Hr chapter 5

The Process of Human Resource Planning
Organizations should carry out human resource planning so as to meet business objectives
and gain an advantage over competitors. To do this,

organization need what?

organizations need a clear
idea of the strengths and weaknesses of their existing internal labor force. They also
must know what they want to be doing in the future—what size they want the organization
to be, what products and services it should be producing, and so on.

knowledge helps them define the number and kinds of employees they will need.

Human resource planning compares the present state of the organization with its goals
for the future, then identifies what changes it must make in its human resources to
meet those goals.

The changes may include what?

What does human resource planning process consists of?

The changes may include downsizing, training existing employees
in new skills, or hiring new employees.

These activities give a general view of HR planning. They take place in the human
resource planning process shown in Figure 5.1 .

The process consists of three stages:
forecasting, goal setting and strategic planning, and program implementation and

what is forecasting?
The attempts to
determine the supply
of and demand for
various types of
human resources to
predict areas within
the organization
where there will be
labor shortages or
The first step in human resource planning is forecasting, as shown in the top portion
of Figure 5.1 .

In personnel forecasting, the HR professional tries to determine
the supply of and demand for various types of human resources.

The primary goal is
to predict which areas of the organization will experience labor shortages or surpluses

Forecasting supply and demand can use statistical methods or judgment.
methods capture historic trends in a company’s demand for labor. Under the right
conditions, these methods predict demand and supply more precisely than a human
forecaster can using subjective judgment.

But many important events in the labor
market have no precedent. When such events occur, statistical methods are of little
use. To prepare for these situations, the organization must rely on the subjective judgments
of experts. Pooling their “best guesses” is an important source of ideas about
the future.

what is trend analysis?

What is leading indicators

Trend Analysis-
Constructing and
applying statistical
models that predict
labor demand for
the next year, given
relatively objective
statistics from the
previous year.

Leading Indicators-
Objective measures
that accurately predict
future labor demand.

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Forecasting the Demand for Labor

Usually, an organization forecasts demand for specific job categories or skill areas.
After identifying the relevant job categories or skills, the planner investigates the
likely demand for each. The planner must forecast whether the need for people with
the necessary skills and experience will increase or decrease. There are several ways of
making such forecasts which are what?

At the most sophisticated level, an organization might use

trend analysis which are constructing
and applying statistical models that predict labor demand for the next
year, given relatively objective statistics from the previous year.

These statistics are
called leading indicators — which are objective measures that accurately predict future labor demand.

They might include measures of the economy (such as sales or inventory
levels), actions of competitors, changes in technology, and trends in the composition
of the workforce and overall population

For example
, an industrywide change in
prices may signal a problem related to capacity, which in turn may signal a need for
more or less labor to correct the capacity problem. Thus, when prices for many manufactured
goods fell more than 5 percent in early 2007, it was an indicator that sellers’
inventories were getting too large, predicting some of the many job cuts that came
in 2008 as orders and production levels fell. On a more detailed scale, Walmart uses
past shopping patterns to predict how many employees will be needed to staff shifts in
each of its stores on any given day and time.

Statistical planning models are useful when there is a long, stable history that
can be used to reliably detect relationships among variables. However, these models
almost always have to be complemented with subjective judgments of experts. There
are simply too many “once-in-a-lifetime” changes to consider, and statistical models
cannot capture them.

What is Transitional Matrix?
Transitional Matrix
A chart that lists job
categories held in
one period and shows
the proportion of
employees in each of
those job categories in
a future period.
Once a company has forecast the demand for labor, it needs an indication of the firm’s
labor supply.

Determining the internal labor supply calls for a detailed analysis of how
many people are currently in various job categories or have specific skills within the
organization. The planner then modifies this analysis to reflect changes expected in
the near future as a result of retirements, promotions, transfers, voluntary turnover,
and terminations.
One type of statistical procedure that can be used for this purpose is what?

It answers two questions which are?

also see pg 127 and 128

the analysis of
a transitional matrix. This is a chart that lists job categories held in one period and
shows the proportion of employees in each of those job categories in a future period.

It answers two questions: “Where did people who were in each job category go?” and
“Where did people now in each job category come from?” Table 5.1 is an example of
a transitional matrix.

Determining Labor Surplus or Shortage
Based on the forecasts for labor demand and supply, the planner can compare the
figures to determine whether there will be a shortage or surplus of labor for each job
category. Determining expected shortages and surpluses allows the organization to
plan how to address these challenges.
Issues related to a labor surplus or shortage can pose serious challenges for the organization.

Manufacturers, for example, expect to have difficulty filling skilled-trades
positions such as jobs for ironworkers, machinists, plumbers, and welders.

for these jobs is strong and is likely to continue as important infrastructure such as
bridges and tunnels ages. Also, the average age of tradespeople is rising above 55, and
young people tend not to be attracted to these jobs, assuming, often incorrectly, that
manufacturing-related jobs will be difficult to find or will not pay well

Which of the following options could be used to avoid a labor surplus and avoiding an expected labor shortage

for answers. See figure 5.2

Goal Setting and Strategic Planning
The second step in human resource planning is goal setting and strategic planning, as
shown in the middle of Figure 5.1 .

The purpose of setting specific numerical goals is
to focus attention on the problem and provide a basis for measuring the organization’s
success in addressing labor shortages and surpluses.

The goals should come directly
from the analysis of labor supply and demand. They should include a specific figure
indicating what should happen with the job category or skill area and a specific timetable
for when the results should be achieved.

For each goal, the organization must choose one or more human resource strategies.
A variety of strategies is available for handling expected shortages and surpluses
of labor.

The top of Table 5.2 shows major options for reducing an expected labor surplus,
and the bottom of the table lists options for avoiding an expected labor shortage.
This planning stage is critical. The options differ widely in their expense, speed,
and effectiveness. Options for reducing a labor surplus cause differing amounts of
human suffering. The options for avoiding a labor shortage differ in terms of how
easily the organization can undo the change if it no longer faces a labor shortage.

example, an organization probably would not want to handle every expected labor
shortage by hiring new employees. The process is relatively slow and
involves expenses to find and train new employees. Also, if the shortage
becomes a surplus, the organization will have to consider laying off some
of the employees. Layoffs involve another set of expenses, such as severance
pay, and they are costly in terms of human suffering.

what is core competency?
Core Competency
A set of knowledge
and skills that make
the organization
superior to competitors
and create value for
Another consideration in choosing an HR strategy is whether the
employees needed will contribute directly to the organization’s success.
Organizations are most likely to benefit from hiring and retaining employees
who provide a core competency —that is, a set of knowledge and
skills that make the organization superior to competitors and create value
for customers.

what is natural attrition?

At a store, for example, core competencies include choosing
merchandise that shoppers want and providing shoppers with excellent
service. For other work that is not a core competency—say, cleaning
the store and providing security—the organization may benefit from
using HR strategies other than hiring full-time employees.

Organizations try to anticipate labor surpluses far enough ahead that
they can freeze hiring and let natural attrition (people leaving on their
own) reduce the labor force. Unfortunately for many workers, organizations
often stay competitive in a fast-changing environment by responding
to a labor surplus with downsizing, which delivers fast results. The
impact is painful for those who lose jobs, as well as those left behind to
carry on without them

. To handle a labor shortage, organizations typically
hire temporary employees or use outsourcing. Because downsizing,
using temporary employees, and outsourcing are most common,

The planned
elimination of
large numbers of
personnel with the
goal of enhancing
the organization’s
As we discussed in Chapter 2, downsizing is the planned elimination of large numbers
of personnel with the goal of enhancing the organization’s competitiveness. The
primary reason organizations engage in downsizing is to promote future competitiveness.
According to surveys, they do this by meeting four objectives
which are?
1. Reducing costs —Labor is a large part of a company’s total costs, so downsizing is an
attractive place to start cutting costs.
2. Replacing labor with technology —Closing outdated factories, automating, or introducing
other technological changes reduces the need for labor. Often, the labor
savings outweigh the cost of the new technology.
3. Mergers and acquisitions —When organizations combine, they often need less bureaucratic
overhead, so they lay off managers and some professional staff members.
4. Moving to more economical locations —Some organizations move from one area
of the United States to another, especially from the Northeast and Midwest to
the South and the mountain regions of the West. Although the recent recession
hit California, Florida, and Texas particularly hard in terms of the number
of job losses, the longer-term pattern of job movement to the South and West
is expected to continue in the future.

McDonald’s recently experimented with
staffing drive-up service in Michigan by installing a long-distance connection to
lower-wage workers in North Dakota, who took down orders and relayed them
electronically to the Michigan kitchens. Other moves have shifted jobs to other
countries, including Mexico, India, and China, where wages are lower

downsizing hurts long-term organizational effectiveness.
Although downsizing has an immediate effect on costs, much of the evidence suggests

that it hurts long-term organizational effectiveness. This is especially true for
certain kinds of companies, such as those that emphasize research and development
and where employees have extensive contact with customers. The negative effect
of downsizing was especially high among firms that engaged in high-involvement
work practices, such as the use of teams and performance-related pay incentives. As
a result, the more a company tries to compete through its human resources, the more
layoffs hurt productivity.

Why do so many downsizing efforts fail to meet expectations?
There seem to be
several reasons. First, although the initial cost savings give a temporary boost to profits,
the long-term effects of an improperly managed downsizing effort can be negative.
Downsizing leads to a loss of talent, and it often disrupts the social networks
through which people are creative and flexible. Unless the downsizing is managed
well, employees feel confused, demoralized, and even less willing to stay with the

organization. Organizations may not take (or even know) the steps that can counter
these reactions—for example, demonstrating how they are treating employees fairly,
building confidence in the company’s plans for a stronger future, and showing the
organization’s commitment to behaving responsibly with regard to all its stakeholders,
including employees, customers, and the community.
Also, many companies wind up rehiring. Downsizing campaigns often eliminate
people who turn out to be irreplaceable.

In one survey, 80 percent of the firms that
had downsized later replaced some of the very people they had laid off. In one Fortune
100 firm, a bookkeeper making $9 an hour was let go. Later, the company realized she
knew many things about the company that no one else knew, so she was hired back
as a consultant—for $42 an hour. 12 However, recent trends in employment suggest
that companies will not rehire employees for many of the jobs eliminated when they
restructured, introduced automation, or moved work to lower-cost regions.

Finally, downsizing efforts often fail because employees who survive the purge
become self-absorbed and afraid to take risks
Motivation drops because any hope
of future promotions—or any future—with the company dies. Many employees start
looking for other employment opportunities. The negative publicity associated with
a downsizing campaign can also hurt the company’s image in the labor market, so it is
harder to recruit employees later.
Many problems with downsizing can be reduced with better planning. Instead of
slashing jobs across the board, successful downsizing makes surgical strategic cuts that
improve the company’s competitive position, and management addresses the problem
of employees becoming demoralized.

Boeing learned this lesson the hard way
in the 1990s, when it reduced its workforce by letting workers choose whether they
wanted to accept a buyout package in exchange for leaving. Workers with the most
experience (and best prospects elsewhere) were most likely to leave, so when Boeing’s
orders increased and it needed to rehire later, it was competing in the labor market for
the best people. To avoid that situation when it needed to cut 10,000 jobs in 2009,
Boeing avoided voluntary reductions and instead required managers to pick which
employees’ positions would be eliminate

reducing hours
Reducing Hours
Given the limitations of downsizing, many organizations are more carefully considering
other avenues for eliminating a labor surplus (shown in Table 5.2 ). One
alternative seen as a way to spread the burden more fairly is cutting work hours,
generally with a corresponding reduction in pay. Besides the thought that this is a
more equitable way to weather a slump in demand, companies choose a reduction
in work hours because it is less costly than layoffs requiring severance pay, and it is
easier to restore the work hours than to hire new employees after a downsizing effort.

Window maker Pella, for example, put its employees on a four-day workweek, and
Dell Computer offered its employees a chance to take extra (unpaid) days off at the
end of the year.

early retirement
Early-Retirement Programs
Another popular way to reduce a labor surplus is with an early-retirement program.

the average age of the U.S. workforce is increasing.

even though many baby boomers are approaching traditional retirement age,

indications are that this group has no intention of retiring soon.

Reasons include
improved health of older people, jobs becoming less physically demanding, concerns
about the long-term viability of Social Security and pensions, the recent drop in the
value of older workers’ retirement assets (especially stock funds and home values), and
laws against age discrimination. Under the pressures associated with an aging labor
force, many employers try to encourage older workers to leave voluntarily by offering
a variety of early-retirement incentives. The more lucrative of these programs succeed
by some measures. Research suggests that these programs encourage lower-performing
older workers to retire.

Sometimes they work so well that too many workers retire.
Many organizations are moving from early-retirement programs to phasedretirement
programs. In a phased-retirement program, the organization can continue to
enjoy the experience of older workers while reducing the number of hours that these
employees work, as well as the cost of those employees. This option also can give
older employees the psychological benefit of easing into retirement, rather than being
thrust entirely into a new way of life

Employing Temporary and Contract Workers
While downsizing has been a popular way to reduce a labor surplus, the most widespread
methods for eliminating a labor shortage are hiring temporary and contract
workers and outsourcing work.

Employers may arrange to hire a temporary worker
through an agency that specializes in linking employers with people who have the
necessary skills. The employer pays the agency, which in turn pays the temporary
worker. Employers also may contract directly with individuals, often professionals, to
provide a particular service.
To use this source of labor effectively, employers need to overcome some disadvantages.

In particular, temporary and contract workers may not be as committed
to the organization, so if they work directly with customers, that attitude may spill
over and affect customer loyalty. Therefore, many organizations try to use permanent
employees in key jobs and use temporary and contract workers in ways that clearly
supplement—and do not potentially replace—the permanent employees

Temporary Workers
Temporary employment is popular with employers
because it gives them flexibility they need to operate efficiently when demand for
their products changes rapidly.
In addition to flexibility, temporary employment offers lower costs. Using temporary
workers frees the employer from many administrative tasks and financial burdens
associated with being the “employer of record.”

The cost of employee benefits, including
health care, pension, life insurance, workers’ compensation, and unemployment
insurance, can account for 40 percent of payroll expenses for permanent employees.
Assuming the agency pays for these benefits, a company using temporary workers may
save money even if it pays the agency a higher rate for that worker than the usual
wage paid to a permanent employee.

Agencies that provide temporary employees also may handle some of the tasks
associated with hiring. Small companies that cannot afford their own testing programs
often get employees who have been tested by a temporary agency. Many temporary
agencies also train employees before sending them to employers. This reduces
employers’ training costs and eases the transition for the temporary worker and

Finally, temporary workers may offer value not available from permanent employees.
Because the temporary worker has little experience at the employer’s organization,
this person brings an objective point of view to the organization’s problems and
procedures. Also, a temporary worker may have a great deal of experience in other
organizations that can be applied to the current assignment.
To obtain these benefits, organizations need to overcome the disadvantages associated
with temporary workers. For example, tension can develop between temporary
and permanent employees

Employee or Contractor?
Employee or Contractor?
Besides using a temporary-employment agency, a company can obtain workers for
limited assignments by entering into contracts with them. If the person providing the
services is an independent contractor, rather than an employee, the company does
not pay employee benefits, such as health insurance and vacations. As with using
temporary employees, the savings can be significant, even if the contractor works at
a higher rate of pay.
Consultants at PricewaterhouseCoopers suggest that information technology will
make it so practical for contractors and employers to find each other that some contractors
will form networks of talented, specialized workers. Instead of competing for
full-time talent, companies will simply use contractors from these networks as needed.
Companies could even contract for management talent to handle particular projects
or solve short-term problems. Charles Grantham of a research group called Work
Design Collaborative sees evidence that the main force slowing this trend has been
the difficulty of getting and affording health insurance outside of traditional employment.
If that barrier is removed, more employees might prefer independent-contractor
status. 20
This strategy carries risks, however. If the person providing the service is a contractor
and not an employee, the company is not supposed to directly supervise the
worker. The company can tell the contractor what criteria the finished assignment
should meet but not, for example, where or what hours to work. This distinction
is significant, because under federal law, if the company treats the contractor as an
employee, the company has certain legal obligations, described in Part 4, related to
matters such as overtime pay and withholding taxes.
When an organization wants to consider using independent contractors as a way to
expand its labor force temporarily, human resource professionals can help by alerting
the company to the need to verify that the arrangement will meet the legal requirements.
A good place to start is with the advice to small businesses at the Internal
what is Outsourcing
Contracting with
another organization to
perform a broad set of
Organizations use outsourcing as a
way to operate more efficiently and save money. They choose outsourcing firms that
promise to deliver the same or better quality at a lower cost. One reason they can do
this is that the outside company specializes in the service and can benefit from economies
of scale (the economic principle that producing something in large volume tends
to cost less for each additional unit than producing in small volume). This efficiency
is often the attraction for outsourcing human resource functions such as payroll. Costs
also are lower when the outsourcing firm is located in a part of the world where wages
are relatively low. The labor forces of countries such as China, India, Jamaica, and
those in Eastern Europe have been creating an abundant supply of labor for unskilled
and low-skilled work.
The first uses of outsourcing emphasized manufacturing and routine tasks. However,
technological advances in computer networks and transmission have speeded up the
outsourcing process and have helped it spread beyond manufacturing areas and lowskilled
jobs. For example, DuPont moved legal services associated with its $100 million
asbestos case litigation to a team of lawyers working in the Philippines. The work
is a combination of routine document handling and legal judgments such as determining
the relevance of a document to the case. Salaries for lawyers and paralegals in the
Philippines are about one-fifth the cost of their counterparts in the United States. 21
Outsourcing may be a necessary way to operate as efficiently as competitors, but
it does pose challenges. Quality-control problems, security violations, and poor customer
service have sometimes wiped out the cost savings attributed to lower wages. To
ensure success with an outsourcing strategy, companies should follow these guidelines:
• Learn about what the provider can do for the company, not just the costs. Make
sure the company has the necessary skills, including an environment that can meet
standards for clear communication, on-time shipping, contract enforcement, fair
labor practices, and environmental protection. Some companies are keeping outsourcing
work near or inside the United States in order to meet this full set of
requirements. 22
• Do not offshore any work that is proprietary or requires tight security. 23
• Start small and monitor the work closely, especially in the beginning, when problems
are most likely. 24
• Look for opportunities to outsource work in areas that promote growth, for example,
by partnering with experts who can help the organization tap new markets.
Overtime and Expanded Hours
Organizations facing a labor shortage may be reluctant to hire employees, even temporary
workers, or to commit to an outsourcing arrangement. Especially if the organization
expects the shortage to be temporary, it may prefer an arrangement that is
simpler and less costly. Under some conditions, these organizations may try to garner
more hours from the existing labor force, asking them to go from part-time to fulltime
status or to work overtime.

A major downside of overtime is that the employer must pay nonmanagement
employees one-and-a-half times their normal wages for work done overtime.

Even so, employers see overtime pay as preferable to the costs of hiring and training new
employees. The preference is especially strong if the organization doubts that the current
higher level of demand for its products will last long.
For a short time at least, many workers appreciate the added compensation for
working overtime. Over extended periods, however, employees feel stress and frustration
from working long hours. Overtime therefore is best suited for short-term labor

Implementing and Evaluating the HR Plan

what are the final stage of Human resource planing?

For whatever HR strategies are selected, the final stage of human resource planning
involves implementing the strategies and evaluating the outcomes.

This stage is represented
by the bottom part of Figure 5.1 .

When implementing the HR strategy,
The organization must hold some individual accountable for achieving the goals. That
person also must have the authority and resources needed to accomplish those goals. It
is also important that this person issue regular progress reports, so the organization can
be sure that all activities occur on schedule and that the early results are as expected.
Implementation that ties planning and recruiting to the organization’s strategy and
to its efforts to develop employees becomes a complete program of talent management.
As described in the “eHRM” box, today’s computer systems have made talent management
more practical.
In evaluating the results, the most obvious step is checking whether the organization
has succeeded in avoiding labor shortages or surpluses. Along with measuring
these numbers, the evaluation should identify which parts of the planning process
contributed to success or failure. For example, consider a company where meeting
human resource needs requires that employees continually learn new skills. If there
is a gap between needed skills and current skill levels, the evaluation should consider
whether the problem lies with failure to forecast the needed skills or with implementation.
Are employees signing up for training, and is the right kind of training available?

What is Workforce Utilization?
Workforce Utilization

A comparison of
the proportion
of employees in
protected groups with
the proportion that
each group represents
in the relevant labor

Applying HR Planning to Affirmative Action

many organizations have a human resource strategy that
includes affirmative action to manage diversity or meet government requirements.
Meeting affirmative-action goals requires that employers carry out an additional level
of human resource planning aimed at those goals

Workforce Utilization.

Applying HR Planning to Affirmative Action
As we discussed in Chapter 3, many organizations have a human resource strategy that
includes affirmative action to manage diversity or meet government requirements.
Meeting affirmative-action goals requires that employers carry out an additional level
of human resource planning aimed at those goals.

In other words, besides looking at
its overall workforce and needs, the organization looks at the representation of subgroups
in its labor force—

for example, the proportion of women and minorities.
Affirmative-action plans forecast and monitor the proportion of employees who
are members of various protected groups (typically, women and racial or ethnic

The planning looks at the representation of these employees in the organization’s
job categories and career tracks. The planner can compare the proportion
of employees who are in each group with the proportion each group represents in the
labor market.

For example, the organization might note that in a labor market that is
25 percent Hispanic, 60 percent of its customer service personnel are Hispanic.

type of comparison is called a workforce utilization review. The organization can
use this process to determine whether there is any subgroup whose proportion in the
relevant labor market differs substantially from the proportion in the job category.

If the workforce utilization review indicates that some group—for example, African
Americans—makes up 35 percent of the relevant labor market for a job category but
that this same group constitutes only 5 percent of the employees actually in the job
category at the organization, this is evidence of underutilization. That situation could
result from problems in selection or from problems in internal movement (promotions
or other movement along a career path). One way to diagnose the situation would be to
use transitional matrices, such as the matrix shown in Table 5.1 earlier in this chapter.
The steps in a workforce utilization review are identical to the steps in the HR planning
process that were shown in Figure 5.1. The organization must assess current utilization
patterns, then forecast how they are likely to change in the near future. If these
analyses suggest the organization is underutilizing certain groups and if forecasts suggest
this pattern is likely to continue, the organization may need to set goals and timetables
for changing. The planning process may identify new strategies for recruitment or
selection. The organization carries out these HR strategies and evaluates their success.
what is Recruiting?
Recruiting is
Any activity carried
on by the organization
with the primary
purpose of identifying
and attracting potential

all companies have to make decisions
in three areas of recruiting which are?

Recruiting Human Resources

The role of human resource recruitment is to build a supply of
potential new hires that the organization can draw on if the need arises. In human
resource management, recruiting consists of any practice or activity carried on by
the organization with the primary purpose of identifying and attracting potential
employees. It thus creates a buffer between planning and the actual selection of new

The goals of recruiting (encouraging qualified
people to apply for jobs) and selection (deciding which candidates would be the
best fit) are different enough that they are most effective when performed separately,
rather than combined as in a job interview that also involves selling candidates on
the company.
Because of differences in companies’ strategies, they may assign different degrees
of importance to recruiting.

In general, however, all companies have to make decisions
in three areas of recruiting: personnel policies, recruitment sources, and the characteristics and behavior of the recruiter.

As shown in Figure 5.2 , these aspects of
recruiting have different effects on whom the organization ultimately hires. Personnel
policies influence the characteristics of the positions to be filled.

Recruitment sources
influence the kinds of job applicants an organization reaches.

And the nature and
behavior of the recruiter affect the characteristics of both the vacancies and the applicants.

Ultimately, an applicant’s decision to accept a job offer—and the organization’s
decision to make the offer—depend on the match between vacancy characteristics
and applicant characteristics.
The remainder of this chapter explores these three aspects of recruiting: personnel
policies, recruitment sources, and recruiter traits and behaviors.

Employment at Will
Employment at Will
principle that if
there is no specific
employment contract
saying otherwise,
the employer or
employee may end
an employment
relationship at any
time, regardless of
Due-Process Policies
Due-Process Policies
Policies that formally
lay out the steps an
employee may take to
appeal the employer’s
decision to terminate
that employee.
Personnel Policies
An organization’s personnel policies are its decisions about how it will carry out human
resource management, including how it will fill job vacancies. These policies influence
the nature of the positions that are vacant. According to the research on recruitment,
it is clear that characteristics of the vacancy are more important than recruiters
or recruiting sources for predicting job choice. 29 Several personnel policies are especially
relevant to recruitment:

Image advertising is what?

• Internal versus external recruiting —Organizations with policies to “promote from
within” try to fill upper-level vacancies by recruiting candidates internally—that
is, finding candidates who already work for the organization. Opportunities for
advancement make a job more attractive to applicants and employees, as illustrated
by the example in the “Best Practices” box. Decisions about internal versus
external recruiting affect the nature of jobs, recruitment sources, and the nature of
applicants, as we will describe later in the chapter.

Lead-the-market pay strategies —Pay is an important job characteristic for almost
all applicants. Organizations have a recruiting advantage if their policy is to take
a “lead-the-market” approach to pay—that is, pay more than the current market
wages for a job. Higher pay can also make up for a job’s less desirable features, such
as working on a night shift or in dangerous conditions. Organizations that compete
for applicants based on pay may use bonuses, stock options, and other forms of pay
besides wages and salaries. Chapters 11 and 12 will take a closer look at these and
other decisions about pay.

• Employment-at-will policies —Within the laws of the state where they are operating,
employers have latitude to set polices about their rights in an employment relationship.
A widespread policy follows the principle of employment at will, which
holds that if there is no specific employment contract saying otherwise, the employer
or employee may end an employment relationship at any time. An alternative is
to establish extensive due-process policies, which formally lay out the steps an
employee may take to appeal an employer’s decision to terminate that employee.
An organization’s lawyers may advise the company to ensure that all recruitment

documents say the employment is “at will,” to protect the
company from lawsuits about wrongful discharge. Management
must decide how to weigh any legal advantages against
the impact on recruitment. Job applicants are more attracted
to organizations with due-process policies, which imply
greater job security and concern for protecting employees,
than to organizations with employment-at-will policies. 30

• Image advertising —Besides advertising specific job openings,
as discussed in the next section, organizations may advertise
themselves as a good place to work in general. Advertising
designed to create a generally favorable impression of the
organization is called image advertising.

Image advertising is
particularly important for organizations in highly competitive
labor markets that perceive themselves as having a bad
image. 31 Research suggests that the image of an organization’s
brand—for example, innovative, dynamic, or fun—
influences the degree to which a person feels attracted to
the organization. This attraction is especially true if the
person’s own traits seem to match those of the organization.
Also, job applicants seem to be particularly sensitive
to issues of diversity and inclusion in image advertising, so
organizations should ensure that their image advertisements
reflect the broad nature of the labor market from which they
intend to recruit.

Due-Process Policies is what?
Due-Process Policies
Policies that formally
lay out the steps an
employee may take to
appeal the employer’s
decision to terminate
that employee.
Job Posting
Job Posting
The process of
information about a job
vacancy on company
bulletin boards, in
employee publications,
on corporate intranets,
and anywhere else
the organization
communicates with
Recruitment Sources
Another critical element of an organization’s recruitment strategy is its decisions
about where to look for applicants. The total labor market is enormous and spread
over the entire globe. As a practical matter, an organization will draw from a small
fraction of that total market. The methods the organization chooses for communicating
its labor needs and the audiences it targets will determine the size and nature of
the labor market the organization taps to fill its vacant positions. A person who
responds to a job advertisement on the Internet is likely to be different from a person
responding to a sign hanging outside a factory. The “Did You Know?” box presents
some data on sources of recruitment. Each of the major sources from which organizations
draw recruits has advantages and disadvantages
Internal Sources
As we discussed with regard to personnel policies, an organization may emphasize
internal or external sources of job applicants. Internal sources are employees who
currently hold other positions in the organization.

Organizations recruit existing
employees through what?

job posting, or communicating information about the vacancy

On company bulletin boards
In employee publications
On corporate intranets
Anywhere else organization communicates with employees

Managers also may
identify candidates to recommend for vacancies. Policies that emphasize promotions
and even lateral moves to achieve broader career experience can give applicants a
favorable impression of the organization’s jobs. The use of internal sources also affects
what kinds of people the organization recruits.

Advantages of Internal Sources
For the employer, relying on internal sources offers several advantages

1. It generates applicants who are well known to the organization.

2. These applicants are relatively knowledgeable about the organization’s vacancies, which minimizes the possibility of unrealistic job expectations.

3. Filling vacancies through internal recruiting is generally cheaper and faster than looking outside the organization.

The value of a strong internal hiring system can be seen in the leadership of North
Jersey Federal Credit Union. The credit union’s chief executive, Lourdes Cortez, has
been with the credit union for more than 20 years, starting out as a teller. From that
entry-level position, Cortez worked her way into management. Along the way, she
held jobs in almost every department (skipping only accounting) and got to know the
organization’s members (credit union customers) firsthand. Explaining her strengths,
Cortez says, “Having worked my way up at the credit union absolutely gives me a
number of different perspectives. I’ve worked in every department, so I have respect
for employees in those positions, and I relate better to membership because I’ve dealt
with them on a one-on-one basis.” 36

what are external sources advantages
External Sources
Despite the advantages of internal recruitment, organizations often have good reasons
to recruit externally. For entry-level positions and perhaps for specialized upper-level
positions, the organization has no internal recruits from which to draw. Also, bringing
in outsiders may expose the organization to new ideas or new ways of doing business.
An organization that uses only internal recruitment can wind up with a workforce
whose members all think alike and therefore may be poorly suited to innovation.

And finally, companies that are able to grow during a slow economy can gain a competitive
edge by hiring the best talent when other organizations are forced to avoid
hiring, freeze pay increases, or even lay off talented people. So organizations often
recruit through direct applicants and referrals, advertisements, employment agencies,
schools, and Web sites. Figure 5.3 shows which of these sources are used most among
large companies surveyed.

what are direct applicants and referrals?
Direct Applicants
People who apply for
a vacancy without
prompting from the

People who apply for
a vacancy because
someone in the
organization prompted
them to do so.

What are Direct Applicants and Referrals?

Even without a formal effort to reach job applicants, an organization may hear from
candidates through direct applicants and referrals.

Direct applicants are people
who apply for a vacancy without prompting from the organization.

Referrals are
people who apply because someone in the organization prompted them to do so.

According to the survey results shown in Figure 5.3 , the largest share (over onefourth)
of new employees hired by large companies came from referrals, and the next
largest share (over 22 percent) came from direct applications made at the employer’s
Web site.

These two sources of recruits share some characteristics that make them
excellent pools from which to draw.

what are some advantages of direct applicants and referrals?

what is self-selection?

These two sources of recruits share some characteristics that make them
excellent pools from which to draw.

One advantage is that many direct applicants are to some extent already “sold”
on the organization. Most have done some research and concluded there is enough
fit between themselves and the vacant position to warrant submitting an application,

a process called self-selection, which, when it works, eases the pressure on the
organization’s recruiting and selection systems.

A form of aided self-selection occurs
with referrals. Many job seekers look to friends, relatives, and acquaintances to help
find employment.

Using these social networks not only helps the job seeker but also
simplifies recruitment for employers.

Current employees (who are familiar with the
vacancy as well as the person they are referring) decide that there is a fit between the
person and the vacancy, so they convince the person to apply for the job.

An additional benefit of using such sources is that it costs much less than formal
recruiting efforts.

Considering these combined benefits, referrals and direct applications
are among the best sources of new hires.

Some employers offer current employees
financial incentives for referring applicants who are hired and perform acceptably on
the job (for example, if they stay 180 days). Other companies such as Google and SAS
play off their good reputations in the labor market to generate direct applications.
SAS, a Cary, North Carolina-based developer of business systems, is so well known in
the software industry for its generous workplace benefits and challenging assignments
that recruiting is a bargain—partly because so many people go to the company looking
for jobs and partly because they tend to stick around when they are hired.

what is Nepotism?
The practice of hiring

The major downside of referrals is that they limit the likelihood of exposing the
organization to fresh viewpoints. People tend to refer others who are like themselves.
Furthermore, sometimes referrals contribute to hiring practices that are or that appear
unfair, an example being nepotism, or the hiring of relatives. Employees may resent
the hiring and rapid promotion of “the boss’s son” or “the boss’s daughter,” or even the
boss’s friend

Advertisements in Newspapers and Magazines
Open almost any newspaper or magazine and you can find advertisements of job
openings. These ads typically generate a less desirable group of applicants than direct
applications or referrals, and do so at greater expense.

However, few employers can
fill all their vacancies purely through direct applications and referrals, so they usually
need to advertise. An employer can take many steps to increase the effectiveness of
recruitment through advertising.
The person designing a job advertisement needs to answer two questions: which are what?

What do we need to say?
To whom do we need to say it?
With respect to the first question, an ad should give readers enough information
to evaluate the job and its requirements, so they can make a well-informed judgment
about their qualifications. Providing enough information may require long advertisements,
which cost more.

The employer should evaluate the additional costs against
the costs of providing too little information:

Vague ads generate a huge number of
applicants, including many who are not reasonably qualified or would not accept
the job if they learned more about it. Reviewing all these applications to eliminate
unsuitable applicants is expensive. In practice, the people who write job advertisements
tend to overstate the skills and experience required, perhaps generating too few
qualified candidates

For example,
some have blamed the shortage of qualified engineers
in America on job advertising that requires experience with particular processes
or software programs, rather than looking for broader abilities that can be transferred
to new applications.

Specifying whom to reach with the message helps the advertiser decide where to
place the ad.

Ads placed in the classified section of local newspapers are relatively
inexpensive yet reach many people in a specific geographic area who are currently
looking for work (or at least interested enough to be reading the classifieds). On the
downside, this medium offers little ability to target skill levels.

Typically, many of
the people reading classified ads are either over- or underqualified for the position.
Also, people who are not looking for work rarely read the classifieds.

These people
may include candidates the organization could lure from their current employers. For
reaching a specific part of the labor market, including certain skill levels and more
people who are employed, the organization may get better results from advertising
in professional or industry journals. Some employers also advertise on television—
particularly cable television

what is electronic recruiting?
Electronic Recruiting
In recent years, employers have shifted using their spending on job advertisements
away from print ads to online job advertising or a combination of the two. A recent
survey by the Conference Board found that the number of online job ads rose by 24
percent over the previous year.

Online recruiting generally involves posting career
information at company Web sites to address people who are interested in the particular
company and posting paid advertisements at career services to attract people
who are searching for jobs. Company’s are also visiting network sites such as Linked
In and Facebook to find job candidates.

Most large companies and many smaller ones make career information available at
their Web sites. To make that information easier to find, they may register a domain
name with a “.jobs” extension, such as for a link to information
about careers at Starbucks and for information about careers at
Union Pacific. To be an effective recruiting tool, corporate career information should
move beyond generalities, offering descriptions of open positions and an easy way
to submit a résumé. One of the best features of this kind of electronic recruiting is
the ability to target and attract job candidates whose values match the organization’s
values and whose skills match the job requirements

Candidates also appreciate an
e-mail response that the company has received the résumé—especially a response
that gives a timetable about further communications from the company.
Accepting applications at the company Web site is not so successful for smaller
and less well-known organizations, because fewer people are likely to visit the Web
site. These organizations may get better results by going to the Web sites that are
set up to attract job seekers, such as Monster, Yahoo HotJobs, and CareerBuilder,
which attract a vast array of applicants. At these sites, job seekers submit standardized
résumés. Employers can search the site’s database for résumés that include specified
key terms, and they can also submit information about their job opportunities,
so that job seekers can search that information by key term. With both employers
and job seekers submitting information to and conducting searches on them, these
sites offer an efficient way to find matches between job seekers and job vacancies.

a drawback is that the big job Web sites can provide too many leads of
inferior quality because they are so huge and serve all job seekers and employers,
not a select segment.

Because of this limitation of the large Web sites, smaller, more tailored Web sites
called “niche boards” focus on certain industries, occupations, or geographic areas. , for example, is a site devoted to, as the name implies, the telecommunications
industry. , a companion site to CIO Magazine, specializes
in openings for chief information officers. In addition, companies can improve the
effectiveness of online advertising by employing more interactive tools, such as social

Public Employment Agencies

what is the The Social Security Act of 1935?

Public Employment Agencies

The Social Security Act of 1935 requires that everyone receiving unemployment
compensation be registered with a local state employment office.

These state employment
offices work with the U.S. Employment Service (USES) to try to ensure that
unemployed individuals eventually get off state aid and back on employer payrolls.
To accomplish this, agencies collect information from the unemployed people about
their skills and experience.

Employers can register their job vacancies with their local state employment
office, and the agency will try to find someone suitable, using its computerized
inventory of local unemployed individuals. The agency refers candidates to the
employer at no charge. The organization can interview or test them to see if they
are suitable for its vacancies. Besides offering access to job candidates at low cost,
public employment agencies can be a useful resource for meeting certain diversity
objectives. Laws often mandate that the agencies maintain specialized “desks” for
minorities, disabled individuals, and war veterans. Employers that feel they currently
are underutilizing any of these subgroups of the labor force may find the
agencies to be an excellent source.

The government also provides funding to a variety of local employment agencies.
For example, in Virginia, the Frederick County Job Training Agency receives funding
from the federal, state, and county governments to help unemployed workers find
and prepare for new jobs. When the Von Hoffmann Corporation closed its Frederick
plant to consolidate operations in Missouri and Iowa, the 165 employees didn’t want
to move. A career consultant at the Job Training Agency met with each of them to
record their work history and goals. The laid-off workers also can use the agency to
visit online job sites, mail résumés at no charge, and participate in classes on writing
résumés and interviewing for a job. The Job Training Agency shares a building
with the county’s Office of Economic Development, in the hope that the development
agency, which encourages businesses to locate in the county, can work with it to
match employers and workers.

Private Employment Agencies

what is the difference between private imploding agency in public employment agency?

what is an executive search firm

In contrast to public employment agencies, which primarily serve the blue-collar labor
market, private employment agencies provide much the same service for the whitecollar labor market.

Workers interested in finding a job can sign up with a private
employment agency whether or not they are currently unemployed.

Another difference
between the two types of agencies is that private agencies charge the employers
for providing referrals. Therefore, using a private employment agency is more expensive
than using a public agency, but the private agency is a more suitable source for
certain kinds of applicants.

For managers or professionals, an employer may use the services of a type of private
agency called an executive search firm (ESF). People often call these agencies
“headhunters” because, unlike other employment agencies, they find new jobs for
people almost exclusively already employed. For job candidates, dealing with executive
search firms can be sensitive. Typically, executives do not want to advertise their
availability, because it could trigger a negative reaction from their current employer.
ESFs serve as a buffer, providing confidentiality between the employer and the recruit.
That benefit may give an employer access to candidates it cannot recruit in other,
more direct ways.

Colleges and Universities

what are theadvantages of using this channel?

Colleges and Universities
Most colleges and universities have placement services that
seek to help their graduates obtain employment. On-campus
interviewing is the most important source of recruits for entrylevel
professional and managerial vacancies. Organizations
tend to focus especially on colleges that have strong reputations
in areas for which they have critical needs—say, chemical
engineering or public accounting. The recruiting strategy at
3M includes concentrating on 25 to 30 selected universities.
The company has a commitment to those selected universities
and returns to them each year with new job openings. HR
professionals make sure that the same person works with the
same university year in and year out, to achieve “continuity of

One of the best ways for a company to establish
a stronger presence on a campus is with a college
internship program. Embassy Suites is one company
that participates in such a program. How does this
benefit the company and the students at the same
Many employers have found that successfully competing for the best students
requires more than just signing up prospective graduates for interview slots. One of
the best ways to establish a stronger presence on a campus is with a college internship
program. Internship programs give an organization early access to potential applicants
and let the organization assess their capabilities directly. IBM uses a program called
Latin American Grid, in which it partners with colleges in Florida, Mexico, Puerto
Rico, and Barcelona by donating hardware and software and collaborating on research.
What IBM gets in return is access to a pool of talented Latin American scholars,
which it cultivates through mentoring and an internship program. Ultimately, it hires
many of them as permanent employees. 51
Another way of increasing the employer’s presence on campus is to participate in
university job fairs. In general, a job fair is an event where many employers gather for
a short time to meet large numbers of potential job applicants. Although job fairs can
be held anywhere (such as at a hotel or convention center), campuses are ideal locations
because of the many well-educated, yet unemployed, individuals who are there.
Job fairs are an inexpensive means of generating an on-campus presence. They can
even provide one-on-one dialogue with potential recruits—dialogue that would be
impossible through less interactive media, such as newspaper ads.

what is a yield ratio?
Yield Ratio
A ratio that expresses
the percentage
of applicants who
successfully move
from one stage of
the recruitment and
selection process to
the next.

By comparing yield ratios of different recruitment sources, we can determine which source is best or most efficient for type of vacancy.

what is cost per hire?
Find cost of using a particular recruitment source for a particular type of vacancy.

Divide that cost by number of people hired to fill that type of vacancy.
A low cost per hire means the recruitment source is efficient.

evaluating the quality of a source

yield ratio

In general, there are few rules that say what recruitment source is best for a given job
vacancy. Therefore, it is wise for employers to monitor the quality of all their recruitment

One way to do this is to develop and compare yield ratios for each

A yield ratio
expresses the percentage of applicants who successfully move
from one stage of the recruitment and selection process to the next

. For example, the
organization could find the number of candidates interviewed as a percentage of the
total number of résumés generated by a given source (that is, number of interviews
divided by number of résumés). A high yield ratio (large percentage) means that the
source is an effective way to find candidates to interview. By comparing the yield
ratios of different recruitment sources, HR professionals can determine which source
is the best or most efficient for the type of vacancy.

Another measure of recruitment success is the cost per hire.
To compute this
amount, find the cost of using a particular recruitment source for a particular type
of vacancy. Then divide that cost by the number of people hired to fill that type of
vacancy. A low cost per hire means that the recruitment source is efficient; it delivers
qualified candidates at minimal cost.
To see how HR professionals use these measures, look at the examples in Table 5.3 .
This table shows the results for a hypothetical organization that used five kinds of
recruitment sources to fill a number of vacancies. For each recruitment source, the
table shows four yield ratios and the cost per hire. To fill these jobs, the best two
sources of recruits were local universities and employee referral programs. Newspaper
ads generated the largest number of recruits (500 résumés). However, only 50 were
judged acceptable, of which only half accepted employment offers, for a cumulative
yield ratio of 25/500, or 5 percent. Recruiting at renowned universities generated
highly qualified applicants, but relatively few of them ultimately accepted positions
with the organization. Executive search firms produced the highest cumulative yield
ratio. These generated only 20 applicants, but all of them accepted interview offers,
most were judged acceptable, and 79 percent of these acceptable candidates took jobs
with the organization. However, notice the cost per hire. The executive search firms
charged $90,000 for finding these 15 employees, resulting in the largest cost per hire.
In contrast, local universities provided modest yield ratios at the lowest cost per hire.
Employee referrals provided excellent yield ratios at a slightly higher cost.
recruitment traits and behaviors
Recruiter Traits and Behaviors
As we showed in Figure 5.2 , the third influence on recruitment outcomes is the
recruiter, including this person’s characteristics and the way he or she behaves.

The recruiter affects the nature of both the job vacancy and the applicants generated.
However, the recruiter often becomes involved late in the recruitment process. In
many cases, by the time a recruiter meets some applicants, they have already made up
their minds about what they desire in a job, what the vacant job has to offer, and their
likelihood of receiving a job offer.
Many applicants approach the recruiter with some skepticism. Knowing it is the
recruiter’s job to sell them on a vacancy, some applicants discount what the recruiter
says, in light of what they have heard from other sources, such as friends, magazine
articles, and professors. When candidates are already familiar with the company
through knowing about its products, the recruiter’s impact is especially weak. For
these and other reasons, recruiters’ characteristics and behaviors seem to have limited
impact on applicants’ job choices.

Characteristics of the Recruiter
Characteristics of the Recruiter

Most organizations must choose whether their recruiters are specialists in human
resources or are experts at particular jobs (that is, those who currently hold the same
kinds of jobs or supervise people who hold the jobs).

According to some studies,
applicants perceive HR specialists as less credible and are less attracted to jobs when
recruiters are HR specialists.

The evidence does not completely discount a positive
role for personnel specialists in recruiting. It does indicate, however, that these specialists
need to take extra steps to ensure that applicants perceive them as knowledgeable
and credible.
In general, applicants respond positively to recruiters whom they perceive as warm
and informative. “Warm” means the recruiter seems to care about the applicant and
to be enthusiastic about the applicant’s potential to contribute to the organization.
“Informative” means the recruiter provides the kind of information the applicant is
seeking. The evidence of impact of other characteristics of recruiters—including their
age, sex, and race—is complex and inconsistent

what is Realistic Job Preview?
Realistic Job Preview
information about
a job’s positive and
negative qualities
behavior of the recruiter
Behavior of the Recruiter

Recruiters affect results not only by providing plenty of information, but by providing
the right kind of information. Perhaps the most-researched aspect of recruiting is
the level of realism in the recruiter’s message. Because the recruiter’s job is to attract
candidates, recruiters may feel pressure to exaggerate the positive qualities of the
vacancy and to downplay its negative qualities.

Applicants are highly sensitive to
negative information. The highest-quality applicants may be less willing to pursue
jobs when this type of information comes out.

But if the recruiter goes too far in a
positive direction, the candidate can be misled and lured into taking a job that has
been misrepresented.

Then unmet expectations can contribute to a high turnover
rate. When recruiters describe jobs unrealistically, people who take those jobs may
come to believe that the employer is deceitful.

Many studies have looked at how well

realistic job previews —background
information about jobs’ positive and negative qualities—can get around this problem
and help organizations minimize turnover among new employees.

On the whole, the
research suggests that realistic job previews have a weak and inconsistent effect on

Although recruiters can go overboard in selling applicants on the desirability
of a job vacancy, there is little support for the belief that informing people
about the negative characteristics of a job will “inoculate” them so that the negative
features don’t cause them to quit.

Finally, for affecting whether people choose to take a job, but even more so,
whether they stick with a job, the recruiter seems less important than an organization’s
personnel policies that directly affect the job’s features (pay, security, advancement
opportunities, and so on)

Enhancing the Recruiter’s Impact

Nevertheless, although recruiters are probably not the most important influence
on people’s job choices, this does not mean recruiters cannot have an impact.

recruiters receive little training. If we were to determine what does matter to job
candidates, perhaps recruiters could be trained in those areas.
Researchers have tried to find the conditions in which recruiters do make a difference.
Such research suggests that an organization can take several steps to increase
the positive impact that recruiters have on job candidates

Recruiters should provide timely feedback. Applicants dislike delays in feedback.
They may draw negative conclusions about the organization (for starters, that the
organization doesn’t care about their application).

Recruiters should avoid offensive behavior. They should avoid behaving in ways
that might convey the wrong impression about the organization. Figure 5.4
quotes applicants who felt they had extremely bad experiences with recruiters.
Their statements provide examples of behaviors to avoid.
• The organization can recruit with teams rather than individual recruiters. Applicants
view job experts as more credible than HR specialists, and a team can include
both kinds of recruiters. HR specialists on the team provide knowledge about company
policies and procedures.
Through such positive behavior, recruiters can give organizations a better chance
of competing for talented human resources.