdependencies, and highlight
problems (which might then receive the attention they need, because
they are otherwise obscured). But, and this is central, in order to use
such systems, the firm needs workers who are specially motivated, skilled
and adaptable. To get the most out of flexible production systems, says
MacDuffie, you need a complementary bundle of HR practices which gives
you workers with these qualities.
MacDuffie is therefore claiming that, in particular contexts, a particular
production strategy may pay off, and that this requires a complementary
HR bundle. He is not saying that all production strategies require this
HR bundle, nor that this production strategy is necessarily appropriate in
all contexts. These choices are empirical questions. But they imply that
different production choices lead to different HR strategies.
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13.7 Comment
There are a number of unresolved questions on HR strategy. But nearly all
commentators agree that the issue of the choice and composition of HR
strategies is now central to the study of HR. There is growing evidence
to support the existence of robust links between profits (or labour
productivity) and internally coherent bundles of HR policies which also
link with other decisions made by the firm. This means we have to ask
additional questions when looking at individual HR policy areas. It is no
longer sufficient to ask whether the firm is, say, putting enough into its
training activities and getting an appropriate return on them. It is now
also necessary to ask whether those activities support the rest of the HR
package in the right way, and to ask similar questions for all the many
other HR policy areas.
13.8 The changing context of HR decisions

To start with an obvious observation, the state of human resource
management varies enormously across contemporary organisations. It
always has, and it always will, because different decision-makers make
different choices. But changes are certainly taking place, albeit faster in
some countries, and in some types of organisations, than in others. There
are a number of powerful, and probably interlinked, drivers behind these
changes.
13.8.1 Globalisation
Globalisation has meant that the principal competitors of a rapidly
increasing number of organisations are either foreign-based, or part
of an multinational firm or alliance. We are used to multinational or
transnational firms in manufacturing (General Motors, Unilever, Coca
Cola, etc.), but they have also become just as prominent in the much
larger service sector, in the travel industry, in leisure services, in insurance,
in finance and in legal services, etc.
This process of internationalisation can affect virtually all firms in at
least two ways. First, it increases the severity of the competition they
face and thereby forces them actively to analyse all their management
decisions more carefully. Second, the existence of so many multinationals
powerfully and directly disseminates new management thinking in
all areas of management practice. Think about what happens when
multinational X buys company Y in country Z – sooner or later, in one
way or another, company Y tends to adopt some or all of the management
practices of X. Dissemination also takes place through observation and
imitation. For example, when the Japanese automobile company Nissan
began operations in England in the 1980s it demonstrated totally new
possibilities to the British car industry, and the indigenous firms rapidly
began to imitate what they saw.
This has most obviously happened in the area of production techniques
(think, in general, of the spread of ‘Japanese’ practices like TQM and
lean production), but it is also taking place in HR. So, human resource
techniques that originate in, say, Japan or the US, get readily transmitted
to, say, Europe or East Asia. None of this happens instantly or immediately,
but a growing number of managers do steadily become aware of new
choices and practices that would otherwise have been unrecognised.
241
13.8.2 Technical change

A second driver is technical change. Production techniques have been
changing for a very long time, and it’s not even clear that technical change
is faster now than it was historically (this is truly hard to measure). But
technology is also changing in ways that make smaller organisations more
profitable. Instead of the giant, fully integrated firms that were so common
(at least as measured by the number of employees) technology is now
assisting the rise of small- and medium-sized firms in many areas, often
servicing larger firms. This is a powerful process, one which is associated
with major downsizing in many of the larger firms. It has also had a
profound impact on the human resource stance of many firms, forcing
them to redefine the previous psychological contract they had with their
employees. And it is a process that affects all major sectors: we were used
to seeing technical advances in primary and manufacturing industries, but
similar changes (notably in IT) have also been widespread in the service
sectors.
13.8.3 Changes in state regulation

A third driver, at least in many countries, has been a series of changes
in the shape and extent of state regulation. There has definitely been a
tendency for government regulation, say, in labour markets, to become
looser (though at a different pace in different countries). Sometimes,
governments have taken the initiative (an obvious example is the Thatcher
government in the UK in the 1980s); on other occasions, however, this
has come about because firms in certain countries have faced more severe
international competition and have pressed their governments to relax
the constraints under which they operate. A very important consequence
has been to add to the flexibility of labour markets in many countries,
which has in turn affected HR choices in many ways (e.g. the growth of
outsourcing, the use of performance-related pay, changing arrangements
for training, etc.).
13.8.4 The scope and nature of the public sector

Yet another driver concerns developments in the scope and nature of
the public sector. In many countries, the public sector has either been
shrinking (as a result of extensive privatisation programmes) or has
witnessed the importation of private sector practices into areas that were
normally managed in other, distinct ways. Essentially, then, the domain
of private sector thinking has been extended to incorporate much of what
was previously in the public sector. As an example, performance-related
pay is now very extensively used in the UK public sector; 20 years ago it
was virtually unknown there.
13.8.5 Growing professionalisation of the HR function

A final driver behind HR developments has been a growing
professionalisation of the HR function. HR is now widely taught in MBAs
and other professional qualifications, there has been a very substantial
increase in the amount of academic research into HR issues and all of the
main business consultancy firms include HR as an important part of their
portfolio of services. This is not to say that HR yet has the prominence in
the business world of, say, finance but it is increasingly recognised to be a
source of commercial success. So the awareness of its potential is growing.
These sources of change have certainly not generated a smooth and
consistent move in human resource management, even in any one
country. But, taken together, they have almost certainly contributed to two
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important tendencies, both discussed in earlier chapters. First, there is

much greater awareness of the importance of HR strategies; second, there
has been a growing emphasis on greater flexibility in managing human
resources.
13.9 The growing importance of HR strategies

13.9.1 HR as a source of competitive advantage
Human resource strategies were considered earlier in this chapter. We
sought, first, to place human resource issues in the context of management
activity and then suggest why they might be so problematic. The chapter’s
first major point was that solving the HR problems can become a valuable
and durable source of competitive advantage for the firm. So the core task
of HR is to raise performance by ensuring employees are fully competent
and highly motivated. It is increasingly seen to be important for this core
task that all the individual HR policies and practices should combine
to achieve one or both of these aims. Subsequent chapters looked at
individual HR areas, like hiring, or job design or reward systems, but the
way in which they connect with one another is now seen to be highly
important for overall success. So, in contrast to an earlier tradition, which
discussed personnel matters as a series of distinct and largely piecemeal
issues, modern HR places strategic integration at the heart of the subject.
Any one HR policy should be harmonious with all the others, and the set
of policies, taken together, should serve whatever wider business strategy
the organisation chooses to adopt.
13.9.2 Building an effective ‘employment relationship’

As earlier chapters made clear, underlying any successful HR strategy there
is a ‘philosophy’ about how employees are to be understood and treated.
In other words, an effective ‘employment relationship’ is at the heart of
modern HR and is vital for an understanding of the crucial intangibles
of modern HR thinking. Any HR manager with a professional horizon of
more than five years needs to appreciate its subtleties. To some it will
seem to be no more than fluff, an attempt to make obscure or difficult
something that ‘sensible chaps’ know is fundamentally straightforward.
Such people are making a huge error. In reality it’s a way of grappling
with an unquestionable reality. People at work are not robots. They have
choices, and the choices they make strongly affect the employer. The
HR manager’s central task is to ensure that the choices made are, as far
as possible, those which the firm wants to be made. In all of this, the
employee’s attitudes, expectations and sense of reciprocity and justice are
highly influential.
13.9.3 Linking policies to the performance outcome

This having been said, we are still in the early phase of truly
understanding the precise ways in which HR policies or strategies result in
success or failure; people sometimes say that there is a ‘black box’ linking
policies to the performance outcome (i.e. that we don’t truly understand
the detailed links between the two). The nature of this mystery turns out
to be the most complex question in the whole field of HR. The issues are
far from being resolved, whether theoretically or empirically but they
surely revolve around the nature of the ‘employment relationship’ which
binds the employee and the employer together. It should be clear that the
issues raised in earlier chapters explore this relationship.
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13.9.4 Getting the employment relationships right

Employment relationships vary on many dimensions. They might, for
example, be expected to be long term or short term, they might be
predicated on the development of high commitment, or loyalty, or they
might not, they might place a premium on encouraging people voluntarily
to go beyond their job descriptions and engage in valuable extra-role
behaviour, or not, they might rest on the belief that the motivation to
perform well is merely a matter of designing the appropriate reward
system, or they might think the task is far more complex. So the
employment relationship can take many forms. Modern HR thinking says
that managers should think carefully about what form they want it to
take because success may turn on getting the relationship right. So, what
should the employer be looking for?
Let us start by asking what qualities the employer wants from the
employee. The employer, of course, wants a number of different qualities
but not all employers want the same set of qualities. An interesting way to
look at this is to draw on some work of Schuler and Jackson (1987). They
suggested that employers wanted a range of ‘role behaviours’ from their
employees. Their list shows a series of 12 behavioural spectrums:
Employee role behaviour for competitive strategies
1. Highly repetitive, predictable: highly creative, innovative.
2. Very short-term focus: very long-term focus.
3. Highly cooperative, interdependent: highly independent,
autonomous.
4. Very low concern for quality: very high concern for quality.
5. Very low concern for quantity: very high concern for quantity.
6. Very low risk taking: very high risk taking.
7. Very high concern for process: very high concern for results.
8. High preference to avoid responsibility: high preference to
assume responsibility.
9. Very inflexible to change: very flexible to change.
10. Very comfortable with stability: very tolerant of ambiguity or
unpredictability.
11. Narrow skill application: broad skill application.
12. Low job (firm) involvement: high job (firm) involvement.
Each of the 12 behaviours listed above should be thought of as being
on a continuum; so the firm might, for example, want either a more
or less creative aptitude, and it might want people who are either very
comfortable with stability or are very tolerant of unpredictability, and
so on. The list may not be perfect but it captures at least many of the
choices employers have to make. The key idea here is that any given
firm wants a particular combination of behaviours (which might reflect
its choice of technology or its wider business strategy), and that in order
to get a particular combination it might be wise to pursue a distinct HR
strategy. One important qualification to this useful insight is that the
firm might want different combinations of behaviours from different
types of employee – it might want, for example, a great deal of creativity
from its product design team but a great tolerance for repetition from its
production staff. If so, its overall HR strategy will need appropriate details
in its design to reflect this diversity.
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13.9.5 Achieving a particular combination of role behaviours

Given that a firm has chosen a particular combination of role
behaviours, how can it achieve it? Their obvious answer is, by choosing
the appropriate set of HR policies and by developing the appropriate
employment relationship.
Activity
a. Think of a particular workplace you know and think of a core employee in that
workplace.
b. Specify which of the above behaviours the ideal employee would possess in that
situation.
c. Now specify which HR practices the employer needs to install in order to get that
combination of behaviours.
d. Do the same exercise for a very different kind of workplace/employee.
The really tricky part here is with the employment relationship. This is
usually seen as an exchange relationship between the employee and the
employer. At its simplest, the employee gives time or effort in exchange for
money, and the employer gives money in exchange for effort. The essential
point to grasp is that the employment relationship is an unusually complex
social relationship, for three main reasons:
1. The parties do not share the same interests.
2. They have seriously incomplete information about one another.
3. There are very many aspects/dimensions to the relationship.
It is sometimes said that the employer and the employee have the same
interests (for example, ‘fundamentally, we are all on the same side’, or
‘we are all members of the same team’), so that both do, or should, take a
unitarist perspective (i.e. both want the same things). This is nonsense. A
better starting point is to say that the typical employee wants to maximise
the ratio of wage to effort, while the employer wants to maximise the ratio
of effort to wage. At one level, their interests are irreducibly opposed.
This is only a starting point, however. To suggest interests are only in
opposition is a mistake. Both parties normally have an interest in the
other being ‘healthy’, both normally want the relationship to continue;
so the employee wants the employer to be sufficiently successful that
he will have a job in the future, and the employer wants the employee
to be sufficiently content to stay in the job. The interests of the two
parties are simultaneously in agreement and in opposition. This itself
doesn’t make the employment relationship unusual. It is common for
exchange relationships to be based on this combination of commonality
and opposition; for example, I want low prices from my supermarket but
it wants high prices; we both, however, want the other to be there next
week.
The employer hires the employee; she wants him to do various things,
give effort, show initiative, etc. (i.e. to display the optimal combination
of the kind of role behaviours set out above). The trouble is that she can’t
guarantee to get what she wants. If she had full information she could
specify precisely what she wanted; she would also know what she got, and
could ensure, subject to the constraints of the external labour market, that
she got what she wanted. In reality she is not in this position because she
has incomplete information.
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13.9.6 Principal–agent theory

It is useful, here, to remind ourselves of the language and framework
of so-called ‘principal–agent’ theory. This was first used to describe the
problematic relationship between shareholders and managers. The
shareholder (the principal) just wants profits; the manager (the agent)
is hired by the shareholder to deliver profits but might want other things
as well, like power, a large organisation to run, a quiet life, etc., these
other things might at some point lead to some loss of profits (the pursuit
of a quiet life might mean the firm becomes sloppy); because there are
usually many shareholders they can’t easily combine to force the senior
managers to focus exclusively on profits. The result is that there can be
a split between ownership and effective control. This model has led to a
large literature on what the shareholders can do to try to overcome the
tensions between themselves and senior managers (one solution is to base
managers’ pay much more on achieving profit targets).
The same ideas also fit the relationship between employer and employee,
where the principal is the employer and the agent is the employee. The
central problem of principal–agent theory is to explore the tensions
between the two parties and how those tensions can be resolved.
In reality the principal never has full information. The employer rarely
knows what effort the agent gives, is often unable to measure the
employee’s output, and can hardly ever know precisely what part effort
played in producing that output. Still less does she know what the agent
might give if only the right mechanisms could be found. So the principal is
operating under conditions of incomplete information about the agent.
Similarly, the agent is operating under conditions of incomplete
information about the principal’s position and intentions (e.g. is the firm
just about to go into a merger that will cost him his job?). Each party
knows more about its own position than about the other’s (e.g. the agent
knows how much effort he is giving) so there is a situation of asymmetric
information. Finally, each normally has some incentive not to reveal its
true situation to the other. The reason they each have an incentive to hide
information is that their interests are in at least partial opposition, and
their own privately held information has a value.
13.9.7 The employment contract

As if this weren’t enough, it’s also true that the exchange involved in the
employment relationship is unusually complex. It’s not usually just an
exchange of ‘effort’ for cash. To see this, think of the employment contract,
a legal document.
Other contracts between two parties can often be expressed with great
detail, precision and completeness. At the limit all possible contingencies
in the exchange are identified, appropriate responsibilities of both parties
in each contingency are specified in advance, and recourse is specified
for non-compliance. Take a mortgage contract on a house, for example;
this specifies the rights and obligations of the lender and borrower. It is
pretty straightforward; it makes provision for the relevant uncertainties
(e.g. being unable to make the payments) and is, for all practical purposes,
complete and enforceable in law.
In practice, however, virtually all contracts contain an element of
ambiguity – the parties to even a seemingly watertight and transparent
contract frequently have recourse to law to have the contract interpreted
(which itself means ambiguity). But there are differences of degree.
246
The employment contract is firmly located at the ambiguous end of the

spectrum. It is very much less clearly specified than many other contracts
– the formal responsibilities of the two parties (the employee and the
employer) are sketched rather than laid out in complete detail.
But the relationship goes beyond the strict contract. In reality, people tend
to interpret their situation and develop expectations about the appropriate
way to behave. This interpretation is not written down, and does not
mostly come from employer commitments that are written down (such
things are never comprehensive). The employee nevertheless develops
expectations about what he will receive (in terms of money, training,
promotion, etc.). This expectation is a subjective judgement, but is likely
to be based not on whim but on what he observes is the normal treatment
in that workplace. And social exchange theory predicts that these
expectations will condition how he in turn behaves towards the employer.
(In a similar way, husbands and wives develop notions of the marriage
relationship, and of appropriate behaviour. The employment relationship is
comparably complex.)
Of course, managers may develop similar expectations about their
subordinates. These too will be subjective and not be written down in
detail, but they may nevertheless be influential. So, in general, the specific
rules used by an organisation to underpin the relationship themselves
shape the psychological contract (though the subjective nature of all of
this means that different employees can have different responses to any
given set of rules). These rules include the firm’s HR policies. The longer
an employment relationship continues, and the more consistent and stable
over time the rules are, the more well defined the psychological contract is
likely to be. Perhaps an example will help.
Employment contracts at the Treasury

Not long ago, the UK Treasury carried out a management review and decided
that about one-third of the posts occupied by senior officials should be
scrapped, and the officials made redundant. It was a natural corollary that the
career routes and promotion possibilities of the remaining two-thirds were
affected, often adversely.
The Treasury was unexpectedly, unilaterally and drastically changing the
parameters which most officials had thought ruled their working lives (e.g.
that redundancy was virtually unthinkable and that promotion rates were
reasonably predictable). In other words, what the Treasury had done was
abruptly to change, even to violate, the employment relationship – they had
violated the psychological or implicit contract which most Treasury staff
thought existed.
This violation was probably not an agreeable experience for most of the
staff (though some might have welcomed the prospect of early retirement
on generous terms), which means that there were likely to be costs for the
Treasury, some of which might be very long term.
So, violations of psychological contracts are thought to be important

(especially if employees think they lose out). More generally, any
psychological contract is believed to affect employee motivation, which
means that some sets of beliefs help the firm more than others.
If you recall Walton’s distinction between control and commitment,
both approaches have active practices in each of the standard HR policy
areas (i.e. all organisations have to make selection decisions, training
decisions, work design decisions, etc.). But, for Walton, the detailed
247
choice of practices within each of these areas are different for the two
HR approaches. What he was essentially distinguishing were two very
different underlying employment relationships or psychological contracts.
13.9.8 Transactional and relational contracts

It is now common to compare ‘transactional’ contracts with ‘relational’
contracts. Transactional contracts are akin to traditional arrangements
where the relationship was supposed to be very limited. It was as if the
relationship was decidedly temporary, so that neither party should invest
much in the other. Relational contracts are predicated on continuing
relationships, so that joint investment might take place. It is a similar
contrast to the difference between a date and a marriage.
To use other terminology, Chadwick and Cappelli (1998) talk about
Contract and Investment relationships; the former is transactional, the
latter is relational. At its core, their contract relationship has the employer
hire people who are already more or less fully competent to do the range
of tasks they are asked to perform, so that large training expenditures
are not required; the employer seeks to motivate them to perform up to
their potential by some kind of performance-related reward system. The
relationship is seen to operate at ‘arm’s length’ and is predicated largely
on professionalism and the provision of rewards for performance which
both parties find appropriate; in this scenario there is no premium on the
employee generating complex attitudes like loyalty to the organisation.
The Investment system, by contrast, is based on an attempt to foster
amongst employees a sense of common destiny with the firm over the long
term. HR policies are therefore selected in an attempt to boost employee
involvement, enrich jobs and develop new skills.
These examples should give you the sense of how a particular employment
relationship underlies a given HR strategy and can make sense of the set
of HR policies that an employer chooses to adopt. I am not suggesting
that all firms have thought through all the complexities in making their
choices, but it is true that, increasingly, firms are tending to confront these
choices in a more orderly way. There are now too many studies and too
many consultancy firms pointing to the virtues of coherence in HR matters
for so many firms to continue to be as haphazard as they were in the past.
13.10 Greater HR flexibility and the implication for HR

strategy
We suggested earlier in this chapter that one of the important recent
changes in HR is that firms have become much more sensitive to the
desirability of flexible HR arrangements. We indicated some of the market
pressures that lie behind the changes but what we would like to explore
now is a possible tension between flexibility considerations and the choice
of HR strategies and employment relationships.
Some years ago, some HR consultancy firms were advising their clients
to offer a so-called ‘New Deal’ to their employees. This New Deal was
supposed to reflect the turbulent new trading conditions brought about by
the combination of globalisation, rapid technological change, industrial
restructuring and deregulation. In this situation, it was claimed, firms
could no longer afford to offer the implicit guarantees of ‘jobs-for-life’
which many had previously done (many employees served their whole
career in a single firm) – after all, even some Japanese companies were
beginning to lay off workers. What was really being said was that all
248
employees, including management employees, now had to face the real

prospect of being made redundant at some point in their careers.
But firms also wanted to be able to recruit high-quality labour. What
then would replace the supposedly disappearing prospect of lifetime jobs
as a recruitment device? The consultancy firms’ answer was ‘increased
employability’. The New Deal was that firms would agree to invest
more in their employees, and that this investment would be in the form
of transferable skills. The implication was that if someone was made
redundant, the training programme would put him or her in a better
position to find suitable alternative work – in that sense, the New Deal
would make people more ‘employable’. So increasing risk was seen to
be a fact of life and the solution was for the firm to help its people to
overcome those risks through the use of extensive training programmes.
People would be especially attracted to firms that offered good training,
they would take on the greater risks, and they would also agree to more
flexible pay (in the form of more sensitive performance-related pay
systems); firms, on the other hand, achieved more flexibility because,
when times were bad, they could let people go without violating the (new)
On balance, the New Deal represents a move away from an Investment
relationship and back to a Contract one. This is in spite of the fact that
it requires the firm to invest a lot in transferable skills – the difference
is that an Investment relationship is really one that seeks to prolong the
relationship; the New Deal was essentially giving both parties easier
exit options. It might have been good advice for some firms but it is not
without problems of its own. For example, the firm would really have
to deliver on serious (i.e. expensive) training programmes in skills that
were readily transferable to the external labour market. Second, if it
did so, it would be in grave danger of losing its better people to other
firms, including its competitors (the training had, after all, made them
more attractive as employees); these losses would not always happen at
times that were convenient to the New Deal firm. Third, it’s hard to see
how this approach would engender loyalty, commitment or trust among
the workforce; these qualities, of course, are not necessarily valued by
all employers but the point underlines the severe tension between a
firm’s understandable desire for flexibility and its desire for a committed
workforce that is willing to go ‘beyond contract’.
Much of modern HR analysis has been directed towards high commitment
or Investment relationships, and there are now many empirical studies
that seem to suggest that such relationships work in many different
contexts. There has been much less analysis designed to make these
compatible with some forms of increased flexibility. It is relatively easy
to make them compatible with functional flexibility; it is much harder to
make them compatible with the divisiveness that is so frequently aroused
by schemes of individual performance-related pay (as opposed to some
schemes of group performance-related pay); and it is especially hard
to make them compatible with numerical flexibility arrangements. So
the tensions between high commitment relationships and flexibility are
important and as yet not fully solved – they will help to form the agenda
in HR in the near future.
249

• explain what is meant by the terms ‘HR strategy’ and ‘high performance
work system’ (sometimes referred to as a ‘high commitment work
system’)
• discuss how the context of HR decisions is changing
• describe what factors must be at the heart of an HR strategy
• explain how the wish for HR flexibility can create problems for high
commitment HR strategies.

1. How and why are HR strategies changing in modern organisations?
2. Imagine that you are an HR director in an organisation (the nature of
which you should specify); and your boss has heard that all employers
face ‘principal–agent problems’ and she wants you:
• to identify these problems in her organisations
• to propose HR solutions to them.
What would you say?
3. a. Explain what is meant by the term ‘high commitment work
practices.’ (10 marks)
b. Consider how these types of practices might be used to improve
organisational performance. (15 marks)
4. a. What are the main elements of an HR strategy? (10 marks)
b. Consider whether an HR strategy can be a source of competitive
advantage for an organisation. (15 marks)

1. What are the main elements of an HR strategy?
2. Consider whether an HR strategy can be a source of competitive
advantage for an organisation.
250
Part 6: Conclusion
Part 6: Conclusion
251
Notes
252
Chapter 14: Studying HR management
Chapter 14: Studying HR management
In this subject guide we have provided you with a framework for thinking
about how to study HR management based around four categories:
capabilities, motivation, work organisations and employment relations.
While other taxonomies are possible, we argue that this framework
provides an elegant way of viewing the activities of the HR function in the
21st century, and therefore also a good learning framework for studying
HR management
To repeat what we said at the beginning: this subject guide is not a
textbook, and certainly not a ‘how to’ handbook. HR management is a
broad discipline, a mixture of art and science, requiring an eclectic way of
thinking and a focus on problem-solving.
To understand HR management you need to understand some theory
from across the spectrum of the social sciences – economics, psychology,
sociology, etc. You need to understand how these theories have been
tested empirically. You need to be aware of cases illustrating both good
and bad examples of HR management practices. You need to know which
are the key HR management journals – both academic and practitioner
focused – and you need to know something about how the HR profession
is organised in different countries. You will need to know other things too
– including some law and some accounting – but these are often country
specific and therefore not something that we have dwelt upon in this
international subject guide.
This subject guide is a start – indeed, if you assimilate all the material it
contains and follow up on the key readings, then you will be well placed
to deal with the examination. But remember, most important of all are
intellectual curiosity and critical mind-set. We hope that this subject guide
will have encouraged you to have both.
253
Notes
254
Appendix 1: Full list of further reading for the course
Appendix 1: Full list of further reading

for the course
Books
American Association of University Women (AAUW) ‘The Simple Truth about
the Pay Gap’ 2012 edition (www.aauw.org).
Arnold, J., C. Cooper and I. Robertson Work psychology. (London: Pitman,
1998) [ISBN 9780273628682] Chapter 11.
Bach, S. (ed.) Managing human resources: personnel management in transition.
(London: Blackwell, 2005) fourth edition [ISBN 9781405118507].
management. (Oxford: Oxford University Press, 2007) [ISBN
9780199282517].
approach. (Harlow: Prentice Hall, 2007) fifth edition [ISBN
9780273707639] Chapter 1 ‘An introduction to HRM’ and Chapter 2
‘Strategic human resource management’.
Conway, N. and R. Briner Understanding psychological contracts at work: a
critical evaluation of theory and research. (Oxford: Oxford University Press,
2005) [ISBN 9780199280643]. Chapter 3 ‘What is the psychological
contract? Defining the concept’, Chapter 5 ‘How does the psychological
contract affect behaviour, attitudes and emotion? The importance of
psychological contract breach’.
Dell, D.N. Ainspan, T. Bodenberg, K. Troy and J. Hickey ‘Engaging employees
through your brand’, New York: The Conference Board, 2001.
Evans, J. ‘Pay’ in G. Hollinshead, P. Nicholls and S. Tailby (eds) Employee
relations. (London: Pitman, 2003) second edition [ISBN 9780273655862].
Fisher, C. ‘Performance management and performance management’ in J.
Leopold, L. Harris and T. Watson The strategic managing of human resources.
(Harlow: Prentice Hall, 2005) [ISBN 9780273674306].
Keep E. and S. James ‘Recruitment and selection – the great neglected topic’,
SKOPE Research paper No 88 February 2010.
Kirton, G. and A-M. Greene The dynamics of managing diversity: a critical
approach. (Oxford: Elsevier Butterworth-Heinemann, 2005) second edition
[ISBN 9780750662178] Chapters 5 and 6.
Leopold, J., L. Harris and T. Watson The strategic managing of human resources.
(Harlow: Prentice Hall, 2005) [ISBN 9780273674306].
Lucas, R., B. Lupton and H. Mathieson Human resource management in an
international context. (London: CIPD, 2006) [ISBN 9781843981091]
Chapter 6 recruitment and selection.
Oldham G. and J. Hackman ‘Not what it was and not what it will be: the future
of job design research’, Journal of Organizational Behaviour, 31(2–3) 2010,
pp.463–79.
Porter, L., G. Bigley and R. Steers Motivation and work behaviour. (New York:
McGraw-Hill Higher Education) seventh edition [ISBN 9780071131027].
Storey, J. (ed.) Human resource management: a critical text. (London: Thomson
Learning, 2007) third edition [ISBN 9781844806157].
Tong, D.Y.K. and C.N. Sivanand ‘E-recruitment service providers review.
International and Malaysian’, Employee Relations 27(1) 2005, pp.103–17.
Wilkinson, A., D. Lewin, M. Marchington and P.J. Gollan (eds) The Oxford
handbook of participation in organisations. (Oxford: Oxford University Press,
2011) [ISBN 9780199207268].
255
Journal articles
Bacon, N. and P. Blyton ‘Union co-operation in a context of job insecurity:
negotiated outcomes from teamworking’, British Journal of Industrial
Relations 44(2) 2006, pp.215–37.
Barclay, J. ‘Improving selection interviews with structure: organisations’ use of
“behavioural” interviews’, Personnel Review 30(1) 2001, pp.81–101.
Barrick, M., M. Mount and T. Judge ‘Personality and performance at the
beginning of the new millennium: what do we know and where do we go
next?’, International Journal of Selection and Assessment 9 (1/2) 2001.
Bolino, M.C., W.H. Turnley and B.P. Niehoff ‘The other side of the story:
re-examining prevailing assumptions about organizational citizenship
behavior’, Human Resource Management Review 14(2) 2004, pp.229–46.
Capelli, P. ‘Making the most of on-line recruiting’, Harvard Business Review
79(3) 2001, pp.139–48.
Cullinane, N. and T. Dundon ‘The psychological contract: a critical review’,
International Journal of Managment Reviews 8(2) 2006, pp.113–29.
Dickens, L. ‘Beyond the business case: a three-pronged approach to equality
action’, Human Resource Management Journal 9(1) 1999, pp.9–19.
Dickens, L. ‘Re-regulation for gender equality: from “either/or” to “both’’’,
Industrial Relations Journal 37(4) 2006, pp.299–309.
Dundon, T., A. Wikinson, M. Marchington and P. Ackers ‘The meaning and
purpose of employee voice’, International Journal of Human resource
Management 15(6) 2004, pp.1149–70.
Fernandez-Alles, M., G. Cuevas-Rodriguez and R. Valle-Cabrera ‘How symbolic
remuneration contributes to the legitimacy of the company: an institutional
explanation’, Human Relations 59(7) 2006, pp.961–92.
Frege, C. ‘A critical assessment of the theoretical and empirical research on works
councils’, British Journal of Industrial Relations 40(2) 2002, pp.221–48.
Fried, Y. and G. Ferris ‘The validity of the job characteristics model: a review
and meta-analysis’, Personnel Psychology 40, 1987, pp.287–322.
Grint, K. ‘What’s wrong with performance appraisal? A critique and a
suggestion’, Human Resource Management Journal 3/3 Spring 1993,
pp.61–77.
Grugulis, I. ‘The contribution of National Vocational Qualifications to the
growth of skills in the UK’, British Journal of Industrial Relations 41(3)
2003, pp.457–75.
Guest, D. ‘Is the psychological contract worth taking seriously?’, Journal of
Organizational Behavior 19 Special issue, 1998, pp.649–64.
Heery, E. ‘Sources of change in trade unions’, Work, Employment and Society 19,
2005, pp.91–106.
Hoque, K. ‘The impact of Investors in People on employer-provided
training, the equality of training provision and the “training apartheid”
phenomenon’, Industrial Relations Journal 39(1) 2008, pp.43–62.
Hoque, K. and M. Noon ‘Equal opportunities policy and practice in Britain:
evaluating the “empty shell” hypothesis’, Work, Employment and Society
18(3) 2004, pp.481–506.
Huselid, M. ‘The impact of human resource management practices on turnover,
productivity, and corporate financial performance’, Academy of Management
Journal 38(3) 1995, pp.645–70.
Jewson, N. and D. Mason ‘The theory and practice of equal opportunities
policies: liberal and radical approaches’, Sociological Review 34(2) 1986,
pp.307–34.
Kim, T, and K. Leung ‘Forming and reacting to overall fairness: a cross-cultural
comparison’, Organizational Behavior and Human Decision Processes 104(1)
2007, pp.83–95.
256
Appendix 1: Full list of further reading for the course
Knights, D. and D. McCabe ‘Bewitched, bothered and bewildered: the meaning

and experience of teamworking for employees in an automobile company’,
Human Relations 53(11) 2000, pp.1481–1517.
Kohn, A. ‘Why incentive plans cannot work’, Harvard Business Review Sept–Oct
(Issue 5) 1993, pp.54–63.
Lewis, P., P. Ryan and H. Gospel ‘A hard sell? The prospects for apprenticeship
in British retailing’, Human Resource Management Journal 18(1) 2008,
pp.3–19.
Liff, S. ‘Diversity and equal opportunities: room for a constructive
compromise?’, Human Resource Management Journal 9(1) 1999, pp.65–75.
Li-yun, S., S. Aryee and K.S. Law ‘High performance human resource practices,
citizenship behaviour and organizational performance: a relational
perspective’, Academy of Management Journal 50(3) 2007, pp.558–77.
Lloyd, C. and J. Payne ‘Goodbye to all that? A critical re-evaluation of the role
of the higher performance work organisation within the UK skills debate’,
Work, Employment and Society 20, 2006, pp.151–66.
Loi, R., N. Hang-yue and S. Foley ‘Linking employees’ justice perceptions
to organizational commitment and intention to leave: the mediating
role of perceived organizational support’, Journal of Occupational and
Organizational Psychology 79, 2006, pp.101–20.
Luthans, F. and S. Peterson, ‘360 degree feedback and systematic coaching’,
Mabey, C. ‘Closing the circle: participants’ views of a 360 degree feedback
programme’, Human Resource Management Journal 11(1) 2001, pp.41–53.
Marsden, D. and R. Richardson ‘Performing for pay? The effects of “merit pay”
on motivation in a public service organisation’, British Journal of Industrial
Relations 32(2) 1994, pp.243–61.
Raja, U., G. Johns and F. Ntalianis ‘The impact of personality on psychological
contracts’, Academy of Management Journal 47(3) 2004, pp.350–67.
Restubog, S.D.L., P. Bordia and R.L. Tang ‘Effects of psychological contract
breach on performance of IT employees: the mediating role of affective
commitment’, Journal of Organizational and Occupational Psychology 79,
2006, pp.299–306.
Robinson, S.L. and E.W. Morrison ‘The development of psychological contract
breach and violation: a longitudinal study’, Journal of Organizational
Behavior 21(5) 2000, pp.525–46.
Sandberg, A. ‘Volvo human-centred work organisation – the end of the road?’,
New Technology, Work and Employment 8(2) 1994, pp.83–87.
Sethi, R., D. Smith and C. Whan Park ‘How to kill a team’s creativity’, Harvard
Business Review 80(8) 2002, pp.16–17.
Tekleab, A.G., K.M. Bartol and W. Liu, ‘Is it pay levels or pay raises that matter
to fairness and turnover?’, Journal of Organizational Behavior 26(8)2004,
pp.899–921.
Tsui, A.S., and J.B. Wu ‘The new employment relationship versus the mutual
investment approach: implications for human resource management’,
Wolf, A. and A. Jenkins ‘Explaining greater test use for selection: the role of
HR professionals in a world of expanding regulation’, Human Resource
257
Notes
258
Appendix 2: Sample examination paper
Appendix 2: Sample examination paper
Important note: This sample examination paper reflects the

examination and assessment arrangements for this course in the academic
year 2013–2014. The format and structure of the examination may have
changed since the publication of this subject guide. You can find the most
recent examination papers on the VLE where all changes to the format of
the examination are posted.
Time allowed: three hours.

Candidates should answer FOUR of the following EIGHT questions. All
questions carry equal marks.
1. a. Explain the difference between ‘task performance’ and ‘contextual
performance’. (5 marks)
b. Describe five different categories of contextual performance and
give an example of each one. (10 marks)
c. What are the implications for an organisation and for its employees
of placing an emphasis on contextual as well as task performance?
(10 marks)
2. a. Explain what is meant by ‘organisational justice’? In your answer
distinguish between different ways of conceptualising justice and
give examples. (10 marks)
b. Discuss the importance of organisational justice to the psychological
contract. (15 marks)
3. a. What is meant by term ‘organisational slack’? (5 marks)
b. Describe five different ways in which employers can create
workforce flexibility. (10 marks)
c. Why has outsourcing become a global phenomenon in recent years?
(10 marks)
4. a. Explain the difference between ‘recruitment’ and ‘selection’.
(5 marks)
b. Describe three different metrics which a company might use to
evaluate the success or otherwise of its recruitment processes and
explain what these measures demonstrate. (10 marks)
c. Is there a ‘first best’ way of managing recruitment and selection?
Give reasons for your answer. (10 marks)
5. a. What is ‘performance management’? (5 marks)
b. What role does performance management play in pay
determination? (5 marks)
c. ‘Performance-related pay has a place in the private for-profit sector,
but not in the public and not-for-profit sectors’. Discuss. (15 marks)
6. a. What did Herzberg mean by ‘motivators’ and ‘hygiene factors’?
(5 marks)
b. Why is the distinction between motivators and hygiene factors
important in pay design? (10 marks)
259
c. ‘Herzberg was essentially right, but for the wrong reasons’. Discuss.
(10 marks)
7. a. In the context of employee involvement and participation, what is
meant by each of the terms ‘consultation’, ‘collective bargaining’
and ‘co-determination’? Give examples of each. (10 marks)
b. In what ways can employee involvement in workplace decision-
making help management to achieve its organisational objectives?
(15 marks)
8. a. Explain what is meant by ‘equal opportunities’ in a work context.
(5 marks)
a. What are the business arguments (as opposed to the ethical
arguments) for equal opportunities in the workplace? (10 marks)
b. Evaluate the relative merits of adopting a ‘liberal’ rather than a
‘radical’ approach to equal opportunities in the workplace.
(10 marks)
END OF PAPER
260
Appendix 3: Guidelines for answering sample examination questions
Appendix 3: Guidelines for answering

sample examination questions
Chapter 4
The following are the issues that need to be addressed:
• definition and conceptualisation of OCB
• antecedents of OCB
• can managers control or manage the antecedents?
The antecedents of OCB can be categorised into the following: personality,
social exchange constructs and organisational commitment. It will be
difficult for managers to change an individual’s personality so it is not
possible for managers to influence OCB by changing an individual’s
personality. However, managers have more control over the remaining
antecedents such as justice, perceived organisational support and
organisational commitment. Therefore, the answer to the question needs
to focus on how managers can influence these antecedents and the
supporting empirical evidence.
Chapter 6
Define individual performance-related pay. Highlight the fact that there are
different sorts of individual performance-related pay scheme: piecework,
commission and pay linked to an appraisal of the individual.
• Define motivation.
• Distinguish between different theories of motivation: content theories
and process theories.
• Note that content theories focus on whether pay in a general sense,
not just individual performance-related pay, is likely to motivate. In
other words pay will motivate if it is an important need. According to
Maslow, pay is one need in a hierarchy of needs and once satisfied will
no longer motivate. Herzberg views pay as a hygiene factor rather than
motivator. It is therefore more likely to demotivate than motivate.
• Note that there are different sorts of process theories, for instance
expectancy theory and equity theory. They suggest that individual
performance-related pay will motivate if the pay scheme is designed
to ensure that the main tenants of the theories are met. For example,
according to expectancy theory, individual goals need to be clear; there
should be a clear link between pay and goals; and employees should
value the pay received.
• Examine the different types of individual performance-related pay
scheme (commission, piecework and merit pay) comparing and
contrasting whether their design features accord with the tenets of
different theories.
• Examine the kind of operational ‘problems’ that may arise with
individual performance-related pay in practice which may distort the
tenets of the different theories so undermining pay’s motivational
impact. Draw on the work of research such as Marsden and Richardson
(1994) and Kohn (1993) to support your argument.
261
Chapter 7
• Give a brief definition of performance appraisal.
• This question is based on an assumption – the assumption being that
organisations continue to use performance appraisal. Confirm this
assumption is valid. Quote Bach (2000) and Redman (2001) who both
highlight the widespread and increasing use of performance appraisal
across workplaces in different countries.
• The rest of the question requires you to set out first the operational
difficulties associated with appraisal and then the reasons why
organisations might continue to use appraisal despite these problems.
• In discussing the operational problems draw upon the ‘orthodox’
critique distinguished by Bach (2000). This assumes that there is some
shared benefit for management and employees in an efficient and
effective appraisal system but recognises that some difficulties have to
be overcome and addressed.
• These difficulties include those associated with the judgemental
character of appraisal, those linked to the target-setting stage where
problems can arise in setting viable and meaningful goals and those
related to the assessment stage which may be distorted by a number
of effects, for instance, ‘halo’ and ‘recency’ effects. Also refer to
Longnecker and Ludwig’s (1990) framework for analysing the ways
in which managers might inflate or deflate performance ratings for
negative and positive reasons.
• Despite these problems suggest that management might continue to
use performance appraisal for two sets of reasons. The first can be
labelled managerial reasons. Thus appraisal is useful in informing a
whole range of decisions including those related to reward, training
and development. You can quote the reasons listed by Foot and Hook
(1999). You can also use goal-setting theories to suggest that under
certain circumstances appraisal may motivate employees. Quote Arnold
et al.’s summary of research of goal setting. A second set of reasons
is associated with management’s search for control. Draw upon the
‘radical critique’ to discuss how appraisal can be viewed as means of
managerial control over employees.
Chapter 10
The following are the issues you need to address:
• Different facets of justice (distributive, procedural and interactional)
• Why does justice matter for individuals?
• Why does justice matter for organisations?
• Theoretical explanations of why procedural justice is important to
individuals.
• Self-interest model/instrumental.
• Individuals seek control over processes because they are concerned
with the outcomes – if individuals have a voice, this is likely to lead to
equitable outcomes in the long term.
• Relational/group value.
• Fair procedures communicates to individuals that they are important
to the organisation. Being treated in a dignified and respectful way
enhances an individual’s feeling of self worth.
262
Appendix 3: Guidelines for answering sample examination questions
• Why justice is important for organisations.

• Consequences of justice.
• Distributive justice – satisfaction with outcome.
• Procedural justice – attitudes and behaviour towards wider
organisation.
• Interactional justice – attitudes and behaviour towards boss.
• Justice is associated with positive outcomes and thus is of importance
to organisations. Following from this, you could examine whether all
facets of justice are of equal importance to organisations.
• Organisations may not have total control over the fairness of outcomes
(constraints may exist in terms of an organisation’s ability to influence
the fairness of outcomes).
• Procedural justice and interactional justice become quite important if
individuals feel the outcome is unfair but the procedures adopted to
reach that outcome are fair; this will minimise the negative reactions to
unfair outcomes.
• Most negative outcomes (e.g. acts of retaliation/revenge) for the
organisation occur when distributive justices, procedural justice and
interactional justice are low.
Chapter 12
1. Internal labour markets are administrative systems for allocating
labour. They are characterised by the following: pricing and allocation
of labour governed by a set of administrative rules and procedures;
prescribed ports of entry and exit, other jobs filled by internal
promotion or transfers, wages set according to an internal matrix with
differentials prescribed by custom and practice, on-the-job firm specific
training; set promotion criteria, relatively stable employment/reduced
job turnover and commitment and identity effects. There are many
possible examples of ILMs, including first-tier Japanese manufacturing
companies which emphasise life-time employment professional
services firms such as accountants, consultants and lawyers (where
ILMs are often combined with tournament effects), and public sector
organisations such as the UK Civil Service. Candidates should point
out characteristics of the external labour market which differ from
ILMs (for example, recruitment at all levels, wages set by reference to
current market data, a reduced focus on firm-specific training, higher
staff turnover, etc.). The key reference is Doeringer and Piore (1971).
2. ILMs can be advantageous to employers where there are firm-
specific skills and knowledge, can lead to enhanced employee loyalty
through escalating commitment, can provide enhanced motivational
and screening capabilities and can give rise to staffing economies
and beneficial cohort effects. ILMs may be associated with high-
performance work organisations. Disadvantages include the following:
ILMs can be expensive, ILMS can be inflexible, ILMs can be insular,
ILMs can breed mediocrity and conformity and ILMs can be excessively
bureaucratic.
263
Chapter 13
1. An HR strategy will have two components: an analysis phase (what is
the business strategy, what stands in the way of achieving the business
strategy from an HR perspective, what can be done from an HR
perspective to improve the chances of achieving the business strategy)?
and an action phase (setting out the HR policy and programme choices.
This is consistent with the conception of an HR strategy as ‘the pattern
of decisions regarding the policies and practices associated with the HR
systems’ (see Bamberger and Meshoulam, 2000). Another commentator
talks about HR strategies in terms of philosophy, polices, programmes,
practices, and processes. A good way to think about the main elements
of an HR strategy is that they should ensure an organisation has the
right number of employees, employees have the appropriate levels
of skills and knowledge, employees exhibit the right behaviours and
employees are appropriately motivated and reward (see Bratton and
Gold, 2012).
2. The argument follows from the merits or otherwise of the resource-
based view of the firm. Some scholars argue that sustained competitive
advantage is achieved by building distinctive skills and capabilities,
not by analysing a firm’s external market position. Reference might be
made to a firm’s architecture, routines, distinctive capabilities, dynamic
capabilities and knowledge. Counter arguments stress the importance
of the firm’s market position as regards customers, suppliers,
competitors, etc. and point out that the RBV may confuse cause and
effect – distinctive HR capabilities are a consequence of working in a
high performing organisation rather than a cause.
264

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Human resource management

J. Coyle-Shapiro, K. Hoque, I. Kessler,

University of London International Programmes

Published by: University of London

Chapter 4: Individual performance: attitudes and behaviour ............................. 63

7.5 A reminder of your learning outcomes .................................................................. 137

12.3 Refinements to the standard theory ................................................................... 222

Figure 1: Organising framework

Structure of the guide

Style of the guide

• evaluate the effectiveness of different HR practices

Using this subject guide

Online study resources

• A student discussion forum: This is an open space for you to discuss

Making use of the Online Library

How the reading is listed

Chapter 1: Human resource management:

1.1.1 Aims of the chapter

1.1.2 Learning outcomes

1.1.3 Essential reading

1.1.4 Further reading

1.1.5 References cited

1.1.6 Synopsis of chapter content

1.2 What is HR management?

More information about the history of HR management can be found on the

1.3 Why are HR policies, programmes and plans so

1.3.1 HR policies refer to human behaviour

1.3.2 Many HR policy instruments and practices

Adding to the complexity, each area of HR policy is likely to have some

1.3.3 HR policies, programmes and plans are difficult to evaluate

1.3.4 ‘People management is just common sense’

1.3.5 The important of getting HR policies, programmes and plans

1.3.6 What leads to organisational success?

This requires a range of competencies, for example, sensible product

1.3.7 The special role of labour costs

1.3.8 Labour costs and productivity

1.4 How do HR policies, programmes and plans work?

1.4.1 Controlling wages

1.4.2 Raising productivity

1.4.3 How can productivity be raised?

technological choices, and for new technology to work as it should HR

1.4.4 Job design

1.4.5 Achieving productive potential by harnessing competence

1.5 The difference between academic study and the

academic disciplines, including economics, sociology, industrial relations

1.6 A reminder of your learning outcomes

Chapter 2: Recruitment and selection

2.1.1 Aims of the chapter

2.1.2 Learning outcomes

2.1.3 Essential reading

2.1.4 Further reading

Dell, D.N. Ainspan, T. Bodenberg, K. Troy and J. Hickey ‘Engaging employees

2.1.5 References cited

2.1.6 Synopsis of chapter content

2.2 The importance of recruitment and selection

or selection technique is an accurate or valid predictor of actual

2.3.2 Conduct a job analysis

Nowadays, however, companies increasingly emphasise the importance of

2.3.3 The recruitment strategy

broaden their appeal to prospective new employees This process is called

2.3.4 Which recruitment techniques should a company use?

e-recruitment at British Airways

Advantages of online recruitment