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.
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
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
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
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.
1. In your opinion, and from an HRM perspective, what are the objectives of employee
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’s semiconductor business for 32 years, and today is the acting president of a group of 2,000 retirees called Benefits Restoration
Inc., saw his own insurance bill triple this year. He suspects that the company is trying to make the perk so expensive that retirees drop it, a cumulative savings calculated by the group at $100,000 per dropout.
But more than that, Anderson is angry that as a manager, IBM encouraged him to talk to his staff about retirement benefits as part of their overall compensation. “The job market was tight, and IBM’s message was our salaries aren’t the highest, but we will take care of you when you stop working,” he says. Now he feels the company is reneging. “I feel I’ve misled a lot of people, that I’ve lied to people,” says Anderson. “It does not sit well with me at all.” IBM says its opt-out levels are low and that it often sees retirees return to the plan after opting out for a period of time. The company also argues that it has not changed its approach to retiree medical benefits for more than a decade and that the rising cost of health care is the real issue.
1. Is it ethical for a company to promise benefits and then years later walk away from the
2. Should the government pay for all pension guarantees?
3. Why is retiree health care coverage easier to eliminate than pension benefits?
Application Case 14–1
The Dual-Career Couple
America’s workforce has in the past been largely made up of the heads of traditional families—husbands who work as breadwinners while wives remain home to raise the children. However, today the “traditional family” represents less than 10 percent of all households. Increasingly, both spouses are launching careers and earning incomes. Dual-career couples now account for 40 percent of the workforce (more than 53 million employees), and their numbers will substantially increase. The situation of two spouses with careers that are both considered important has become something managers can’t ignore. As more
women enter the workforce, dual-career couples will become a consideration in decisions about hiring, promotion, relocation, and job commitment. The advent of the dual-career couple poses challenges for the working spouses and for business. According to one survey of more than 800 dual-career couples by Catalyst,
couples experience a myriad of problems, most notably difficulties with allocating time
(the top-ranked complaint), finances, poor communication, and conflicts over housework. For couples with children, meeting the demands of career and family usually becomes the top concern. Studies indicate that dual-career families need (1) benefit plans that enable couples to have children without jeopardizing their careers; (2) more flexible work arrangements to help balance the demands of family and career; (3) freedom from anxieties about child care while at work; and (4) assistance from the employer in finding employment for the spouse when an employee relocates (this is a need for both parents and childless couples).
For businesses, the challenge lies in helping to ease the problems of dual-career couples, especially those with children. According to a study commissioned by Fortune magazine, organizations are losing productivity and employees because of the demands of family life. The study found that among the 400 working parents surveyed, problems with child care were the most significant predictors of absenteeism and low productivity.
For example, 41 percent of those surveyed had taken at least one day off in the three
months preceding the survey to handle family matters; 10 percent had taken from three to five days. (On a national scale, these figures amount to hundreds of millions of dollars in lost productivity.) About 60 percent of the parents polled expressed concerns about time and attention given to their children, and these anxieties were linked to lower productivity. Overall, many experts advise that companies that ignore the problems of dual-career couples and working parents stand to lose output and even valued employees. Companies are beginning to respond to these needs in a number of ways. Hiring Spouses of Employees or Helping Them Find Jobs
Studies indicate that more employees are refusing relocation assignments if their working spouses cannot find acceptable jobs. In response, many companies have recently begun to offer services for “trailing spouses.” These services include arranging interviews with prospective employers, providing instruction in résumé writing, interviewing, and contract
negotiation, and even paying plane fares for job-hunting trips. Some companies (General Mills, 3M, American Express) use outside placement services to find jobs for trailing spouses. More than 150 companies in northern New Jersey created and use a job bank that provides leads for job-hunting spouses. A small but growin number of companies (including Chase Manhattan Bank and O’Melveny & Myers, one of the nation’s largest law firms) are breaking tradition and
hiring two-career couples. Martin Marietta maintains an affirmative hire-a-couple policy and hires about 100 couples a year at its Denver division. Proponents assert that couples who work for the same company share the same goals, are often more committed to the
company, and are more willing to work longer hours. Hiring couples helps attract and keep top employees, and relocations are also easier for the couple and the company. Providing Day-Care Assistance
More than 10,000 companies now provide day-care services and financial assistance or referral services for child care. For example, American Savings and Loan Association established the Little Mavericks School of Learning in 1983 for 150 children of employees on a site within walking distance of several of its satellite branch locations. This center was established as a nonprofit subsidiary with a staff of 35, and its services include regular day care, holiday care, sick-child care, Boy Scout and Girl Scout programs, a kindergarten program, and after-school classes. Fees range from $135 to $235 a month, depending on
the type of service, and parents pay through payroll deductions. Company officials report that the center has substantially reduced absenteeism and personal phone calls and that it has been a substantial boon to recruitment and retention. However, as many couples have found, limited openings mean that not all parent employees can be served; and some
employees get preferential treatment—sometimes even those who can afford external daycare services.
Many companies contract outside day-care services run by professional groups, thus
relieving the company of the headaches of running a center. For example, IBM contracted the Work/Family Directions child-care consulting group to establish 16,000 home-based family centers and to open 3,000 day-care centers for IBM employees and other families throughout the United States. About 80 companies have created programs to help parents of sick children. If a child of an employee of First Bank System (Minneapolis) becomes ill, the company will pay 75 percent of the bill for the child’s stay at Chicken Soup, a sickchild day-care center. The policy enables parents to keep working and saves the company money. A growing number of companies arrange to send trained nurses to the sick child’s
home. Other companies provide partial reimbursement for child-care services. Zayre Corporation pays up to $20 a week for day-care services for employees who work at corporate headquarters. A growing number of cafeteria fringe benefits programs enable employees to allocate a portion of fringe benefits to pay for day-care services. Chemical Bank pays these benefits quarterly in pretax dollars. Providing Flexible Time Off A number of companies combine vacation and sick leave to increase the amount of time off for family life. At Hewlett-Packard, for example, employees receive their regular vacation days plus five additional days of unused sick leave. Employees can take the time off
in any increments at any time. Employees can carry a number of unused days over to the
next year (the number is determined by tenure), and employees who leave the company receive cash value for their unused days (at their current salary level).
Providing Job Sharing This program enables two people to share a job on a part-time basis and is a major boon to spouses who want to continue their careers while raising children. The program was first established by Steelcase, Inc., in Grand Rapids, Michigan, where company officials say that
the program has reduced turnover and absenteeism, boosted morale, and helped achieve affirmative action objectives. However, job sharing can be difficult to implement; the program requires that a job be divided into two related but separate assignments, that the job
sharers are compatible, and that the supervisor can provide task continuity between them.
1. What are the advantages and potential liabilities of hiring two-career couples, beyond
those noted in the case?
2. Many of the services for dual-career couples and parent employees are provided by
large corporations that have far greater financial resources than smaller companies.
Identify and discuss potential ways in which a small company’s HRM function can
alleviate the challenges facing employees who are parents and employees with working
3. 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