Suppose that a dual-career couple involves spouses who are at different career stages. Does this situation pose problems for the couple? For the organization or organizations employing them? Discuss.
Application Case 4–1 Solving the Labor Dilemma in a Joint Venture in Japan John has found himself with a critical labor shortage, and he doesn’t know exactly how to solve his problem. John is the founder, president, and CEO of a small manufacturing firm, Johnsco Electronics. The company has approximately 300 employees in its home state of Tennessee. Recently, it was approached by a major Japanese automobile manufacturing company about a possible joint venture in which Johnsco could retain majority ownership. The opportunity seemed attractive, so John agreed to build and operate a plant outside of Tokyo. The plant is expected to employ around 500 workers to fabricate and assemble computer components for new automobiles. John had recently discovered the extremely high cost of maintaining a significant number of expatriate managers in a city with a cost of living as high as Tokyo. Thus, he had agreed to the joint venture expecting to use mostly his host country nationals for the new facility. Unfortunately, John is having problems staffing many of the essential positions. First, he was not aware that equal employment opportunity laws would apply to his international operation. Since John supplies the federal government with certain military components, his hiring practices are scrutinized to see whether minorities and women are appropriately represented in his workforce. Only recently did John discover that few if any Japanese women ever move into managerial positions in Japan. He’s confused about how to balance his obligations under United States law, local customs in Tokyo, and the high cost of using expatriates. John was led to believe that there would be a large supply of inexpensive labor throughout Asia. He had heard that multinational organizations acquire very inexpensive labor by relying heavily on women to staff labor-intensive production jobs. Culturally, he’d heard, these people defer to authority and are willing to work long, tedious hours. Once again, however, he discovered that Japan has strict policies prohibiting foreign labor. In fact, nearly 15,000 undocumented aliens were arrested in Tokyo each year while attempting to find work. The Japanese liaison to Johnsco has told John that Japan’s workforce is aging even more rapidly than the workforce in the United States. Historically, Japanese companies have been dominated by seniority systems that encourage older workers to remain with a single firm until retirement. There are also fewer young, semiskilled workers, because of the ever-increasing percentages of Japanese children who attend college. For example, over half of the more than 4 million Japanese blue-collar workers in construction-related fields are older than 50. John is confused about the implications of these facts for his ability to staff the Tokyo operation; he wonders about problems with his company sponsored retirement programs. And, to add one last problem, John’s American plant is almost entirely unionized. The union steward expects two things: (1) any good promotional opportunities created by the international joint venture must give union members the first right of accepting a transfer and (2) host country nationals who are hired in Japan should be covered by the same union contract as the workers in the United States. John’s enthusiasm over the opportunity to work closely with one of the most powerful automobile makers in the world has diminished. But the agreement is signed, and John now wonders how he can ever get the Tokyo operation off the ground, let alone make a profit, without violating local customs or American laws. Discussion Questions 1. What steps can you suggest that might help John solve his labor problems for the new plant in Tokyo? 2. How could he persuade either the union or his joint venture partner to help him with this problem? 3. What types of cultural training, both here and in Japan, might be necessary for John’s new venture to be successful? 4. What could John have done differently to eliminate some of his current labor problems? ———————————————————————————————————— Application Case 9–2 The Politics of Performance Appraisal Every Friday, Max Steadman, Jim Cobun, Lynne Sims, and Tom Hamilton meet at Charley’s Food Place after work for refreshments. The four friends work as managers at Eckel Industries, a manufacturer of arc welding equipment in Minneapolis. The one-plant company employs about 2,000 people. The four managers work in the manufacturing division. Max, 35, manages the company’s 25 quality control inspectors. Lynne, 33, works as a supervisor in inventory management. Jim, 34, is a first-line supervisor in the metal coating department. Tom, 28, supervises a team of assemblers. The four managers’ tenures at Eckel Industries range from one year (Tom) to 12 years (Max). The group is close-knit: Lynne, Jim, and Max’s friendship stems from their years as undergraduate business students at the University of Minnesota. Tom, the newcomer, joined the group after meeting the three at an Eckel management seminar last year. Weekly get-togethers at Charley’s have become a comfortable habit for the group and provide an opportunity to relax, exchange the latest gossip heard around the plant, and give and receive advice about problems encountered on the job. This week’s topic of discussion: performance appraisal, specifically the company’s annual review process, which the plant’s management conducted in the last week. Each of the four managers completed evaluation forms (graphic rating scale format) on each of his or her subordinates and met with each subordinate to discuss the appraisal. Tom This was the first time I’ve appraised my people, and I dreaded it. For me, it’s been the worst week of the year. Evaluating is difficult; it’s highly subjective and inexact. Your emotions creep into the process. I got angry at one of my assembly workers last week, and I still felt the anger when I was filling out the evaluation forms. Don’t tell me that my frustration with the guy didn’t bias my appraisal. I think it did. And I think the technique is flawed. Tell me—what’s the difference between a five and a six on “cooperation”? Jim The scales are a problem. So is memory. Remember our course in human resource management in college? Phillips said that, according to research, when we sit down to evaluate someone’s performance in the past year, we will be able to actively recall and use only 15 percent of the performance we observed. Lynne I think political considerations are always a part of the process. I know I consider many other factors besides a person’s actual performance when I appraise him. Tom Like what? Lynne Like the appraisal will become part of the permanent written record that affects his career. Like the person I evaluate today, I have to work with tomorrow. Given that, the difference between a five and a six on cooperation isn’t that relevant, because frankly, if a five makes him mad, and he’s happy with a six. . . . Max Then you give him the six. Accuracy is important, but I’ll admit it—accuracy isn’t my primary objective when I evaluate my workers. My objective is to motivate and reward them so they’ll perform better. I use the review process to do what’s best for my people and my department. If that means fine-tuning the evaluations to do that, I will. Tom What’s an example of fine-tuning? Max Jim, do you remember three years ago when the company lowered the ceiling on merit raises? The top merit increase that any employee could get was 4 percent. I boosted the ratings of my folks to get the best merit increases for them. The year before that, the ceiling was 8 percent. The best they could get was less than what most of them received the year before. I felt they deserved the 4 percent, so I gave the marks that got them what I felt they deserved. Lynne I’ve inflated ratings to encourage someone who is having personal problems but is normally a good employee. A couple of years ago, one of my better people was going through a painful divorce, and it was showing in her work. I don’t think it’s fair to kick people when they’re down. Tom Or make her complacent. Lynne No, I don’t think so. I felt she realized her work was suffering. I wanted to give her encouragement; it was my way of telling her she had some support and that she wasn’t in danger of losing her job. Jim Sometimes, you get someone who’s a real rebel, who always questions you, sometimes even oversteps his bounds. I think deflating his evaluation is merited just to remind him who’s the boss. Lynne I’d consider lowering the true rating if someone had a long record of rather questionable performance, and I think the best alternative for the person is to consider another job with another company. A low appraisal sends him a message to consider quitting and start looking for another job. Max What if you believe the situation is hopeless, and you’ve made up your mind that you’re going to fire the guy as soon as you’ve found a suitable replacement? The courts have chipped away at management’s right to fire. Today, when you fire someone, you must have a strong case. I think once a manager decides to fire, appraisals become very negative. Anything good that you say about the subordinate can be used later against you. Deflating the ratings protects you from being sued and sometimes speeds up the termination process. Tom I understand your point, but I still believe that accuracy is the top priority in performance appraisal. Let me play devil’s advocate for a minute. First, Jim, you complained about our memory limitations introducing a bias into appraisal. Doesn’t introducing politics into the process further distort the truth by introducing yet another bias? Even more important, most would agree that one key to motivating people is providing true feedback—the facts about how they’re doing so they know where they stand. Then you talk with them about how to improve their performance. When you distort an evaluation—however slightly—are you providing this kind of feedback? Max I think you’re overstating the degree of fine-tuning. Tom Distortion, you mean. Max No, fine-tuning. I’m not talking about giving a guy a seven when he deserves a two or vice versa. It’s not that extreme. I’m talking about making slight changes in the ratings when you think that the change can make a big difference in terms of achieving what you think is best for the person and for your department. Tom But when you fine-tune, you’re manipulating your people. Why not give them the most accurate evaluation, and let the chips fall where they may? Give them the facts, and let them decide. Max Because most of good managing is psychology—understanding people, their strengths and shortcomings; knowing how to motivate, reward, and act to do what’s in their and your department’s best interest. And sometimes total accuracy is not the best path. Jim All this discussion raises a question. What’s the difference between fine-tuning and significant distortion? Where do you draw the line? Lynne That’s about as easy a question as what’s the difference between a five and six. On the form , I mean. Discussion Questions 1. In your opinion, and from an HRM perspective, what are the objectives of employee performance evaluation? 2. On the basis of these objectives, evaluate the perspectives about performance appraisal presented by the managers. 3. Assume you are the vice president of HRM at Eckel Industries and that you are aware that fine-tuning evaluations is a prevalent practice among Eckel managers. If you disagree with this perspective, what steps would you take to reduce the practice? ———————————————————————————————————— Application Case 12–1 Benefits Are Vanishing Ray Brice expected to retire from United Airlines (UAL) and receive a $1,200-a-month pension. Suddenly hope ran out for Ray Brice and 35,000 other UAL retirees. The government Pension Benefit Guaranty Corp (PBGC) announced it would not guarantee the bankrupt airline’s loans––virtually assuring that if the airline’s parent company is to remain in business it will have to chop away at expensive pension and retiree medical benefits. The numbers are daunting. UAL owes $598 million in pension payments in the next six months and a total of $4.1 billion by the end of 2008, plus an additional $1 billion for retiree health care benefits, obligations the ailing airline can’t begin to meet. And if United finds a way to get out of its promises, competitors American Airlines (AMR), Delta Air Lines (DAL), and Northwest Airlines (NWAC) are sure to try to as well. UAL workers are about to find out what other airline employees already know: The cost of broken retirement promises can be steep. Of the airline’s many crises, the biggest was the pilots’ pension plan, a sinkhole of unfunded liabilities. Why are retirees being left out in the cold? An unsavory brew of factors has come together to put stress on the retirement system like never before. First, there’s the simple fact that Americans are living longer in retirement, and that costs more. Next come internal corporate issues, including soaring health care costs and long-term underfunding of pension promises. Perhaps most important, in the global economy, long-established U.S. companies are competing against younger rivals here and abroad that pay little or nothing toward their workers’ retirement, giving the older companies a huge incentive to dump their plans. “The house isn’t burning now, but we will have a crisis soon if some of these issues aren’t fixed,” says Steven A. Kandarian, who ended a two-year stint as the executive director of the Pension Benefit Guaranty Corp. (the little known federal agency that insures private pensions) in February. Kandarian is not optimistic about how that crisis might play out, either. “By that time it will be too late to save the system. Then you just play triage.” As industry after industry and company after company strive to limit, or eliminate, their so-called legacy costs, a historic shift is taking place. No one voted on it and Congress never debated the issue, but with little fanfare we have entered into a vast reorganization of our retirement system, from employer funded to employee and government funded, a sort of stealth nationalization of retirement. As the burden moves from companies to individuals—who have traditionally been notoriously poor planners—it becomes near certain that in the end, a bigger portion will fall on the shoulders of taxpayers. “Where the vacuum develops, the government is forced to step in,” says Sylvester J. Schieber, a vicepresident at benefit-consulting firm Watson Wyatt Worldwide. “If we think we can walk away from these obligations scot-free, that’s just a dream.” Evidence of the shift is everywhere. Traditional pensions—so-called defined-benefit plans—and retiree health insurance were once all but universal at large companies. Today experts can think of no major company that has instituted guaranteed pensions in the past decade. None of the companies that have become household names in recent times have them: not Microsoft, not Wal-Mart Stores, not Southwest Airlines. In 1999, IBM, which has old-style benefits and contributed almost $4 billion to shore up its pension plans in 2002, did a study of its competitors and found 75 percent did not offer a pension plan and fewer still paid for retiree health care. Instead, companies are much more likely to offer defined-contribution plans, such as 401(k)s, to which they contribute a set amount. In 1977, there were 14.6 million people with defined-contribution benefits; today there are an estimated 62.5 million. Part of their appeal has been that a more mobile workforce can take their benefits with them as they hop from job to job. But just as important, they cost less for employers. Donald E. Fuerst, a retirement actuary at Mercer Human Resource Consulting LLC, notes that while even a well-matched 401(k) often costs no more than 3 percent of payroll, a typical defined-benefit plan can cost 5 percent to 6 percent of payroll. Despite the stampede to defined-contribution plans, there are still 44 million Americans covered by old-fashioned pensions that promise a set payout at retirement. All told, they’re owed more than $1 trillion by 30,000 different companies. Many of those employers have also promised tens of billions of dollars more in health care coverage for retirees. Even transferring a small part of the burden to individuals or the government can have a profound impact on the corporate bottom line. The decision by Congress to have Medicare cover the cost of prescription drugs, for example, will lighten corporate retiree health care obligations by billions of dollars. Equipment maker Deere & Co. estimates that the move will shave $300 million to $400 million off its future health care liabilities starting this year. The U.S. Treasury, on the other hand, pays and pays dearly. That drug benefit, which took effect in 2006, is expected to cost the government the equivalent of 1 percent of gross domestic product by 2010, and other potentially big taxpayer costs are looming, too. In mid-April, over the objections of the PBGC, Congress granted a two-year reprieve from catch-up pension contributions for two of the most troubled industries: airlines and steel. Congress also lowered the interest rate all companies use to calculate long-term obligations, lowering pension liabilities. While these moves lighten the corporate burden, they increase the chances taxpayers will have to step in. “The less funding required, the more risk that’s shifting to the government,” says Peter R. Orszag, a pension expert and senior fellow in economic studies at the Brookings Institution. “The question is: How comfortable are we with the risk of failure?” Company-sponsored health care, which generally covers retirees not yet eligible for Medicare and supplements what Medicare will pay, is likely to disappear even faster than company pensions. Subject to fewer federal regulations, those benefits are easier to rescind and companies are fast doing so. It’s much harder to renege on pension promises. So instead, many profitable companies are simply freezing plans and denying the benefits to new employees. Last fall, Aon Consulting (AON) found that 150 of the 1,000 companies they surveyed had frozen their pension plans in the previous two years, a dramatic increase from earlier years. Another 60 companies said they were actively considering following suit. The government bailout fund is $9.7 billion in the red, and Social Security and personal savings are hardly going to be enough . The cost of honoring PBGC’s commitments could be higher than anyone is expecting. The government bailout fund has relied on having enough healthy companies to pony up premiums to cover plans that fail. But in a scenario of rising plan terminations, healthy companies with strong plans still in the PBGC system would be asked to pay more. For corporations already fretting that pensions have become a competitive liability and a turnoff to investors, this could be the tipping point. Faced with higher insurance costs, they could opt out, rapidly accelerating the system’s decline as the remaining healthy participants become overwhelmed by the needy. In the end, the problem would land with Congress, which could be forced to undertake a savings-and-loan-type bailout. It’s almost too painful to think about, and so no one does. But when the bill comes due, it will almost certainly be addressed to taxpayers. Most worrisome is the record number of pension plans in danger of going under. According to the PBGC, as of September 2003, there was at least $86 billion in pension obligations promised by companies deemed financially weak. That’s up from $35 billion the year before. And it’s on top of a record number of companies that managed to dump their troubled pension plans on the PBGC: 152. In 2003, a record 206,000 people became PBGC pensioners, including 95,000 from its biggest takeover ever, Bethlehem Steel Corp. Companies are racing to cut or drop retiree medical benefits to give a quick boost to their bottom lines. Retiree health care coverage, which is easier to eliminate than pensions, is disappearing even faster. Unlike pensions, which are accrued and funded over time, retiree health care is paid for out of current cash accounts, so any cuts immediately bolster the bottom line. Estimates are that as many as half of the companies offering retiree health care 10 years ago have now dropped the benefit entirely. Many of those that have not yet slammed the door are requiring their former workers to bear more of the cost. Some 22 percent of the retirees who still get such benefits are now required to pay the insurance premiums themselves, according to a study by Hewitt Associates Inc. (HEW). Some 20 percent of employers told Hewitt that they might make retirees pay within the next three years. This hits hardest those who retire before 65 and are not yet eligible for Medicare. But even older retirees suffer when they lose supplemental health benefits like prescription coverage. It’s not just struggling companies, either. IBM, which is already fighting with retirees in court over changes made to its pension plan in the 1990s, is now getting an earful from angry retirees about health care costs. In 1999, IBM capped how much retiree health care it would pay per year at $7,500 of each employee’s annual medical-insurance costs. Although IBM is certainly in no financial distress—the company earned $7.6 billion on $89 billion in sales last year—Big Blue says its medical costs have been rising faster than revenue. Last year the company says it spent $335 million on retiree health care. This year, for the first time, many IBM retirees are beginning to hit the $7,500 limit. Sandy Anderson, who worked as a manager at IBM’
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