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Human Resource Management

v3.1 Laura Portolese
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1.2 What Are Human Resources and Human Capital?

Learning Objectives

  1. Explain the concept of human capital.

  2. Explain the role of HRM in organizations.

  3. Define and discuss some of the major HRM activities.

Every organization, large or small, uses a variety of to make the business work. Capital includes cash, valuables, or goods used to generate income for a business. For example, a retail store uses registers and inventory, while a consulting firm may have proprietary software or buildings. No matter the industry, all companies have one thing in common: they must have people to make their capital work for them. This is called  Most businesses will not work without human capital, as skills and abilities of employees are the basis for a successful business. This will be our focus throughout the text: revenue generation through the use of peoples' skills and abilities.

What Is HRM?

Figure 1.1

During crises such as the COVID-19 pandemic, HRM plays a crucial role in the health and safety of workers.

Coronavirus. Business woman working from home wearing protective mask. Business woman in quarantine for coronavirus wearing protective mask. Working from home. Cleaning her hands with sanitizer gel.

© Shutterstock

is the process of employing people, training them, compensating them, developing policies relating to them, and developing strategies to retain them. As a field, HRM has undergone many changes over the last twenty years, giving it an even more important role in today’s organizations. In the past, HRM meant processing payroll, sending birthday gifts to employees, arranging company outings, and making sure forms were filled out correctly—in other words, more of an administrative role rather than a strategic role crucial to the success of the organization. Jack Welch, former CEO of General Electric and management guru, sums up the new role of HRM: “Get out of the parties and birthdays and enrollment forms. . . . Remember, HR is important in good times, HR is defined in hard times.” Consider the importance of HRM during the COVID-19 pandemic: ensuring the safety of workers; coordinating with employees working remotely, often for the first time; and quickly issuing crisis communications to ensure employees feel informed and connected to the organization. As Jack Welch said, HRM is defined during hard times.

Jack Welch on HR

Jack Welch addresses the importance of HR in today’s workforce. 

As business has changed, HRM has changed as well. We can look at HRM in four main stages: industrial era, post–FLSA (Fair Labor Standards Act) era, twenty-first century era, and the information age era. During the industrial era, HR was focused mostly on labor unions and contracts. Because of this, personnel departments were created to perform administrative activities, and their main focus was to resolve issues between the union and management.

The FLSA occurred around 1938, and it mandated minimum wages and other health and safety guidelines and laws. The role of HR changed during this time to focus on worker health and safety and to promote compliance with the new minimum wage laws.

Twenty-first century HR was different from previous stages, because of the economic changes happening in the country. HR duties included the ones mentioned previously, but also focused on building human capital, which can assist in the alignment of company goals. This was a major change for HR—because it meant HR had become more strategic in nature.

The current state, the information age, is very important in HRM, as you will learn throughout this book. The elements of the other three stages still hold true, however the information age brought new technology and globalization, which changed business processes, and also allowed HR to utilize technology in many facets of its responsibilities. While this technology has streamlined many HR processes, such as payroll, it requires HR managers to possess different skills than they did in earlier eras. 

Despite this evolution, it is important to note that often managers are involved in HR tasks, too. Often, the extent of involvement depends on the industry and the size of the company. As you read this book, it is important to note that just because we do not have the title of HR manager doesn’t mean we won’t perform all or at least some of the HRM tasks. For example, most managers deal with compensation, motivation, and retention of employees—making these aspects not only part of HRM, but also part of management. As a result, this book is equally important to someone who wants to be a HR manager and to someone who will manage a business.

Human Resource Recall

Have you ever worked with a human resource department at your job? What was the interaction like? What was the department’s role in that specific organization?

The Role of HRM

In order to make sure our human capital meets the needs of the organization, there are main roles key to making this happen. However, keep in mind that many functions of HRM are also tasks other department managers perform, which is what makes this information important, despite the career path taken. Most experts agree on seven main roles that HRM plays in organizations. These are described in the following sections.

Staffing

You need people to perform tasks and get work done in the organization. Even with the most sophisticated machines, humans are still needed. Because of this, one of the major tasks in HRM is staffing. involves the entire hiring process, from posting a job to negotiating a salary package with the candidate. Within the staffing function, there are four main steps:

  1. Development of a staffing plan. This plan allows HRM to see how many people they should hire based on revenue expectations.

  2. Development of policies to encourage diversity at work. Multiculturalism in the workplace is becoming more and more important, as we have many more people from a variety of backgrounds in the workforce.

  3. Recruitment. This involves finding people to fill the open positions.

  4. Selection. In this stage, people will be interviewed and selected, and a proper compensation package will be negotiated. This step is followed by training, retention, and motivation.

Development of Workplace Policies

Every organization has policies to ensure fairness and continuity within the organization. One of the jobs of HRM is to develop the verbiage surrounding these policies. In the development of policies, HRM, management, and executives are involved in the process. For example, the HRM professional will likely recognize the need for a policy or a change of policy, seek opinions on the policy, write the policy, and then communicate that policy to employees. It is key to note here that HR departments do not and cannot work alone. Everything they do needs to involve all other departments in the organization. Some examples of workplace policies might be the following:

  1. Discipline process policy

  2. Vacation time policy

  3. Dress code

  4. Ethics policy

  5. Internet usage policy

  6. Ethics policies 

Compensation and Benefits Administration

HRM professionals need to determine that compensation is fair, meets industry standards, and is high enough to entice people to work for the organization. includes anything the employee receives for his or her work. In addition, HRM professionals need to make sure the pay is comparable to what other people performing similar jobs are being paid. This involves setting up pay systems that take into consideration the number of years with the organization, years of experience, education, and similar aspects. Examples of employee compensation include the following:

  1. Pay

  2. Health benefits

  3. 401(k) (retirement plans)

  4. Stock purchase plans

  5. Vacation time

  6. Sick leave

  7. Bonuses

  8. Tuition reimbursement

Since this is not an exhaustive list, compensation is discussed further in Chapter 6 “Compensation and Benefits”.

Retention

involves keeping and motivating employees to stay with the organization. Compensation is a major factor in employee retention, but there are other factors as well. Thirty two percent of people are currently looking for another job, and here are some of the reasons why: 

  1. Employee doesn’t like their boss

  2. Lack of empowerment

  3. Internal politics

  4. Lack of recognition 

Despite this, 90 percent of managers think employees leave as a result of pay. As a result, managers often try to change their compensation packages to keep people from leaving, when compensation isn’t the reason they are leaving at all. Chapter 7 “Retention and Motivation” and Chapter 11 “Employee Assessment and Talent Management” discuss some strategies to retain the best employees, and also address why it is so important to retain good employees. 

Training and Development

Once we have spent the time to hire new employees, we want to make sure they not only are trained to do the job, but also continue to grow and develop new skills in their job—in other words, we want to continue to develop our human capital so we can continually be successful within our organization—resulting in higher productivity for the organization. Training is also a key component in employee motivation. Employees who feel they are developing their skills tend to be happier in their jobs, which results in increased employee retention. Examples of training programs might include the following:

  1. Job skills training, such as how to run a particular computer program

  2. Training on communication

  3. Team-building activities

  4. Policy and legal training, such as sexual harassment training and ethics training

We address each of these types of training and more in detail in Chapter 8 “Training and Development”.

Dealing with Laws Affecting Employment

Human resource people must be aware of all the laws that affect the workplace. An HRM professional might work with some of these laws:

  1. Discrimination laws

  2. Health-care requirements

  3. Compensation requirements such as the minimum wage

  4. Worker safety laws

  5. Labor laws

The legal environment of HRM is always changing, so HRM must always be aware of changes taking place and then communicate those changes to the entire management organization. Rather than presenting a chapter focused on HRM laws, we will address these laws in each relevant chapter.

Worker Protection

Figure 1.2

Knowing the law regarding worker protection is generally the job of human resources. In some industries it is extremely important; in fact, it can mean life or death.

This picture shows a team of doctors and nurses working on a patient. 

© Thinkstock

Safety is a major consideration in all organizations. Often, new laws are created with the goal of setting federal or state standards to ensure worker safety. Unions and union contracts can also impact the requirements for worker safety in a workplace. It is up to the human resource manager to be aware of worker protection requirements and ensure the workplace is meeting both federal and union standards. Worker protection issues might include the following:

  1. Chemical hazards

  2. Heating and ventilation requirements and air quality issues 

  3. Use of “no fragrance” zones

  4. Protection of private employee information

Communication

Besides the major roles we’ve discussed, good communication skills and excellent management skills are key to successful human resource management as well as general management. We discuss these issues in Chapter 9 “Successful Employee Communication”.

Awareness of External Factors

In addition to managing internal factors, the HR manager needs to consider the outside forces at play that may affect the organization. Outside forces, or , are those things over which the company has no direct control; however, they may be things that could positively or negatively impact human resources. External factors might include the following:

  1. Globalization and offshoring

  2. Changes to employment law

  3. Health-care costs

  4. Employee expectations

  5. Diversity of the workforce

  6. Changing demographics of the workforce

  7. A more highly educated workforce

  8. Layoffs and downsizing

  9. Technology used, such as HR databases

  10. Increased use of social networking to distribute information to employees

For example, the recent trend in (allowing employees to set their own schedules) and (allowing employees to work from home or a remote location for a specified period of time, such as one day per week) are external factors that have affected HR. In fact, the amount of telecommuting workers has increased 115 percent since 2005. HRM has to be aware of these outside issues, so policies can be developed that meet not only the needs of the company but also the needs of the individuals. Another example is the PMFL (Paid Family Medical Leave) many states have adopted. In Washington state, twelve weeks paid medical leave premiums will be required to be paid by the employee, equaling .4 percent of employee wages. Compliance with this law has huge implications for HR. Any manager operating without considering outside forces will likely alienate employees, resulting in unmotivated, unhappy workers. Not understanding the external factors can also mean breaking the law, which has a concerning set of implications as well.

Figure 1.3 Key External Factors in HRM

An understanding of key external factors is important to the successful HR professional. This allows him or her to be able to make strategic decisions based on changes in the external environment. To develop this understanding, reading various publications is necessary.

The diagram shows each of the external forces in the center and addresses possible HRM considerations for each, as defined in the text.

One way managers can be aware of the outside forces is to attend conferences and read various articles on the web. For example, the website of the Society for Human Resource Management, SHRM Online, not only has job postings in the field but discusses many contemporary human resource issues that may help the manager make better decisions when it comes to people management. In addition to SHRM, the National Human Resources Association (NHRA) hosts various HR related events, which can be found here: http://www.humanresources.org. The Academy of Human Resource Development is another resource for learning more about HRM, and their website can be found here: https://www.ahrd.org/default.aspx. They offer events, meetings, and a wealth of HR-related reading materials on their website. 

In Chapter 1, Section 4 “Today’s HRM Challenges”, we go into more depth about some recent external issues that are affecting human resource management roles.  In Chapter 1, Section 2.2 “The Role of HRM”, we discuss some of the skills needed to be successful in HRM.

Figure 1.4 HRM Professionals’ Roles

Most professionals agree that there are seven main tasks HRM professionals perform. All these need to be considered in relation to external and outside forces.

This figure shows HRM responsibilities in the middle, with each of the main responsibilities we addressed in the text.

Key Takeaways

  1. Capital includes all resources a company uses to generate revenue. Human resources or the people working in the organization are the most important resource.

  2. Human resource management is the process of employing people, training them, compensating them, developing policies relating to the workplace, and developing strategies to retain employees.

  3. There are seven main responsibilities of HRM managers: staffing, setting policies, compensation and benefits, retention, training, employment laws, and worker protection. In this book, each of these major areas will be included in a chapter or two.

  4. In addition to being concerned with the seven internal aspects, HRM managers must keep up to date with changes in the external environment that may impact their employees. The trends toward flexible schedules and telecommuting are examples of external aspects.

  5. To understand effectively how the external forces might affect human resources, it is important for the HR manager to read the HR literature, attend conferences, and utilize other ways to stay up to date with new laws, trends, and policies.

Exercises

  1. State arguments for and against the following statement: there are other things more valuable in an organization besides the people who work there.

  2. Of the seven tasks an HR manager does, which do you think is the most challenging? Why?