HRMN 495-Mini Case Study 2

Please see the attached documents.

1.5 pages

Introduction to Organization

During this course, you will be analyzing case studies for a fictional organization, ParlaTech. As we move through the course, you will learn more about the organization, its employees, and the issues that arise related to HR.

ParlaTech

 is a technology company that specializes in machine to machine (M2M) communication. They offer solutions that allow a remote set of machines to send data back to a central hub, where the data can be measured and analyzed. ParlaTech’s headquarters are in Maryland, but they have clients all over the world. Most of their engineers and R&D employees work in the US, but they also have a call center in Bangalore, India. 

Mini Case Study 1 Instructions

In your role as the HR director at ParlaTech, the CEO has asked to meet with you to discuss the hiring of new employees.

In your hiring plan, be sure to include the following:

· analysis of the hiring process including regulatory requirements, sourcing applicants, the formal interview, the selection process, and onboarding

· a clear proposal for training, supported by cited evidence

· a recommended total rewards strategy, including pay and benefits

Transcript from the Memo Instruction-video:

Hello! Thanks for meeting with me about some new positions we have open in IT.  

We need to hire a software developer for our stateside office. It’s an essential role in the organization, especially since the software developers interact with all departments, from Finance to Sales to Marketing.

We need to be sure that whoever we hire will fit into our organizational culture and be a great team player. Additionally, this software developer may need to travel to Bangalore and do training with our call center staff.  

I wanted to ask you to put together a complete plan for hiring this new employee, including your ideas on recruiting, selecting, and onboarding. I also need a plan for compensation, including benefits. Lastly, please include some ideas for training the new hire about our organization and the different teams within it.

RUBRICS-CRITERIA TO MAX THIS CASE STUDY

· All five elements SHOULD BE explained clearly and in detail.

Analyze the hiring process including a) regulatory requirements, b) the sourcing of applicants, c) the formal interview and d) selection process, e) the onboarding of a new hire.

Evaluate different training methods. · A type of training is explained and proposed. The choice is supported by cited evidence.

Describe concepts related to total rewards strategies, such as pay and benefit programs. · The total rewards plan SHOULD BE presented and explained in detail. Includes explanation of items including pay and benefits.

Communicates information clearly and professionally with appropriate supporting evidence, formatting, and grammar. · The information is clearly and professionally presented, without errors in grammar or mechanics. Citations are used appropriately, and the formatting is correct for APA style.

SAGE Reference

The SAGE Handbook of Human Resource

Management

Author: Phyllis Tharenou

Pub. Date: 2010

Product: SAGE Reference

DOI:

https://doi.org/10.4135/9780857021496

Keywords: transfer of training, job transfer, training needs analysis, trainees, train to gain, team training,

labor economics

Disciplines: Human Resource Management (general), Human Resource Management, Business &

Management

Access Date: March 2, 2023

Publishing Company: SAGE Publications Ltd

City: London

Online ISBN: 9780857021496

© 2010 SAGE Publications Ltd All Rights Reserved.

Retrieved from https://sk-sagepub-com.ezproxy.umgc.edu/reference/hdbk_humanresourcemgmt/n10.xml

Training and Development in Organizations

Training and development remains an important human resource (HR) practice of interest to researchers,

managers, governments, and employees. Training research is of substantial interest and reviews show its

enormous and continued growth (e.g., Aguinis and Kraiger, 2009; Ford and Kraiger, 1995; Goldstein, 1980;

Goldstein and Gessner, 1988; Latham, 1988; Salas and Cannon-Bowers, 2001; Sonnentag et al., 2004; Tan-

nenbaum and Yukl, 1992; Wexley, 1984). Training is of major interest to practitioners and managers in order

to update employee skills, improve job performance and productivity, and develop the competencies employ-

ees need to meet the strategic objectives of their organizations (Sugrue and Rivera, 2005; 2006). Training is

of significance to governments who facilitate its use to provide the capabilities a country needs for economic

growth and to address skill shortages in a highly competitive global economy (Aguinis and Kraiger, 2009).

Lastly, training is important to employees for whom it increases employment duration and continuity, pay, and

career advancement (Tharenou, 1997).

However, problematic issues continue to arise in regard to the usefulness of and return on training and de-

velopment (Bunch, 2007). Managers want to know what the return is on their investment (ROI; Phillips and

Phillips, 2007). Yet, the impact of training on performance continues to be rarely evaluated and its ROI rarely

calculated (Kraiger et al., 2004; Sugrue and Rivera, 2005). Scholars lament that practitioners do not use the

results of research to incorporate the well-developed scientific knowledge about training into needs analy-

sis, design, delivery, transfer, and evaluation (Kraiger, 2003; Salas and Cannon-Bowers, 2001; Salas and

Kosarzycki, 2003). Governments are criticized for under investing in the training and development needed by

their countries for economic growth (Tharenou, 1997).

This chapter provides an audit of the training and development literature and its issues and developments.

Training is defined as the systematic acquisition and development of the knowledge, skills, and attitudes re-

quired by employees to adequately perform a task or job or to improve performance in the job environment

(Goldstein, 1980; Latham, 1988) and as a planned effort by an organization to facilitate the learning of job-re-

lated behavior on the part of its employees (Wexley, 1984). The chapter begins by considering the discipline

approaches that underlie research on training. Then it examines the process of training by considering its

stages: the pre-training stage (training needs analysis, factors predicting participation in training and develop-

ment, the antecedent conditions to training effectiveness, training design), the training itself (training delivery);

and the post-training stage (transfer of training, evaluation of the effects of training). The chapter closes with

consideration of future development and research needs in the area.

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Approaches Underlying Research into Training and Development

Four major approaches underlie research into training and development in organizations: those of human

resource management (HRM), industrial/organizational (I/O) psychology, labor economics, and industrial re-

lations.

The earlier field of ‘personnel management’ considered training as one of several separate HR practices and

focused on identifying and implementing training models in a series of steps to improve individuals’ job per-

formance. By contrast, in the HRM approach, HR practices, including training and development, are used

to improve organizational performance, help implement an organization’s business strategy and meet its ob-

jectives, and help build a sustainable competitive advantage that creates financial performance (Becker and

Huselid, 1998; 2006; Lepak et al., 2006). The approach is strategic in terms of managing human resources to

meet the organization’s objectives.

The theoretical basis for the strategic HRM approach includes the resource-based view (RBV) of the firm

(Barney, 1991; Barney and Wright, 1998). High-performance work systems (HPWS) are integrated systems

of HR and other work practices that are internally consistent with each other and externally consistent with

organizational strategy. HPWS are designed to help develop valuable, unique employee capacities that as-

sist an organization to develop core competencies (Becker and Huselid, 1998) – firm-specific resources and

capabilities that enable an organization to enact a strategy that creates value by not being implemented si-

multaneously by competitors and which competitors find hard to duplicate (Barney, 1991). Developing em-

ployees is an effective way of gaining valuable, rare and perhaps unique capacities, and training and develop-

ment is a key practice, amongst others, to do so (Lepak and Snell, 1999). Training, in combination with other

HR practices (e.g., selective staffing, performance-contingent compensation, developmental and merit-based

performance appraisal) and other work practices such as work design (self-managed teams, flexible work as-

signments, teamwork), open communication, quality improvement, and decentralized decision-making, helps

develop core competencies by which the organization can gain a sustained competitive advantage.

A further major theoretical basis used in the HRM approach is social exchange theory. Social exchange can

be viewed as favors one party provides to another that create diffuse future obligations which, due to a norm

of reciprocity, will result in reciprocation by the receiver (Blau, 1964). General training can be viewed as a

resource that an employer provides to help an employee that demonstrates support and caring (Balkin and

Richebé, 2007). Employees perceive training as an investment in, and commitment to, them and reciprocate

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in kind with extra effort, commitment, organizational citizenship behavior, and cooperation. Training may be

viewed as a gift when provided on its own or when provided as part of HPWS. Because employees can in-

terpret HPWS as expressing appreciation, investment, and recognition due to the rigorous recruitment, ex-

tensive training, empowerment, and rewards central to HPWS, they begin to perceive themselves in a social

exchange as opposed to a purely economic relationship (Takeuchi et al., 2007). HPWS are thought to result

in generalized norms of reciprocity, shared mental models, role making, and organizational citizenship behav-

iors that then lead to organizational performance (Evans and Davis, 2005).

In contrast to the strategic approaches that underlie the HRM approach to training, industrial/organizational

(I/O) psychology focuses on the science of training – how to design, deliver, implement, transfer and evaluate

training so that it is effective (Haccoun and Saks, 1998; Kraiger, 2003; Salas and Cannon-Bowers, 2001). Dra-

matic progress has been made in how to design, deliver and transfer training to the job and appropriate tools,

techniques, and interventions have been developed (Haccoun and Saks, 1998; Salas and Cannon-Bowers,

2001). The approach to training was once predominantly behavioral (Goldstein, 1980; Latham, 1988; Wexley,

1984) but has moved to a cognitive approach based on principles from cognitive and instructional psychol-

ogy to design and deliver training and assist its transfer to the job (Ford and Kraiger, 1995; Tannenbaum

and Yukl, 1992). For example, stages of skill acquisition high light progression through acquiring declarative

knowledge (knowledge of facts, what to do), knowledge integration (integration of facts), procedural knowl-

edge (knowledge about how to do things; knowing how), and finally tacit knowledge (about when and why to

do things) (Tannenbaum and Yukl, 1992). Meta-cognition refers to the mental processes involved in acquir-

ing knowledge, interpreting feedback and learning from experience (e.g., mental models), especially affecting

how training is designed for tasks involving cognitive processes (Howell and Cooke, 1989; Tannenbaum and

Yukl, 1992).

A third approach underlying research into training and development is that of labor economics. Based at

macro-levels (country, sector/industry, organizational), labor economics seeks to determine what factors

cause participation in government-provided, vocational, and company-provided training and development;

what effect training has on individuals’ outcomes, especially pay, employment probability and continuity, and

performance (e.g., Greenetal., 1996; Upward, 2002); how disadvantaged groups (e.g., the unemployed, eth-

nic minorities, the poor, women) gain and are affected by training and development (Greenberg et al., 2003,

2004; Jones et al., 2008); and how training affects macro-level country, sector, and organizational productivity

(e.g., Bartel, 2000). An underlying theoretical approach continues to be human capital theory (Becker, 1962,

1975). Employees invest in training to learn or improve their skills in order to increase pay and status. Em-

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ployers train employees to gain improvements in productivity through increased knowledge, skill, and ability

(KSAs), training those who are likely to remain with the organization and using general types of training be-

cause they are less transportable, in order to gain the maximum return from their investment.

The fourth approach underlying research into training and development is that of industrial relations (IR). Un-

like HRM, which focuses on the employer as the main stake-holder and on the firm’s performance, IR fo-

cuses on the employee and the amount of training employees gain, the work practices and conditions that

promote training, and on how collective approaches dealing with power imbalances can help gain employ-

ees more training (cf. Colakoglu et al., 2006). Hence, as in labor economics, IR focuses on determining who

gets training and development and what conditions increase gaining training and development and on how

training affects employee outcomes and does so from an employee perspective but from the point of view

of employee gains rather than economic growth. IR approaches focus on employee skill acquisition, includ-

ing through vocational training systems and through identification and development of job competencies on

which to base training. A significant research interest is in the effects of collective action and voice by unions

to increase members’ training (Boheim and Booth, 2004; Heyes and Stuart, 1998) and in examining effects

on employee training caused by conditions of employment (e.g., Arulampalam and Booth, 1998). The four ap-

proaches often deal with common research questions, especially which factors predict participation in training

and development (all approaches); whether training increases organizational effectiveness (IO psychology,

HRM, labor economics); how to develop competencies through training (IO psychology, HRM, IR); and the

place of training as part of HPWS and a strategic approach to organizational performance (especially HRM

and IR). However, there are also differences in the questions addressed; for example, IO psychology focuses

on how to train; labor economics focuses on macro-level causes of acquiring training and on training’s effects

on individual’s pay; and industrial relations includes an emphasis on vocational training and on union voice

in training. The approaches often use different research designs. IO psychology focuses on individuals and

groups and often uses experimental laboratory designs to investigate how to train individuals and the effects

on psychological and behavioral outcomes. Both HRM (usually field data based on surveys) and IO psychol-

ogy (often laboratory/experimental data) gather data to answer research questions whereas labor econom-

ics uses archival data at country, sector and organizational level, often requiring complex data analytic tech-

niques, including econometric methods to answer their research questions. Of the four disciplines, industrial

relations is the most likely to use qualitative research designs and adopt case study approaches because of

its interest in examining competency development and approaches to training in individual organizations.

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The Stages of Training and Development

Traditionally, training and development had been conceived of as a five-stage process: needs analysis, de-

sign, delivery, transfer, and evaluation. In effect, three stages exist: what occurs prior to training (training

needs analysis, the organizational, job, and person factors that predict participation, antecedent conditions

affecting training effectiveness, training design); what occurs during training (its delivery including the meth-

ods of training used); and what occurs after training (its transfer, evaluation of its effects) (cf. Salas and

Canon-Bowers, 2001). Events that occur before training have a major impact on how effective training is and

whether it transfers to the job (Noe, 1986; Salas and Canon-Bowers, 2001). Events that occur after training,

especially with respect to how to ensure training transfers to the job, are critical to whether training improves

performance (Ford and Weissbein, 1997; Saks and Belcourt, 2006). Of the stages of training, research had

traditionally focused on training design and delivery (Goldstein, 1980; Latham, 1988; Wexley, 1984). The re-

search emphasis has shifted to what happens after training: on whether training transfers to the job (Burke

and Hutchins, 2007; Ford and Weissbein, 1997) and on the evaluation of the effects of training including de-

termining how it should be evaluated and whether it improves organizational effectiveness (Tharenou et al.,

2007).

Training Needs Analysis

Training needs analysis determines where training and development needs to be conducted in an organiza-

tion (organization-level analysis), what is to be trained in terms of identifying the knowledge, skills and abilities

needed to perform the tasks in a job (task- or operations-level analysis), and what training particular individ-

uals need (individual- or person-level analysis) (McGehee and Thayer, 1961; Moore and Dutton, 1978). The

results are intended to lead to the specification of learning objectives and thus affect the design and delivery

of training (Salas and Cannon-Bowers, 2001). However, concern continues to be expressed about the lack of

adequate models to guide training need analysis (Clarke, 2003), the accuracy of the needs identified, and the

relative lack of research in this area compared to other training stages (Aguinis and Kraiger, 2009).

Advances have mostly occurred in the task or operations analysis component of training need analysis. Cog-

nitive task analysis has been added to the previously behavioral emphasis to help identify the knowledge and

skills needed to perform tasks and to identify the cognitive capacities and cues that enable trainees to know

when to apply these skills (Salas and Cannon-Bowers, 2001). A trend in task analysis has been to focus on

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identifying the ‘competencies’ employees need for their jobs (Gangani et al., 2006) which are based on meet-

ing the objectives of the business and in implementing the business strategy (Kraiger, 2003). Competencies

are a cluster of interrelated knowledge, skills, values, attitudes or other characteristics important for success-

ful job performance (Kraiger, 2003). There continues to be ongoing interest in identifying competencies to ef-

fectively train managers: the cross-cultural competencies needed by expatriate managers (Leiba-O’Sullivan,

1999), the competencies needed by managers in general (Agut and Grau, 2002), the competencies needed

to implement diversity initiatives (Roberson et al., 2003), and the competencies needed for the development

of HR professionals (Broom et al., 1998; Walker and Stopper, 2000). Task analysis has also advanced from

examining individual jobs to determining the training needs required for team performance (e.g., Bowers et

al., 1998).

Person analysis has been the least developed aspect of training need analysis. Difficulties continue to be en-

countered in the adequacy of methods available to measure the discrepancy between the desired and actual

behavior of an employee. It continues to be difficult to determine what managers need training in, which tools

to use to identify which managers need training, and how to accurately measure a manager’s training needs

(Agut and Grau, 2002).

What Factors Predict Participation in Training and Development?

In contrast to the lesser amount of research conducted into training need analysis has been the greater em-

phasis on identifying the organizational, job, and person factors that predict participation in training and devel-

opment. A significant body of knowledge has accumulated from HRM, I/O psychology, labor economics and

IR studies as to what causes employees to gain training and development.

At an organizational level, training is more likely to occur when it is aligned with the strategic direction of the

organization (e.g., Montesino, 2002), when organization change is occurring (e.g., Leigh and Gifford, 1999),

when innovative work practices are being introduced (e.g., total quality management, team approaches, lean

management) (Lynch and Black, 1998; Snell et al., 2000), and when high performance work systems are be-

ing used (Barnard and Rodgers, 2000; Whitfield, 2000). Large organizations, which thus allow economies of

scale, and organizations that have high investment in physical capital, and thus need specialized skills, pro-

vide more training than others (Lynch and Black, 1998; Tharenou, 1997) as do those where there is union

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workplace recognition and union involvement in training decisions (Boheim and Booth, 2004; Heyes and Stu-

art, 1998), suggesting that a collective voice helps gain training for employees. Participation in training and

development is more likely to occur in organizational environments where individuals report supervisor sup-

port and a supportive climate for development (Sonnentag et al., 2004; Tharenou, 1997).

At the job level, those working in highly skilled jobs (especially managers) receive more training and develop-

ment than others, presumably due to need and because the training provides greater returns to the organiza-

tion (Tharenou, 1997).

At the person level, demographic and psychological factors predict participation in training and development.

With respect to demographic factors, employees who receive more training and development are younger,

may be more educated, and are usually judged to be less likely to leave the organization (Loewenstein and

Spletzer, 1997; Tharenou, 1997). There continues to be a substantial interest in how to increase older work-

ers’ lower motivation to learn and participation in formal and voluntary training and development (Sonnen-

tag et al., 2004). Gender is not consistently linked to participation in training. Women may participate in less

training and development than men (Royalty, 1996) but at times there are no gender differences when other

factors are controlled (Keaveny and Inderrieden, 1998; Royalty, 1996; Wooden and Vanden Heuvel, 1997).

With respect to psychological factors, those who receive more training and development are more motivated

to learn than others (Colquitt et al., 2000). A learning and development orientation is the tendency toward

involvement in continuous learning (Maurer, 2002).

Overall, the individual factors leading to gaining training support a selection explanation (Green, 1993), espe-

cially according to the returns the organization will gain from developing human capital (Becker, 1962, 1975).

Employers select workers who they know will provide the most benefits and return from training through (a)

being high in ability and thus able to be trained; (b) having a high probability of remaining with the firm or

being younger, thus providing a greater opportunity to recoup the investment in training than for others; and

(c) being highly motivated to learn, which is likely to result in training being successful.

Antecedent Conditions to Successful Training and Development

Antecedent conditions to training are what trainees bring to the training setting, the work environment factors

that engage the trainee to learn and participate in the training, and how the training is prepared to maximize

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the learning experience (Salas and Canon-Bowers, 2001). What individuals bring to the training and the sup-

port they gain in the work situation have received increased interest and are important to whether training is

effective or not (Noe, 1986; Noe and Colquitt, 2002).

Personal characteristics have become important in determining whether training will be effective. The evi-

dence supports individuals being selected for training based on suitable psychological attributes for effective

training. Employees who have high cognitive ability (a finding already known from the personnel selection

literature) and motivation to learn are more effectively trained than others as measured by the declarative

knowledge, affective reactions, skill acquisition, and self-efficacy they gain from training (Colquitt et al., 2000;

Salgado et al., 2003; Sonnentag et al., 2004). Motivation to learn is the desire on the part of the trainee to

learn the training material. Training effectiveness is also increased by other pre-training psychological attrib-

utes including a learning goal orientation – which is the desire to increase one’s competence by developing

new skills and mastery, in contrast to a performance goal orientation which is the desire to demonstrate one’s

competence and to be positively evaluated by others (Salas and Cannon-Bowers, 2001; Sonnentag et al.,

2004).

The characteristics of the trainee’s work situation are also important to training being effective. Working in a

climate that enables the use of newly learned behaviors and skills from training (e.g., having adequate re-

sources, opportunities to use skills, favorable consequences for using skills) and having supervisor and co-

worker support for using new learning help facilitate and enhance learning and result in training being effective

(Colquitt et al., 2000). How training is framed within the organization (e.g., through having a positive transfer

climate, working in a learning organization) is particularly important for training to be effective, especially for

certain kinds of training such as diversity training (Holiday et al., 2003).

An individual’s motivation to learn is an important attribute that they bring to training that increases its effec-

tiveness and mediates the impact of other facilitating factors (Colquitt et al., 2000; Ford and Noe, 1992). A

motivation to learn arises from both individual and situational characteristics. Meta-analyses show that em-

ployees who are motivated to learn accord high value to training, lack anxiety, have an internal locus of con-

trol, have high achievement motivation, are conscientious, have high self-efficacy (i.e., believe that they can

master the learning material and the training), are committed to their organizations, and plan their careers

(Colquitt et al., 2000). Employees with high motivation to learn are also associated with having high supervi-

sor and peer support and a positive work climate.

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Individual and situational characteristics that occur priortot raining are critical toenable transfer of what was

learnt in training to the job. Psychological attributes are important for training to transfer (i.e., to result in be-

havior change on the job) as are work environment support and climate. Meta-analyses show that greater

post-training transfer happens to those who, pre-training, accord high value to training, are motivated to learn,

are conscientious, have high self-efficacy, are committed to their organizations, explore their careers, and

plan their careers (Colquitt et al., 2000). Skill acquisition and postraining self-efficacy are also important an-

tecedents of transfer. The situational characteristics that help learning transfer from the training situation to

the job are a positive work climate, supervisor support, and peer support. Transfer of training predicts perfor-

mance back on the job (Colquitt et al., 2000).

Designing Training

Research on designing training has focused on the learning principles that need to be incorporated for training

to be effective (Kraiger, 2003; Noe and Colquitt, 2002; Tannenbaum and Yukl, 1992). It has not examined how

to design training to be a part of systems of HR practices (HPWS) or to meet or help implement the needs

of the business strategy. There has been a major change to the design of training through the incorporation

of principles gained from cognitive psychology on how people learn (Howell and Cooke, 1989; Kraiger, 2003;

Tannenbaum and Yukl, 1992).

From the I/O psychology literature, training comprises a series of steps that design a plan of instruction based

on well-supported learning principles (cf. Ford and Kraiger, 1995; Kraiger, 2003; Noe and Colquitt, 2002; Tan-

nenbaum and Yukl, 1992). Following from the identification through training needs analysis of the knowledge,

skills and attitudes (KSAs) or competencies required, the first step is to specify clear specific instructional

objectives based on the KSAs and competencies. The second step is to design the training based on the

instructional objectives in step one, which involves specifying a desired sequence of training activities and

designing the presentation of the training content to incorporate learning principles and assist transfer. The

third step is to select the training method, which may be on or off the job, to maximize learning. The fourth

step is to ensure a learning environment that enhances the motivation to learn and optimizes learning through

the outcomes that can be expected. The final step is to design measures of training effectiveness that are

outcome-focused based on the instructional objectives set in step one.

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The incorporation of well-supported learning principles validated over many years is important in the training

design stage (Kraiger, 2003; Noe and Colquitt, 2002; Tannenbaum and Yukl, 1992). The principles focus on

the training content and the trainee’s involvement. The training content needs to be designed to be relevant,

preferably having identical elements to the job in order for learning to be able transfer to the job; to have

stimulus variability to enable it to be interesting; and to have appropriate task sequencing (e.g., from easy to

difficult). The design needs to provide opportunities for practice and the best conditions to gain the benefits

of practice, usually to use over learning and consideration of whether to use whole or part learning; to enable

the mental conceptualization of training material prior to training; and to allow observation of demonstration of

the knowledge, skills and attitudes to be learned. Learning principles are incorporated into the design to allow

the trainee to learn actively, for example, by incorporating practice, by recalling information from memory, by

applying principles to a task, and by using symbolic mental rehearsal (Tannenbaum and Yukl, 1992). Learning

principles also include providing reinforcement, providing feedback or knowledge of results during and after

practice, and enabling trainees to seek feedback and self-monitor their learning; and catering for differences

in trainee aptitudes and prior knowledge.

A relatively new topic of interest is how much learner control or choice should be allowed in the design of

training in e-learning environments (DeRouin et al., 2005a). A meta-analysis shows the impact of learner

control is very small (Kraiger and Jerden, 2007); learner control benefits only some learners in some situa-

tions (DeRouin et al., 2005a) and improves only certain learning outcomes under certain conditions (Kraiger

and Jerden, 2007). Trainees do not make good instructional use of the control they are given, which may

be assisted by adaptive guidance – that is by some form of advisement (Bell and Kozlowski, 2002). Learner

control in e-learning situations was more effective for procedural learning (how to do things) than declarative

learning (facts about what to do) and retention; for gaining skill-based outcomes than cognitive outcomes; for

work than educational tasks; and over training’s pace and navigation more than content (Kraiger and Jerden,

2007).

Research interest has developed in whether the wrong people might be trainers. If unskilled or untrained peo-

ple conduct training, it likely will affect whether the training is properly designed according to training principles

and whether it is properly delivered. Problems arise when using untrained or informal or accidental trainers,

including line managers and peers, and when incorporating unwilling mentors and coaches into on-the job

training programs (Heslin et al., 2006). This is in contrast to the effectiveness of training gained through using

trained trainers or expert trainers overseen by the HR function (Bartlett, 2003). There is also considerable re-

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search interest in the problems that occur through the outsourcing of training and development, in which trust

and contractual specificity have become major issues (e.g., Gainey and Klaas, 2003).

The Delivery of Training

Research has focused on how to deliver training as a separate practice rather than on how to deliver it as

part of HPWS or to meet the needs or strategy of the business. There has been little research on the change

management principles that are needed to successfully implement well-designed training that can transfer

to the job and provide positive outcomes, despite the lack of use by practitioners of scientifically-established

principles of training design and delivery.

The delivery of training has traditionally focused on the trainee’s learning style, the way the training is deliv-

ered, and the methods used for training (Tannenbaum and Yukl, 1992), and to a lesser extent on particular

populations to be trained or the specific training content. Individuals have different learning styles that may

need to be catered for in the design and delivery of training. The original Kolb (1984) framework presented the

four learning styles of diverging, assimilating, converging, and accommodating. Efforts continue to develop

learning style questionnaires to assess the several models of trainees’ styles that exist with debate continuing

about their validity and psychometric properties (Sonnentag

et

al., 2004).

With respect to the way training is delivered, the experiential learning cycle (Kolb, 1984) is the most well-

known model trainers use. The process for delivering training comprises the five stages of trainees experienc-

ing concrete events (concrete experience), reflecting on those experiences from different perspectives (reflec-

tive observation), generalizing from those reflections by constructing theories which integrate observations

(abstract conceptualization) and planning by actively using theories to make decisions and solve problems

(active experimentation). Concrete experience can occur off the job as experiential learning activities or on

the job through the beneficial effects of having developmental jobs and challenging job situations (Sonnentag

et al., 2004).

With respect to the methods used, training is conducted by a range of standard methods whose validity

has been well established (Burke and Day, 1986). They include lectures (surprisingly an effective training

method), lectures and group discussion, role plays, behavioral role modeling, simulations and business

games, and computer-assisted learning/high technology methods. Research continues to support the validity

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of these traditional methods of delivery (Callahan et al., 2003).

With respect to specific methods, behavior modeling training (observing a model displaying the behavior to be

learned, the trainee then practicing the behavior, and then gaining feedback to adjust behavior) continues to

be an effective method. However, there are qualifications. Meta-analysis shows that behavior modeling train-

ing improves learning the most (declarative and procedural knowledge-skills) and well; improves job behavior

less; and improves results outcomes less still and in a very small way (Taylor et al., 2005). Although effects on

declarative knowledge (knowledge about facts) decayed over time, training effects on procedural skills (how

to do things) and job behavior remained stable or increased, supporting the utility of behavior modeling train-

ing for improving skills and job behavior. Transfer of training to job behavior was greatest when conditions

linked to transfer were included in the training: when trainees generated practice scenarios, trainees were

instructed to set goals, trainees’ managers were also trained, and rewards and sanctions were instituted in

trainees’ work environments for using the new skills (Taylor et al., 2005).

Simulation-based training and games continue to be shown to work well as training methods, especially for

the situations encountered in the military and aviation which need to train complex skills that will transfer to

the job

(Salas and Cannon-Bowers, 2001).

Substantial research also occurs into newer methods of delivering training. They include new forms of team

training, error training, and ‘e-learning.’ Team training has had a long history, starting from team-building as an

organizational development intervention. Major advances have been made through developing other forms

of team training (Tannenbaum and Yukl, 1992). Team training is where members of work teams as a group

acquire the knowledge and skills and practice behaviors that are needed to work together. Transactive mem-

ory appears to underlie the success of some of these new forms of team training (Sonnentag et al., 2004).

Transactive memory is a group memory system that details the expertise possessed by group members along

with an awareness of who knows what within the group. For example, cross-training (e.g., positional rotation)

aims to develop shared mental models among team members and teaches each team member the roles and

responsibilities of the others. It has positive effects on team performance (Marks et al., 2002; Sonnentag et

al., 2004).

Other forms of team training also give positive results, including team coordination training, team leadership

training, team self-correction, and distributed team training (Kraiger, 2003; Salas and Cannon-Bowers, 2001).

Crew resource management training is a form of team coordination training designed to prevent errors in the

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cockpit. It generally produces positive trainee reactions, but has mixed results for effects on learning and be-

havior change and an unknown impact on organizational results such as safety (Salas et al., 2006). Team

training is also being applied to virtual teams who operate using computer-based technology from geograph-

ically dispersed locations (Soderlund and Bredin, 2006). Team training is effective if focused on the required

team competencies and designed to give trainees realistic opportunities to practice and to gain feedback

(Salas and Cannon-Bowers, 2001).

Error training has become a significant new type of active learner training which demonstrates the beneficial

effects of trainees making errors during learning (Joung et al., 2006) rather than only being trained in correct

methods. Error training stresses trainees’ roles as active participants in the learning process (Sonnentag et

al., 2004). Error and stress exposure training result in less stress and improved performance (Salas and Can-

non-Bowers, 2001). Meta-analysis showed that error management training has positive effects (over training

methods without errors) which are larger for post-training transfer than within-training performance and for

structurally distinct performance tasks than for tasks similar to the training (Keith and Frese, 2007). Both ac-

tive exploration and error encouragement are effective elements.

The most prolific research interest into the newer methods of training has been in the relatively recent ‘e-

learning’, in order to solve the problem of how to make e-learning as effective as face-to-face training (DeR-

ouin et al., 2005b). E-learning is the learning of knowledge, skills and attitudes through web- and comput-

er-based learning technologies or virtual classrooms and digital collaboration. Meta-analysis found that web-

based instruction (WBI) was slightly more effective than classroom instruction (CI) for teaching declarative

knowledge; the two delivery media were equally effective for teaching procedural knowledge; and trainees

were equally satisfied with web-based instruction and classroom instruction (Sitzmann et al., 2006). However,

web-based instruction and classroom instruction were equally effective for teaching declarative knowledge

when the same instructional methods were used in both, suggesting WBI is not more effective than CI. WBI

was more effective than CI for teaching declarative knowledge when trainees were provided with control,

practiced the training material and received feedback during training, and were in long courses.

Compared to research on the methods of delivery of training, there has been less focus on training particular

populations/types and kinds of content. Of ongoing interest is how to train managers in the competencies they

need (Hernez-Broome and Hughes, 2004). Charismatic leadership in managers can be developed through

training (Frese et al., 2003); diversity training is given to managers (i.e., to reduce employment discrimination,

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to support a diverse workforce, to be more receptive to diversity) (e.g., De Meuse et al., 2007; Sanchez and

Medkik, 2004); and training in cross-cultural competencies facilitates managers’ success on international as-

signments (Littrell et al., 2006). Meta-analysis supports the effectiveness of management development (Burke

and Day, 1986) and managerial leadership development programs increase managers’ knowledge strongly,

improve their job behavior/expertise but less, and increase systems results/performance outcomes less so,

though moderately (Collins and Holton, 2004). Cross-cultural training of expatriate managers increases their

performance and adjustment (e.g., Black and Mendenhall, 1990; Morris and Robie, 2001).

Training is effective for older employees, as shown by meta-analysis. Results continue to find that older adults

are able to learn new skills but that they show less mastery of training material and take longer to complete

training tasks and programs than younger adults (Kubeck et al., 1996). The three instructional methods of lec-

tures, role modeling, and active participation and the two instructional factors of self-pacing and smaller group

size are effective for older learners, resulting in high training performance, especially when older employees

can self-pace (Callahan et al., 2003).

Transfer of Training to the Job

Of the stages of training, transfer had been of relatively late interest (Baldwin and Ford, 1988), although the

science and theory of how to transfer training to the job are now well developed (Burke and Hutchins, 2007;

Ford and Weissbein, 1997). Transfer of training is the extent to which trainees effectively apply the knowl-

edge, skills, behaviors and attitudes gained in training to their jobs (Tannenbaum and Yukl, 1992). It is the

evaluation of whether anticipated gains in knowledge, skills and affect from training have been achieved and

whether the changes are then applied to the job to generalize skills and retain long-term skills on the job (Ford

and Kraiger, 1995). Without transfer, the benefits of training to behavioral change on the job cannot be real-

ized, and, ultimately, the possible improvement in organizational results.

The primary factors influencing transfer are well-established. Particular learner characteristics increase trans-

fer (cognitive ability, self-efficacy, pretraining motivation, anxiety/ negative affectivity, openness to experience,

perceived utility, career planning, organizational commitment). Particular kinds of intervention design and de-

livery increase transfer (learning goals, content relevance, practice and feedback, behavioral modeling, error-

based examples), although less evidence is available in this category. Recently examined work environment

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influences are shown to increase transfer (transfer climate, supervisor support, peer support, opportunity to

perform) (Burke and Hutchins, 2007).

Transfer arises especially from what occurs before and after training, and not just during training (Saks and

Belcourt, 2006), requiring substantial efforts from supervisors to enable transfer to occur. Before training,

transfer is affected by what employees bring to the training; transfer especially increases if trainees have

high motivation to learn, a high capacity to transfer, and a supportive work environment for applying learning

(Colquitt et al., 2000; Noe, 1986). Transfer is also enhanced by how the training has been designed – if the

content is relevant to the job and if training corresponds to what is done on the job (i.e., fidelity), transfer in-

creases. During training, successful transfer is determined by how the training is delivered; for example, by

enabling practice and over learning to firmly develop principles and skills and by setting goals during training

to achieve back on the job.

After training, transfer is increased when the immediate supervisor provides support and encouragement for

trainees to apply on the job what they learnt in the training; when peers provide support for the use of the

training; when needed resources are provided; and when trainees return to a work climate that helps transfer

rather than provides barriers or constraints to block transfer (Colquitt et al., 2000; Sonnentag et al., 2004).

After training, transfer also occurs when trainees are provided with the opportunity to perform what was learnt

during the training and by having a short-time interval between the training and the opportunity to use the

learning (Ford and Weissbein, 1997; Sonnentag et al., 2004). Research continues into the development of

instruments to measure the extent to which a transfer climate exists in an organization (Holton and Elwood,

1997), demonstrating similar cross-country elements of a positive climate, job utility, and provision of rewards

(Holton et al., 2000).

Specific strategies such as relapse prevention (training in self-management to prevent slips back into pre-

training behaviors) and goal-setting have been investigated to determine if they assist the transfer of training

to the job, though the results for their effectiveness are conflicting and managers are not necessarily keen to

apply them to help transfer (Hunt and Saks, 2003; Hutchins and Burke, 2006).

It is not known if vertical transfer of training occurs where individuals’ learning outcomes and behavior change

translates into organizational results (Salas and Cannon-Bowers, 2001). Research is also lacking on whether

training introduced as part of a system of HR practices transfers more to the job than when training is con-

ducted as a single practice. Training might transfer more to the job when it is delivered as part of HPWS, when

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major workplace interventions are being introduced for which it is needed (e.g., total quality management,

lean production, business process re-engineering, teamwork), or when it is implemented to meet organiza-

tional objectives and business strategy, than when training is introduced as a standalone practice.

Evaluating the Effects of Training

Interest in the evaluation of training has substantially increased (Alvarez et al., 2004; Collins, 2002). Within

organizations, training evaluation is the systematic collection of descriptive and judgmental information nec-

essary to make effective training decisions related to the selection, adoption, value and modification of various

training activities (Goldstein, 1980). It is a set of procedures designed to systematically collect valid descrip-

tive and judgmental information about the ways in which a planned change effort has altered or failed to alter

organizational processes (Wexley, 1984). Two major areas are the focus of interest: how should training be

evaluated (i.e., the validity of any model of outcomes proposed) and does training have positive outcomes or

effects.

There has been continued controversy about how training should be evaluated – what criteria should be used

and which underlying model or theory of evaluation is valid (Alliger and Janak, 1989; Alliger et al., 1997). Kirk-

patrick’s four-level model (1959, 1976) is the most used. In the model, training leads to trainee reactions (i.e.,

how well trainees like the training), which leads to trainee learning (i.e., what knowledge or skills were learnt),

which then leads to trainee behavior on the job (i.e., what were the changes in job behavior), which then leads

to organization results (i.e., what were the organizational results from training). Phillips (1996a, b) suggests

that organizational results from training should then lead to greater financial returns for the organization, an

approach consistent with the perspective used in strategic HRM (Becker and Huselid, 2006).

Evidence from meta-analyses has not supported Kirkpatrick’s model, especially trainee reactions being relat-

ed to trainee learning (Alliger et al., 1997; Colquitt et al., 2000). Trainees’ reactions were related only in a small

way to learning measured as declarative knowledge and skill acquisition (Colquitt et al., 2000). Utility-type

reaction measures, assessing trainees’ views of training’s usefulness for and applicability to job performance,

were more strongly related to learning and on-the-job performance (i.e., transfer) than were affective-type re-

action measures (Alliger et al., 1997). Utility-type reaction measures were stronger correlates of transfer (on-

the-job performance) than were measures of immediate or retained learning. Hence, if trainees’ reactions are

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to be used to measure the effectiveness of training, they should be of its utility and not of liking for it. Learning

was moderately related to behavior change (i.e., transfer) which, in turn, was related to results, which were

measured, however, as individuals’ job performance (Colquitt et al., 2000) not as organizational results. Thus,

conclusions could not be drawn about the validity of the final sequence proposed in Kirkpatrick’s (1959, 1976)

model.

In sum, too few studies have examined the causal sequence in Kirkpatrick’s (1959; 1976) model to draw

strong conclusions, especially whether training’s effects on behavior change lead to effects on organizational

results. Hence, a supported model for evaluating training and development is still not available. New models

continue to be developed (e.g., Alvarez et al., 2004; Holton, 1996). But, valid, less expensive, simpler, and

more user-friendly designs have been developed to evaluate the effects of training (Arvey et al., 1996). For

example, studies show that the internal referencing strategy, in which effect sizes for trained outcomes are

compared to effect sizes for non-trained outcomes, provides a research design for evaluation that does not

require control groups (e.g., Frese et al., 2003).

By contrast, the second major area of interest with respect to the evaluation of training has clear results. Train-

ing works. Traditionally, training has been evaluated at the level of the individual where there are clear positive

effects. Meta-analyses and qualitative reviews show that training improves employees’ learning (knowledge,

skills, attitudes) and behavior back on the job (job performance, output, quality of work) (Aguinis and Kraiger,

2009; Arthur et al., 2003; Burke and Day, 1986; Collins and Holton, 2004; Guzzo et al., 1985; Katzell and

Guzzo, 1983). Meta-analyses show that training has a medium to large effect and that its effects on trainees’

learning and behavior are stronger than on results (Arthur et al., 2003; Collins and Holton, 2004), which were

mostly measured at the individual and not the organizational level. In addition, the training method used, the

skill or task characteristic trained, and the choice of evaluation criteria are related to the effectiveness of train-

ing programs (Arthur et al., 2003; Burke and Day, 1986; Collins and Holton, 2004).

Most studies have shown immediate effects of training. The small number that have investigated long-term

effects have given positive results (Sonnentag et al., 2004). Training also improves employees’ organization-

al attitudes and not only their immediate reactions at the end of the program; for example, training improves

employees’ commitment to the organization (Bartlett, 2001).

Interest has recently arisen in determining whether training improves organizational effectiveness (Aguinis

and Kraiger, 2009; Tharenou, 2006; Tharenou et al., 2007). Some scholars believe that training should im-

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prove organizational performance (Martocchio and Baldwin, 1997), whereas others emphasize that training

should only have behavioral effects on the individual (Barrie and Pace, 1997). There have been attempts to

estimate the ROI from formal company training (Bartel, 2000). The main conclusion drawn was that the ROI of

employee training might be higher than previously believed, perhaps in the range of 100–200 per cent (Bartel,

2000), but it was based on very few studies which measured individual-level outcomes.

By contrast, meta-analysis has shown that organizations that train more have greater organizational perfor-

mance (including productivity and quality) and more positive collective HR outcomes (including satisfaction,

skills and competencies, and retention) – although the effect sizes for objective output measures were small.

However, organizations that trained more did not have greater objectively measured financial performance

(Tharenou et al., 2007). Longitudinal, multivariate, highly controlled studies showed consistently that training

improved objectively-measured organizational performance. Hence, training improves organizational perfor-

mance and HR outcomes and, unsurprisingly for a distal variable, not the bottom line. Training was more

related to objectively-measured organizational effectiveness when used in conjunction with business direc-

tion and strategy than when not (Tharenou, 2006; Tharenou et al., 2007). Training was more strongly relat-

ed to organizational outcomes when matched with key contextual factors of organizational capital intensity

and business strategy – in support of a contingency perspective that, when training is matched with business

needs, performance improves. Training more often was related independently to organizational outcomes in

support of a universalistic perspective and did not need to be part of a system of HR practices. Only a minority

of studies showed support for a configurational perspective, in which, when training was part of HPWS, or-

ganizational performance was higher than when training was used an independent practice. There was also

support from longitudinal studies that organizations with poorer performance subsequently trained their em-

ployees more, resulting in increased performance (Tharenou, 2006; Tharenou et al., 2007). The meta-analy-

sis showed much stronger effects of training on subjectively measured outcomes measures, especially when

financial performance was subjectively measured, but these effects appeared inflated.

By contrast, the results of a meta-analysis suggested that systems of high performance work practices have

stronger positive effects on organizational performance than individual practices do, including training, which

still had a positive effect when used independently (Combs et al., 2006). Research needs to examine when

training should be used as a separate practice, when it should follow from business strategy, or when it may

be best used as part of HPWS and organizational change efforts. In sum, despite the spate of results, more

research is needed to determine how training improves organizational performance.

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The Future

Although there has been dramatic progress in the development of the science and practice of training, issues

need resolution. Many of the valid ways found for conducting training and the principles found to enhance

transfer to the job are not applied by practitioners or endorsed by management (Kraiger, 2003; Salas and

Cannon-Bowers, 2001). There are negative attitudes to what are seen as complex, expensive, and effortful

processes to design, deliver and implement training, including the more recent cognitive principles and meth-

ods (Hesketh, 1997). Research needs to examine how to change managers’ and practitioners’ attitudes in

order to implement what research has found for designing and delivering effective training and transferring it

to the job and organization (cf. Hunt and Saks, 2003). The use of strong change management and organiza-

tional development principles facilitate the successful implementation of training (Wong et al., 1997) and of

training needs analysis (Reed and Yakola, 2006). The implementation of training using the science of training

needs to be addressed as a change management process and as part of organizational development strate-

gies. Moreover, training is only one of many methods for increasing organizational performance (Wright and

Geroy, 2001) and research needs to more effectively consider training in interaction with other workplaces

practices to understand its effects.

A second issue is the separate training literatures that exist in the disciplines of strategic HRM, I/O psycholo-

gy, labor economics, and industrial relations. For example, the literatures on training in HRM and I/O psychol-

ogy remain separate. The training practice that forms part of high performance work systems seems remark-

ably simple and unspecified compared to the complex training design principles and methods found from I/

O psychology. There needs to be a marrying together of the principles underlying the strategic HR approach

to training and the conditions found in I/O psychology for effective training to occur. Moreover, for training

to increase organizational effectiveness, training needs to be effectively designed and delivered and transfer

to the job (I/O psychology), be of strategic importance to the organization (strategic HRM), operate in orga-

nizations whose structures and processes enable training to occur (labor economics), and capitalize on the

cooperation of the workforce (industrial relations).

More broadly, despite the different interests of HRM (the management perspective), labor economics (the

societal perspective), and industrial relations (the employee perspective), all three use an organizational-

level lens whereas I/O psychology uses an individual- or team-level lens. A multi-level approach is needed to

bridge these traditions. Organizational-level (macro), team-level (meso), and individual-level (micro) training

research, models, and theory need to be integrated. For example, training is known to improve an individual’s

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skills, knowledge, and job performance and to improve organizational productivity. But it is not known if the

improvement at individual level translates vertically to an improvement at organizational level, or, if it does,

how it may do so; for example does it do so through effects at the work unit-level (Kozlowski et al., 2000).

Research needs to integrate the individual, work-unit/team, and organizational levels and investigate how in-

dividual performance and transfer lead to improved organizational effectiveness (Chen and Klimoski, 2007;

Tharenou et al., 2007).

In conclusion, research into training and development in organizations is thriving, underpinned by the ap-

proaches developed from strategic human resource management, industry/organizational psychology, labor

economics, and industrial relations. Research on training has extended its interest from training models and

the steps involved in training of training needs analysis, design, and delivery to the activities conducted pre-

training – especially the psychological processes and environmental factors that lead to participation in train-

ing and that enable successful transfer of training to the work environment – and post-training – especially

the factors that lead to transfer of what is learnt in training to the job and the evaluation of training’s effects on

organizational effectiveness.

PhyllisTharenou

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• transfer of training

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• job transfer

• training needs analysis

• trainees

• train to gain

• team training

• labor economics

https://doi.org/10.4135/9780857021496

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SAGE Reference

The SAGE Handbook of Human Resource

Management

Author: Barry Gerhart

Pub. Date: 2010

Product: SAGE Reference

DOI:

https://doi.org/10.4135/9780857021496

Keywords: pay for performance, incentives, staff, agency theory, pay, human resource strategy, executive

compensation

Disciplines: Human Resource Management (general), Human Resource Management, Business &

Management

Access Date: March 2, 2023

Publishing Company: SAGE Publications Ltd

City: London

Online ISBN: 9780857021496

© 2010 SAGE Publications Ltd All Rights Reserved.

Retrieved from https://sk-sagepub-com.ezproxy.umgc.edu/reference/hdbk_humanresourcemgmt/
n13.xml

Compensation

Introduction

Across organizations, the single largest operating cost, on average, is employee compensation or remuner-

ation (Blinder, 1990; European Parliament, 1999; US Bureau of Labor Statistics, 2001). Thus, for an organi-

zation to be successful, it must effectively manage not only what it spends on compensation, but also what

it gets in return. Contextual factors serve to place some limits on compensation decisions. Legal, institution-

al (e.g., labor union), cultural, and market (product and labor) contextual factors vary across countries and

often within countries, meaning that the degree of discretion an organization has in managing compensation

decisions will also vary. Nevertheless, organizations typically have at least some discretion in compensation

design.1 This choice can have a major impact at every level of the organization on decisions made by individ-

uals (through its incentive effects), as well as who those individuals are (through its sorting or self-selection

and selection effects). In other words, compensation can be a major factor in successfully executing an orga-

nization’s strategy.

Compensation, or remuneration, can be defined and studied in terms of its key decision/design areas, which

include (Gerhart and Milkovich, 1992; Milkovich and Newman, 2008) how pay varies across (and sometimes

within) organizations according to its level (how much?), form (what share is paid in cash versus benefits?),

structure (how pay differentials depend on job content, individual competencies, job level/promotion, and busi-

ness unit?), basis or mix (what is the share of base pay relative to variable pay and what criteria determine

payouts?), and administration (who makes, communicates, and administers pay decisions?).2

I focus here primarily on the pay basis/mix and, to a lesser extent, the pay level, dimensions. I will often refer

to these two decisions, respectively, as the ‘how to pay?’ and ‘how much to pay?’ decisions (Gerhart and

Milkovich, 1992; Gerhart and Rynes, 2003). The reason for the greater focus on the ‘how to pay’ decision is

that it may be the more strategic of the two in terms of the degree to which an organization can differentiate it-

self from others (Gerhart and Milkovich, 1990). Further, in organizations that differentiate their pay levels from

competitors and that are successful over time (in competitive markets), it may be that their pay levels are not

independent of how they pay. For example, an organization with a strong pay-for-performance plan (PFP) is

more likely to have a high pay level when performance is strong.

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I begin with a brief review of theoretical perspectives that help in understanding the potential consequences of

different PFP and pay level decisions. As part of this, I highlight key intervening processes. Finally, I address

potential pitfalls in using PFP and how contextual factors may influence compensation strategy and effective-

ness.3

Effects of Pay

Theoretical Mechanisms

The role of pay, specifically PFP, and its effect on the level and direction of motivation in the workplace has

sometimes been debated and sometimes ignored in the applied psychological literature on motivation. (See

Rynes et al., 2005 for a review, including discussion of theories by Deci, Maslow, and Herzberg.) However,

the facts are that in developed economies, monetary rewards are (a) ubiquitous, (b) a major cost in most or-

ganizations (see above), and (c) as this chapter will help make clear, can have a major impact (positive or

negative) on employee attitudes, choices, and behaviors. Accordingly, in some streams of this literature, it

has been recognized that ‘Money is the crucial incentive’ (Locke et al., 1980: 379) and that ‘the one issue that

should be considered by all organization theories is the relationship between pay and performance’ (Lawler,

1971: 273).

From a psychological perspective, Campbell and Pritchard (1976) observe that motivation can be defined in

terms of its intensity, direction, and persistence. (Together with ability and situational constraints/ opportuni-

ties, motivation contributes to observed behavior.) Thus, to fully evaluate the impact of pay on motivation, one

must look not only at (enduring) effort level, but also the degree to which effort is directed toward desired

objectives.

As Lawler (1971) demonstrates, theories such as reinforcement, expectancy, and equity have deep roots in

psychology. Although compensation research using these theories (with the possible exception of equity the-

ory) is no longer very active, their core ideas provide much of the basis for how scholars and many practition-

ers think of the impact of compensation on employees. A brief review of these theories, as well as the more

economics-based agency and efficiency wage theories follows below. (See Gerhart and Rynes, 2003 for a

more complete review.)

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Reinforcement theory (e.g., Skinner, 1953) is based on Thorndike’s Law of Effect, which states that a re-

sponse followed by a reward is more likely to recur in the future. By the same token, a response not followed

by a reward is less likely to recur in the future. These two phenomena are reinforcement and extinction, re-

spectively. A notable feature of Skinner’s perspective was his adamant avoidance of cognitive processes in

explaining motivation. In Skinner’s view, cognitions were by-products of the central driver of motivation, re-

inforcement contingencies in the environment, and so were not necessary or useful in building a science of

behavior.

Subsequently, however, the field of psychology went through its ‘cognitive revolution,’ which departed from

reinforcement theory by focusing on cognitions such as self-reports of attitudes, goals, subjective probabili-

ties, and values. Later theories such as goal-setting (e.g., Locke), expectancy (e.g., Vroom, 1964), and equity

(Adams, 1963), all give cognitions a central explanatory role. At the same time, they also continue to recog-

nize the importance of reinforcement processes as drivers of those cognitions and later behavior. The po-

tential value of studying cognitions as mediators is that factors other than compensation and incentives may

influence goal choice, effort choice, and behaviors. Measuring cognitions and self-reports may be helpful in

understanding why compensation and incentives do or do not work in a particular situa

tions.

In expectancy theory (Campbell and Pritchard, 1976; Vroom, 1964), behavior is seen as a function of ability

and motivation. In turn, motivation (also referred to as effort or force) is viewed as a function of belief sre-

garding expectancy, instrumentality, and valence. Expectancy is the perceived link between effort and perfor-

mance. Instrumentality is the perceived link between performance and outcomes and valence is the expected

value (positive or negative) of those outcomes. There is often a focus on compensation’s effect on instru-

mentality. For example, a strong PFP program is likely to generate stronger beliefs that performance leads

to high pay than would a weak PFP program or a seniority-based pay system. However, motivation can be

undermined not only by weak instrumentality (e.g., weak PFP), but also by weak expectancy (e.g., because

of inadequate selection, training or job design) or valence (outcomes that are negative or not sufficiently pos-

itively valued).

The unique contribution of equity theory (Adams, 1963) to motivation is its focus on social comparison

processes. In essence, it states that how an employee evaluates his/her outcomes from work depends on an

assessment of how his/her ratio or outcomes (e.g., perceived compensation and rewards) to inputs (e.g., per-

ceived effort, qualifications, performance) compares to a comparison standard (e.g., a co-worker or peer in

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another organization). When the ratios are perceived to be equal, equity is perceived and no action (cognitive

or behavioral) is taken to change the situation. However, to the extent the ratios are not perceived as equal,

there is perceived inequity, and action (behavioral or cognitive) is hypothesized to be taken to restore equity

or balance, especially if the inequity is under reward inequity for the focal person (Lawler, 1971).

One reason for focusing on the role of (in) equity is that so many of its potential behavioral consequences

(e.g., effort withholding, turnover, theft, collective action, legal action, renegotiation of terms) are undesirable

to many or all employers. As a practical matter, many employers use attitude surveys to monitor employee eq-

uity perceptions and attitudes in hopes of finding any problems in compensation or other areas early enough

to head off undesired consequences. Not surprisingly, then, leading textbooks in compensation management

(e.g., Milkovich and Newman, 2008) give a central role to the various aspects of pay equity in helping man-

agers understand how employees react to compensation decisions.

Agency theory starts from the observation that once an entrepreneur hires their first employee, there is sep-

aration of ownership and control (Jensen and Meckling, 1976). The entrepreneur (and/or others having own-

ership stakes, as in a larger firm) retains ownership, but now must deal with an agency relationship, under

which the owner (i.e., principal) contracts with one or more employees (i.e., agents) ‘to perform some service

on their behalf which involves delegating some decision making authority to the agent’ (Jensen and Meck-

ling, 1976: 308). The challenge in an agency relationship is that the agent does not necessarily act in the

best interests of the principal, giving rise to agency costs, which specifically arise from goal incongruence (the

principal and agent have different goals) and information asymmetry (the principal has less information than

the agent regarding the value to the principal of the agent’s attributes and behaviors).

To control agency costs, the principal must choose a contracting scheme that is behavior-based (pay based

on observation of behaviors) and/or outcome-based (pay based on outcomes/results such as profits, produc-

tivity, shareholder return). The choice depends on factors such as the relative cost of monitoring behaviors

versus outcomes, their relative incentive effects, and the degree of risk aversion among agents. A key issue is

the hypothesized trade-off between incentive intensity and risk. Generally, it is assumed that incentive inten-

sity can be stronger under outcome-based contracts because they are more objective, and thus less subject

to measurement error (Milgrom and Roberts, 1992). On the other hand, employees, who generally rely on

their job as their predominant source of income, are risk averse. Greater incentive intensity is associated, on

average, with greater performance outcome variability (which also may not be entirely under the agent’s con-

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trol) and thus, greater compensation risk. Therefore, a compensating differential to the agent for taking on the

greater risk of an outcome-based contract is expected under agency theory. (An implication is that strong in-

centives increase labor cost, meaning that the incentives must drive higher performance to be cost-effective.)

The question is which contract will maximize the gains from incentives, while controlling the costs of shifting

risk to workers (Prendergast, 1999)? Consistent with agency theory, companies having more financial risk

tend to have less risk-sharing/incentive intensity in their compensation for managers and executives (Aggar-

wal and Samwick, 1999; Bloom and Milkovich, 1998; Garen, 1994), with there also being some evidence that

risk-sharing is least likely in very low or very high financial risk situations (Miller et al., 2002). Also consis-

tent with agency theory, as information asymmetries increase, outcome-based contracts are more likely to be

used (Eisenhardt, 1989; Makri et al., 2006; Milkovich et al., 1991).

Although is has been argued that the trade-off between risk and incentives in designing contracts is the main

focus of agency theory (e.g., Aggarwal and Samwick, 1999; Prendergast, 1999), the general focus on con-

tracting in agency theory also suggests an assumption that performance, whether results-based or behavior-

based or both, plays a key role in determining compensation. In economics, while recognizing that agency

costs can compromise the pay-performance relationship, the existence of substantial pay for performance

among executives is generally taken as a given, at least in a country like the US, where stock plans are the

source of most executive wealth creation (Murphy, 1999). However, in other fields (e.g., management), there

is greater skepticism regarding the degree to which executive compensation and performance are related,

with a greater role for power and politics generally being seen. (For a give-and-take on theses issues, see

articles by Bebchuk and Fried, 2006; Conyon et al., 2006. See Devers et al. for a review of recent studies.)

A review and empirical study by Nyberg et al. (2007) suggests that the management literature has underesti-

mated the role of performance, and thus the applicability of agency theory, in determining executive compen-

sation.

Efficiency wage theory seeks to provide an economically rational explanation for why firms have different pay

levels.4 The essential argument is that firms pay high wages either because some aspect of their technology

and/or human resource system requires higher than average quality workers or because monitoring perfor-

mance is more difficult due to information asymmetry (Krueger and Summers, 1998; Yellen, 1984). Paying a

higher than average wage may discourage shirking because the worker at the high-wage firm does not want

to risk losing his/her wage premium (Cappelli and Chauvin, 1991). This effect is expected to be magnified to

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the degree that the risk of job loss increases. The unemployment rate is one indicator of risk of job loss and

Yellen (1984) states that ‘Unemployment plays a valuable role in creating work incentives.’5 Another impli-

cation of efficiency wage theory is that supervision and efficiency wages may be substitutes for one another

(Groshen and Krueger, 1990; Neal, 1993). In other words, shirking can be controlled either by having many

supervisors closely monitoring behaviors or by having fewer supervisors but a higher potential wage penalty if

shirking is observed. Lazear (1979: 1266) states that without an appropriate pay system, workers would have

an ‘incentive to cheat, shirk, and engage in malfeasant behavior.’

Theoretical themes and Intervening Processes

To greatly simplify, one can say that in the above theories, pay operates on motivation and performance in

two general ways (Gerhart and Milkovich, 1992; Gerhart and Rynes, 2003; Lazear, 1986). First, there is the

potential for an incentive effect, defined as the impact of pay on current employees’ motivational state. The

incentive effect is how pay influences individual and aggregate motivation, holding the attributes of the work-

force constant and it has been the focus of the great majority of theory and research in compensation, espe-

cially outside of economics.

Second, there is the potential for a sorting effect, which we define as the impact of pay on performance via its

impact on the attributes of the workforce. Different types of pay systems may cause different types of people

to apply to and stay with an organization (self-select) and these different people may have different levels

of ability or trait-like motivation, or different levels of attributes (e.g., team skills) that enhance effectiveness

more in some organizations than in others. Organizations too may differentially select and retain employees,

depending on the nature of their pay level and/or PFP strategies. The self-selection aspect of sorting and its

application to the effects of pay is based primarily on work in economics (e.g., Lazear, 1986), but the idea

is consistent with Schneider’s (1987) attraction-selection-attrition (ASA) idea in the applied psychology litera-

ture. Evidence suggests that the magnitude of ASA processes can be substantial (Schneider et al., 1998).

Together, the sorting and incentive ideas provide one broad conceptual framework for thinking about inter-

vening processes in studying the effects of compensation. Another is the ability-motivation-opportunity to con-

tribute (AMO) framework (Appelbaum et al., 2000, Boxall et al., 2007). Compensation seems most likely to

influence workforce ability and motivation, less likely to come into play in the ‘O’ component, which has more

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to do with job design and participation in decisions. (As noted later, however, the ‘O’ component and the

AMO dimensions in general are quite relevant in addressing horizontal alignment in HR and compensation.)

The impact of compensation on workforce ability is expected to operate primarily through its sorting effects,

but some forms of compensation (for example, skill-based or competency-based pay) can also directly in-

fluence ability via incentive effects. Management development over time via different job assignments and

experiences (especially those involving upward mobility) is also typically supported by compensation systems

through promotion incentives (sometimes described as tournament systems). Other incentive effects, such as

motivation and effort on the current job, are perhaps more straightforward.

Gerhart and Milkovich (1992) called for compensation research to include intervening variables (and) at ‘mul-

tiple levels’ of analysis in studying compensation and performance, because ‘if a link is found … possible

mediating mechanisms can be examined to help establish why the link exists and whether (or which) causal

interpretation is warranted’ (p. 533). Beyond the general mediating mechanisms discussed above, more de-

tailed intervening variables might include employee attitudes, individual performance and/or competencies,

and employee turnover (broken out by performance levels). Other relevant mediators, depending on the par-

ticular goals of the unit or organization, would be citizenship behavior, teamwork, climate for innovation, mo-

tivation, and engagement. Note that while HR practices such as compensation might be thought of as op-

erating at the level of the organization or work unit, the mediators discussed here are often conceptualized

as individual level processes. Therefore, models (e.g., hierarchical linear modeling, Raudenbush and Bryk,

2002) designed to handle multiple levels may prove useful in empirical work addressing this type of mediaton.

A final mediator that is perhaps obvious, but nevertheless sometimes ignored in research (as opposed to

practice) is cost. Higher pay levels and/or higher staffing levels drive up labor costs. In addition, according to

agency theory, incentive intensity, because it shifts risk to workers, is also expected to drive up pay levels by

requiring a compensating differential for risk. We address the cost issue more fully below.

Effects of Pay Level

Although competitive pressures drive firms to minimize costs and maximize benefits, the cost side means

that, in the absence of higher productivity, quality, superior products development, customer responsiveness

and so forth, firms must keep total labor costs in line with those of competitors by controlling total compen-

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sation per employee and/or by controlling employee headcount. In a global world, cost control includes an

ongoing search for the lowest cost location for production, all else being equal (e.g., proximity to customers

and suppliers, worker skill levels) which is to varying degrees, depending on the product, technology, and

work organization, a partial function of labor costs. As Table 13.1 makes clear, labor costs differ significantly

across the world. (What Table 13.1 does not show is that labor costs also vary across companies within many

countries.)

As noted previously, efficiency wage theory suggests that higher wages may have positive sorting and in-

centive effects. More specifically, the observable benefits of higher wages may include (Gerhart and Rynes,

2003): higher pay satisfaction (Currall et al., 2005; Williams et al., 2006; for a review, see Heneman and

Judge, 2000), improved attraction and retention of employees (for a review, see Barber and Bretz, 2000), and

higher quality, effort, and/or performance (e.g., Yellen, 1984; Klass and McClendon, 1996).

Table 13.1 Average hourly labor costs for manufacturing production workers, by country (US dollars), 2005

United States 24

Canada 24

Germany 33

France 25

United Kingdom 26

Spain 18

Czech Republic 6

Japan 22

Mexico 3

Hong Konga 6

Korea 14

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Note:Wage rates rounded to nearest dollar except when rate is less than one dollar.

Sources: US Bureau of Labor Statistics, http://www.bls.gov; Banister, J. (2005)

a Special Administrative Region of China

b 2004

c 2002.

In discussing pay level from a public policy perspective, a distinction is sometimes made between ‘low road’

(low pay level) versus ‘high road’ (high pay level) human resource systems (Gerhart, 2007).6 Using the AMO

model, a ‘high road’ policy typically combines higher (‘efficiency’) wages with high levels of worker responsi-

bility and autonomy and often team-based work (O), all of which may require a higher quality workforce (A).

To the extent that the high road HR system is costly, due to not only high wages but also high investment

in AMO areas broadly, it may not align typically as well with a cost leadership business strategy as would a

less costly, low road strategy. Historically, this is perhaps most readily seen in the way that firms often move

low skill work offshore to locations where it can be done much more cheaply. More recently, there has been

a great deal of attention given to the movement of skilled work (e.g., writing computer code; tax preparation)

offshore to less expensive locations. We return later to the question of under what circumstances a high road,

high pay level strategy is most likely effective.

Cost is an outcome that has been explicitly recognized and quantified in cost-benefit models such as utility

analysis (Brogden, 1949; Boudreau, 1991), but the application of utility analysis to compensation, with explicit

attention to not only its benefits, but also the costs of pay programs, has been surprisingly rare (Klaas and

McCledon, 1996; Sturman et al., 2003; Gerhart and Rynes, 2003). This is ironic because, inside of organiza-

tions, it often seems to be cost that gets the lion’s share of attention. Cappelli and Neumark (2001) observe

this same omission in much of the broader literature on the effectiveness of HR systems. Indeed, they inter-

pret their findings as indicating that high road HR systems ‘raise labor costs … but the net effect on overall

profitability is unclear’ (p. 766).

I conclude the discussion of pay level at this point because the pay level decision is one that is (or should be)

made in tandem with the how to pay decision (Gerhart and Rynes, 2003). For example, any organization op-

erating in a competitive market will have difficulty being successful over time with a high pay level that is not

Sri Lankab 0.52

Chinac 0.57

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paired with high performance at the individual and organizational level. Thus, the how to pay or PFP decision.

Effects of Pay for Performance (PFP)

Types of PFP programs include profit sharing, stock plans, gainsharing, individual incentives, sales commis-

sions, and merit pay (Milkovich and Newman, 2008). As Table 13.2 shows, these programs can be classified

on two dimensions (Milkovich and Wigdor, 1991): level of measurement of performance (e.g., individual, plant,

organization) and type of performance measure (results-oriented or behavior-oriented). It is important to note

that, in practice, many employees are covered by hybrid pay programs (e.g., a combination of merit pay and

profit sharing).

US companies well-known for their use of PFP include Lincoln Electric, Nucor Steel, Whole Foods, Hewlett-

Packard, Southwest Airlines, and General Electric, to name just a few. Each uses a different form of PFP, with

varying degrees of relative emphasis on individual, group/unit, and/or organization level performance. Out-

side the US, in countries with less of a tradition of PFP, there appears to be a movement in some cases (e.g.,

Japan, Korea) toward greater emphasis on PFP at all organization levels. In these and many other countries,

there has been a clear movement toward greater use of PFP for selected employee groups (e.g., executives),

(Towers Perrin, 2006).

Incentive Effects

In a meta-analysis of potential productivity-enhancing interventions in actual work settings, Locke et al. (1980)

found that the introduction of individual pay incentives increased productivity by an average of 30%.7 This

finding was based on studies that were conducted in real organizations (as opposed to laboratories), used

either control groups or before-and-after designs, and measured performance via ‘hard’ criteria (e.g., physical

output) rather than supervisory ratings.

Subsequent research also supports the powerful incentive effects of pay. A meta-analysis by Guzzo et al.

(1985) found that financial incentives had a large mean effect on productivity (d = 2.12).8 More recent meta-

analyses (Jenkins et al., 1998; Judiesch, 1994; Stajkovic and Luthans, 1997) likewise provide strong support

for a significant positive relationship between financial rewards and performance.

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There has also been research on plans using collective performance, including gain-sharing, profit sharing,

and stock plans. (For reviews, see Gerhart and Milkovich, 1992; Gerhart and Rynes, 2003.) Without delving

into the specific findings of this literature, a few general observations are in order. First, whereas most of the

individual level research follows the same people over time, thus probably yielding what are essentially incen-

tive effects, studies of plans using collective performance as the dependent variable do not usually hold the

workforce constant as the design often involves between-company and/or longitudinal tracking of companies.

Thus, it is difficult to separate incentive and sorting effects. Second, the set of relevant determinants of col-

lective performance (e.g., profitability) is perhaps larger than in the typical study of individual incentive plans.

Again, this makes it more of a challenge to isolate the impact of compensation relative to other factors.

In studies of executives, keeping in mind that some of these same challenges apply (given that performance

is usually defined as firm-level performance), evidence suggests that PFP plan design may influence a wide

range of strategic decisions (Gerhart, 2000), including staffing patterns, diversification, research and devel-

opment investment, capital investment, and reaction to takeover attempts. Likewise, over time, organizational

strategy is more likely to change when (executive) pay strategy changes (Carpenter, 2000). Thus, there is

consistent evidence that pay strategy does influence managerial goal choice.

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Sorting Effects

After reading the studies reviewed above, the reader would be well aware of the incentive mechanism, but

quite possibly unaware of the sorting mechanism as a possible explanation for the observed effects. As not-

ed, to the extent the above studies track the same individuals before and after the intervention, they do in-

deed estimate incentive effects. However, to the degree the individuals making up the workforce changed in

response to a PFP intervention, then at least some of the improvement in performance might be due to a

sorting effect. Lazear (2000), for example, reported a 44% increase in productivity when a glass installation

company switched from salaries to individual incentives. Of this increase, roughly 50% was due to existing

workers increasing their productivity, while the other 50% was attributable to less productive workers quitting

and being replaced by more productive workers over time.

Cadsby et al. (2007) likewise found that both incentive and sorting effects explained the positive impact of

PFP on productivity. Their study, set in the laboratory, was designed so that subjects went through multiple

rounds. In some rounds, subjects were assigned to a PFP plan, while in other rounds they were assigned to

work under a fixed salary plan. In yet other rounds, they were asked to choose either the fixed salary or the

PFP plan to work under (i.e., they were asked to self-select). Cadsby et al. found that by the last rounds in

their experiment, the PFP condition generated 38% higher performance than the fixed salary condition and

that the sorting effect (less risk averse and more productive subjects being more likely to select the PFP con-

dition) was actually about twice as large as the incentive effect in accounting for this 38% difference. In ex-

plaining why they found a sorting effect that was larger than that found by Lazear (which was also substantial),

Cadsby et al. observe that in the Lazear study, few employees chose to leave the organization, presumably

because there was no downside risk to the PFPplan implemented there. Thus, most of the sorting effect in

the Lazear study was probably attributable to new hires being more productive than current employees on av-

erage, without much of the sorting effect being due to lower performing employees leaving the organization.

Evidence suggests that PFP is more attractive to higher performers than to lower performers. For example,

Trank and her colleagues (2002) found that the highest-achieving college students place considerably more

importance on being paid for performance than do their lesser-achieving counterparts. Likewise, persons with

higher need for achievement (Bretz et al., 1989; Turban and Keon, 1993), and lower risk aversion (Cadsby

et al., 2007; Cable and Judge, 1994) also prefer jobs where pay is linked more closely to performance. Since

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these are all characteristics that some or most employers desire, such individual differences are important

for employers to keep in mind. Other research shows that high performers are most likely to quit and seek

other employment if their performance is not sufficiently recognized with financial rewards (Salamin and Hom,

2005; Trevor et al., 1997). Conversely, low performers are more likely to stay with an employer when pay-per-

formance relationships are weaker (Harrison et al., 1996).

Finally, to the degree that sorting effects are important, they may make it appear as though the relationship

between pay and performance is weaker than it really is (Gerhart and Rynes, 2003). For example, to the

degree that organizations are selective and valid in their decisions regarding who to hire and who to retain,

the remaining group of employees will be unrepresentative in that their average performance level should in-

crease as selectivity and validity increase (Boudreau and Berger, 1985). So, even if there is little observed

variance in performance and/or pay within this group (i.e., there is range restriction), this selected group of

employees may have above market pay and above market performance. Thus, in this example, there is no

(observed) relationship between pay and performance within the firm, but there would be a significant rela-

tionship between pay and performance between firms. Similarly, on the employee side of the decision, it may

be that high performers self-select such that they are more likely to join and remain with organizations that

have PFP. In summary, even when there is little observed variance in performance ratings and/or pay within

an organization, it may nevertheless be the case that PFP, via sorting effects, have resulted in major differ-

ences in performance between organizations.

The Challenge of Defining and Measuring Performance

A limitation of the meta-analytic evidence reviewed earlier on the effects of PFPis that in most of the included

studies, physical output measures of performance (e.g., number of index cards sorted, number of trees plant-

ed) were available, (and related to this) tasks were simple, and individual contributions were usually separa-

ble (Gerhart and

Rynes, 2003).

In contrast, in many jobs, some or all of these three characteristics do not apply (Lawler, 1971). The wide-

spread use of merit pay and its subjective performance measures, is to an extent, a result of this fact

(Milkovich and Wigdor, 1991). While this mismatch is recognized in the applied psychology literature, there

remains little work that uses strong research designs to study more widely used individual-oriented PFP plans

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such as merit pay (Heneman, 1992) or hybrids of different PFP programs (Gerhart and Rynes, 2003). The

economics literature is also coming to grips with the performance measurement challenge, acknowledging

that there has been a tendency in discussions of incentives to assume that performance can be ‘easily mea-

sured’ (Gibbons, 1998: 118) and that, as a result, ‘economists have tended to place excessive focus on the

contracts of workers for whom output measures are easily observed’ despite the fact that ‘most people don’t

work in jobs like these’ (Prendergast, 1999: 57).

Returning to Table 13.2, recall that performance measures vary in at least two respects. First, as emphasized

in agency theory, they can be results-oriented (e.g., number of units produced) behavior-oriented (e.g., su-

pervisory evaluations of effort or quality)? Second, performance can focus on individual or collective contribu-

tions.

Among the potential advantages of behavior-oriented measures are that they (Gerhart, 2000), can be used for

any type of job, permit the rater to factor in variables that are not under the employee’s control (but that nev-

ertheless influence performance), thus reducing the risk-sharing concerns identified in agency theory. They

also allow a focus on whether results are achieved using acceptable means and behaviors, carry less risk

of measurement deficiency, or the possibility that employees will focus only on explicitly measured tasks or

results at the expense of other objectives. On the other hand, the subjectivity/measurement error of behav-

ior-oriented measures (for a review, see Viswesvaran et al., 1996) can make it more difficult for organizations

to justify differentiating between employees (Milkovich and Wigdor, 1991) using stronger incentive intensity

(Milgrom and Roberts, 1992), unless steps are taken to improve reliability and credibility (e.g., using multiple

raters, Viswesvaran et al., 1996). Managers may also have disincentives to differentiate (Murphy and Cleve-

land, 1995).

Results-oriented measures (e.g., productivity, sales volume, shareholder return, profitability), while more ob-

jective and thus often more credible to employees as a basis for differentiation, and thus more typically used

to provide more powerful incentives, also have potential drawbacks. As noted, relevant objective measures

are not available for most jobs, especially at the individual level. Moreover, as also noted, agency theory em-

phasizes that results-based plans (e.g., individual incentives, gainsharing, profit-sharing) increase risk-bear-

ing among employees (Gibbons, 1998). Poor performance on such measures (and thus decreasing or dis-

appearing payouts), especially if attributed to factors employees see as beyond their own control (e.g., poor

decisions by top executives), tend to result in negative employee reactions, often resulting in pressure to ei-

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ther revise the plan in a way that weakens incentives (Gerhart, 2001) or to abandon the plan (e.g., Petty et al.,

1992). Finally, narrowly defined results-oriented measures may result in some aspects of performance being

ignored and undesirable means used to maximize incentive payouts.

Performance measures also vary according to whether they emphasize individual or group (or collective) per-

formance. Incentive effects (in terms of instrumentality perceptions) are generally stronger under individual

performance plans (Schwab, 1973). Also, positive sorting effects may be realized as the most productive and

achievement-oriented employees appear to prefer or gravitate to such plans (e.g., Bretz et al., 1989; Lazear,

1986; Trank et al., 2002; Trevor et al., 1997). On the other hand, too much focus on individual performance

may undermine cooperation and teamwork, which are widely viewed as increasingly important in gaining com-

petitive advantage through people (Deming, 1986; Pfeffer, 1998).

However, using group-based incentives creates other challenges, not only with respect to sorting effects, but

also incentive effects, especially in anything but small groups: ‘Unless the number of individuals in a group is

quite small, or unless there is coercion or some other special device to make individuals act in their common

interest, rational self-interested individuals will not act to achieve their common or group interests’ (Olson,

1965: 1–2, emphasis in the original). Theory and research across fields (e.g., variously described as the com-

mon-resource problem, public-goods problem, free-rider problem, or social loafing problem) has identified a

fundamental challenge in using group incentives (Gerhart and Rynes, 2003; Kidwell and Bennett, 1993); when

people share the obligation to provide a resource (e.g., effort), it will be undersupplied because the residual

returns (e.g., profit sharing payouts) to the effort are often shared relatively equally, rather than distributed in

proportion to contributions.

In summary, performance measures must have a meaningful link to what the organization is trying to accom-

plish, be sufficiently inclusive of key aspects of performance, balance sometimes competing objectives, and

be seen as fair and credible by employees. Organizations often attempt to achieve these goals by using multi-

ple measures of performance, aggregate and individual, results and behavior-oriented (e.g., as in a Balanced

Scorecard), and adjusting incentive intensity, to an important extent, based on the degree to which valid and

credible performance measurement is believed to be achievable. The main constraint on using multiple mea-

sures is the complexity introduced and the risk that this will work against employees’ understanding of the

plan and, thus, their motivation. Indeed, even among executives, understanding and the perceived value of

stock options appears to diverge from that provided by standard financial models (Devers et al., 2007).

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Cautions and Pitfalls

Any discussion of PFP ‘must consider whether the potential for impressive gains in performance’ from such

plans is ‘likely to outweigh the potential problems, which can be serious’ (Gerhart, 2001: 222). Indeed, using

such plans, perhaps especially so when combined with strong incentive intensity, has been described as ‘a

high risk, high reward strategy’ (Gerhart et al., 1996: 222).

Of course, there are risks in choosing a high pay level as well, especially if it’s not linked to high performance.

In a global world, contracts (implicit or explicit) between organizations and employees that were once good for

both may no longer beviable for one or both parties. This change may occur over time (e.g., the automobile

industry in the US and Europe), leading to either changes in the employment contract (lower wages/benefits

and/or more productivity/flexibility in tasks/hours) or a change in the location of production to a lower-cost part

of the country or the world. In the absence of either or both changes in response to changing competitive

conditions, market share and profitability, and ultimately survival, are put at risk.

Returning to the risks in using PFP, several issues can come into play. First, PFP may not be implemented

with sufficient strength. It may exist as a stated policy, but not as a meaningful practice experienced by em-

ployees. Even where (e.g., in the United States) most private sector organizations tend to claim that they

have PFP policies (or researchers claim that they are studying PFP policies), there is, in fact, sometimes

little meaningful empirical relationship between pay and performance (Gerhart and Milkovich, 1992; Gerhart

and Rynes, 2003; Trevor et al., 1997). In the case of merit pay, for example, two factors that often weaken

its strength are lack of differentiation in performance ratings and lack of differentiation in pay increases even

when performance ratings do vary. Not surprisingly then, when employees are asked about how much PFP

there is in their own organizations, they tend to say ‘not very much.’ In a survey of employees in 335 com-

panies conducted by the Hay Group (2002), employees were asked whether they agreed with the statement,

‘If my performance improves, I will receive better compensation’. Only 35% agreed, whereas 27% neither

agreed nor disagreed, and 38% disagreed with this statement.

A second potential problem, somewhat ironically, is that the implementation of PFP may sometimes ‘work’

too well. Here, the danger is that a PFP program can act as a blunt instrument that may result in unintended

and harmful consequences. Successful organizations must balance multiple objectives (e.g., customer rela-

tionships and long-term earnings against short-term opportunistic earnings). In designing an incentive plan

to support this balance, it must be kept in mind that people tend to do what is rewarded and objectives not

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rewarded tend to be ignored. Lawler (1971: 171) warned that ‘it is quite difficult to establish criteria that are

both measurable quantitatively and inclusive of all the important job behaviors,’ and ‘if an employee is not

evaluated in terms of an activity, he will not be motivated to perform it.’ Based on their laboratory study, Wright

et al. (1993) concluded that ‘When individuals are committed to difficult goals, they may strive to achieve

these goals at the expense of the performance of other behaviors that are necessary for organizational effec-

tiveness’ (p. 129). Prendergast (1999: 8) likewise argues that ‘Contracts offering incentives can give rise to

dysfunctional behavioral responses, whereby agents emphasize only those aspects of performance that are

rewarded.’ Milgrom and Roberts (1992: 228) refer to this as the equal compensation principle: ‘If an employ-

ee’s allocation of time or attention between two different activities cannot be monitored by the employer, then

either the marginal rates of return to the employee must be equal, or the activity with the lower marginal rate

of return receives no time or attention.’

How long a PFP plan remains in place is sometimes used as a measure of its success. While a short-term

gain in performance from a pay plan that does not last long should not be dismissed, it is nevertheless useful

to keep in mind that, in a fair number of cases, such plans do not last long (Gerhart et al., 1996). For example,

Beer and Cannon’s analysis (2004) of 13 PFP ‘experiments’ conducted at Hewlett-Packard in the mid-1990s

found that, in 12 of the 13 cases, the program did not survive.

All else equal, a plan that generates longer-term performance gains is preferred and changing plans too

often can result in a counterproductive ‘flavor-of-the-month’ perception among employees (Beer and Cannon,

2004). Data on survival rates is also important for drawing statistical conclusions (Gerhart et al., 1996). Plans

that survive for short periods are more likely to be excluded from studies of pay plan effectiveness, thus re-

sulting in the plans included in the sample looking more effective than they really are in the full population.

While the risks of PFP programs must be acknowledged and understood, the ‘high reward’ aspect of ‘high

risk, high reward’ means that not making sufficient use of PFP can put an organization at risk in a different

way in terms of its competitiveness. Second, PFP programs can be one critical piece in a strategy to change

the culture of an organization, especially if there is sufficient hiring and turnover to allow sorting effects to

change workforce composition. In the case of a start-up company or location, PFP and other aspects of com-

pensation and HR can be used to set the cultural tone and achieve fit from the beginning.

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Alignment and Contextual Factors

In view of the challenges in designing and implementing PFP plans, it is useful to consider how contextual

factors might affect whether a PFP plan is likely to be successful. The preceding discussion regarding chal-

lenges in measuring performance has begun to take us down that path. A further discussion of contextual

factors and alignment follows below.

Alignment

Terms such as alignment, synergy, fit, and complimentarity describe the idea that the effects of two or more

factors are non additive and dependent on contextual factors.9 According to Milgrom and Roberts (1992:

108): ‘Several activities are mutually complementary if doing more of any activity increases (or at least does

not decrease) the marginal profitability of any other activity in the group’ (p. 108). They then propose a more

string ent definition: ‘a group of activities is strongly complementary when raising the levels of a subset of

activities in the group greatly increases the returns to raising the levels of the other activities’ (p. 109). An

example given by Gerhart and Rynes (2003) is where a gainsharing program alone results in an average per-

formance increase of 10%, while a suggestion system alone results in an average performance increase of

10%. However, when used in combination, their total effect is not additive (i.e., 20%), but is rather non-addi-

tive (e.g., 30%). So, the effect of the gainsharing program is contingent on a contextual factor, in this case,

another aspect of HR (Gerhart and Rynes, 2003).

There are two general classes of contingency factors: person and situation. Our earlier discussion of sorting

effects highlighted some of the relevant person factors (e.g., risk aversion, need for achievement, academic

performance) that predict preference for PFP. In addition, other person characteristics may predict prefer-

ences for particular types of PFP. For example, Cable and Judge (1994) found that individual-based PFP was

preferred, on average, by those with high self-efficacy, but as might be expected, less preferred, on average,

by those scoring high on collectivism.

There are three key aspects of pay strategy alignment or fit that focus on the situation or environmental

context (Gerhart, 2000; Gerhart and Rynes, 2003): horizontal alignment (between pay strategy and other di-

mensions of HR management, as in the gain-sharing example above), vertical alignment with organizational

strategy (i.e., corporate and business strategy), and internal alignment between different dimensions of pay

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strategy (e.g., pay level and pay basis). Only a brief review is provided here. (For more detail, see Gerhart,

2000; Gerhart and Rynes, 2003; Gomez-Mejia and Balkin, 1992; Milkovich, 1988).

The primary focus of the pay strategy literature has been on vertical alignment. Aspects of corporate strategy

such as the process, degree and type of diversification (Kerr, 1985; Gomez-Mejia, 1992; Pitts, 1976) and the

firm’s life cycle (e.g., growth, maintenance), (Ellig, 1981) are associated with different compensation strate-

gies (Gomez-Mejia and Balkin, 1992; Kroumova and Sesis, 2006; Yanadori and Marler, 2006). Evidence also

suggests performance differences based on fit such that growth firms do perform better with an incentive-

based strategy (Balkin and Gomez-Mejia, 1987) and that the effectiveness of an incentive-based strategy

depends to a degree on the level of diversification (Gomez-Mejia, 1992). Alignment of pay strategy with busi-

ness strategy (e.g., Porter, 1985; Miles and Snow, 1978) may also have performance consequences (e.g.,

Rajagopolan, 1996). Another developing stream of work on non-executives at the business unit level focuses

on the alignment between pay strategy and manufacturing strategy (Shawetal., 2002; Snell and Dean, 1994).

Finally, as noted previously, consistent with agency theory, companies having more financial risk tend to have

less risk-sharing in their compensation for managers and executives (Aggarwal and Samwick, 1999; Bloom

and Milkovich, 1998; Garen, 1994). Thus, both the risk aversion of the individual and risk properties of the

situation are relevant (Wiseman et al., 2000).

Turning to the role of pay level in vertical alignment, as noted earlier, the potential benefits of high wages may

be more important in some firms than in others. Higher pay levels, either for the organization as a whole or for

critical jobs, may be well-suited to particular strategies, such as higher value-added customer segments. The

key work recognizing that firms differ in their choice of low road versus high road HR systems, even within

narrow industries, has been conducted by Hunter (2000) in health care and Batt (2001) in telecommunica-

tions. Batt, for example, reported that firms having a focus on large-business customers paid 68% higher than

firms with no dominant customer focus and that most of this higher pay was due to hiring workers with higher

levels of human capital. Similarly, evidence suggests that organizations making greater use of so-called high

performance work practices (teams, quality circles, total quality management, job rotation) also pay higher

wages (Osterman, 2006).

Boxall and Purcell (2003: 68) provide a nice summary, which only needs to be amended with the important

observation that, as we have just seen, the value-added created may differ within sectors according to firm

differences in strategy:

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Overall, research suggests that the sort of HR practices that foster high commitment from talented

employees are most popular in those sectors where quality is a major competitive factor and where

firms need to exploit advanced technology (as in complex manufacturing) or engage in a highly

skilled interaction with clients (as in professional services). In these sorts of higher value-added sec-

tors, firms need more competence and loyalty from their employees and are more able to pay for

them. In sectors where these conditions are not met—where output per employee is not high—em-

ployers adopt more modest employment policies.

In contrast to the work on vertical alignment, horizontal alignment of pay strategy with other employment prac-

tices has been studied, mostly using non-executive employees and mostly in the context of work on so-called

high-performance work systems and HR systems. The effect of an HR system on effectiveness is thought to

operate, as noted earlier, via the intervening variables of ability, motivation, and opportunity, or AMO (Appel-

baum et al., 2000; Batt, 2002; Boxall and Purcell, 2003; Gerhart, 2007). One problem with studying horizontal

fit, however, is that the hypothesized role of pay and/or PFP, as well as the way these constructs are oper-

ationalized, tends to differ across studies, making it difficult to draw robust conclusions about what other HR

strategy elements work best with particular pay and PFP approaches (Becker and Gerhart, 1996; Gerhart and

Rynes, 2003).

Nevertheless, certain potential areas of fit and mis-fit can be identified (Gerhart and Rynes, 2003; Rynes et

al., 2005). For instance, with respect to the ‘O’ component, it seems likely that group-based incentive plans

(e.g., gainsharing, profit sharing, stock options) will be more effective in smaller groups (Kaufman, 1992;

Kruse, 1993) than in larger groups or organizations. In addition, in situations where work is more interdepen-

dent, it may be that some shift in emphasis from individual performance to group performance will be more

effective (e.g., Shaw et al., 2002). Nevertheless, it must be kept in mind that even where tasks are interde-

pendent, if there are individual differences in ability and/or performance that are important, then placing too

little weight on individual performance in compensation can lead to undesired sorting effects, such that high

performers may not join or remain with the group or organization.

The issue of horizontal alignment can also be approached more broadly. Although compensation is extremely

important in motivation and effectiveness, it is important to continue to keep in mind that compensation is part

of a broader employment relationship, broader than some of the contract notions we have discussed, which

center on the compensation aspect. The literature on HR systems (e.g., the AMO framework) conveys this

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broader view as does work on psychological contracts (e.g, Rousseau and Ho, 2000; Tsui et al., 1997). Like-

wise, earlier work by Herbert Simon (1957), for example, viewed employment as a relationship where mutual

(longer-term) obligations on the part of the employee and employer could be efficient. The hope is that an

organization will obtain the ‘consummate cooperation’ of employees, ‘an affirmative job attitude [that] includes

the use of judgment, filling gaps, and taking initiative’ (Williamson et al., 1975: 266). Organizations often seek

to support this objective through employee ownership. For example, roughly one-half of the publicly traded

companies on the 100 Best Companies to Work For list offer stock options to all or nearly all employees (For-

tune, 1999: 126).

The third area of fit, internal alignment, has been the least studied. The work of Gomez-Mejia and Balkin

(1992) has sought to identify overarching compensation strategies, but more work is needed to document

which aspects of pay tend to cluster together in organizations and whether certain clusters are more effective

and/or what contingency factors are most important. In any event, the modest evidence that exists concern-

ing the degree of actual alignment between pay and other HR strategy dimensions suggests that there is less

alignment than one might wish (Wright et al., 2001).

Although it could be included as a part of vertical alignment, another type of alignment that is important is that

between pay strategy and country. Countries differ on a multitude of dimensions that can affect management

practice (Dowling et al., forthcoming), including the regulatory environment (e.g., requirements for worker par-

ticipation in firm governance), institutional environment (e.g., strength of labor unions, accepted HR practices

in areas like compensation), and cultural values (e.g., Hofstede’s (1980) dimensions of individualism/collec-

tivism, long-term orientation, masculinity-femininity, power distance, and uncertainty avoidance). As such, a

good deal of attention has been devoted to the constraints that organizations face when it comes to choosing

which HR and pay strategies (a) can be implemented, and (b) if able to be implemented, which will be effec-

tive. Thus, organizations must decide how best to balance standardization and localization in designing HR

and pay practices.

While practices that are effective in one country are not necessarily going to be effective or even feasible in

another country (due, for example, to legal or strong institutionalized traditions) one should be careful not to

give too much weight to contingency factors generally, including country. For example, in the case of the five

cultural values dimensions made famous by Hofstede (1980, 2001), evidence shows that country actually ex-

plains only a small percentage of variance in individual employee cultural values (Gerhart and Fang, 2005).

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There is good reason to believe that organizations have considerable room to be different from the country

norm in many countries in at least some key areas of HR (Gerhart and Fang, 2005) and pay strategy (Bloom

and Milkovich, 1999).

Also, country norms as they relate to HR and pay strategy can and do change. As mentioned earlier, one

example, is executive compensation. Countries like Germany, South Korea, and Japan changed from essen-

tially no use of long-term incentives (e.g., stock options, stock grants) for top executives in 1998 to substantial

use by 2005 (Towers Perrin, 2006). Another example mentioned earlier is the significant change in South

Korea (Choi, 2004) and in Japan (Morris et al., 2006; Jung and Cheon, 2006; Robinson and Shimizu, 2006)

away from seniority-based pay toward PFP. A third example is the dramatic decline in private sector unionism

in the United States, which stands at 7.4% of the workforce in 2006. A fourth example is the decentraliza-

tion (e.g., from industry to firm or plant level) of collective bargaining in many parts of the world (Katz et al.,

2004). Finally, in their multi-country study, Katz and Darbishire (2002) highlight what they call ‘converging di-

vergences,’ to indicate that there is a set of multiple employment/HR system models shared across countries,

with the multiple and different models existing in each country to varying degrees.

Thus, it is important to recognize not only institutional pressures toward conformity in a country, but also that,

at least in some respects, depending on the country, the timeframe, and the particular policy, there can be

room to be unique and the strategy literature tells us that being the same as everyone else is unlikely to

generate anything more than competitive parity, whereas being different, while perhaps being more risk, has

the potential to generate sustained competitive advantage (e.g., the resource based view of the firm; Barney,

1991). Some work has been done addressing how the RBV is relevant to HR strategy broadly (Becker and

Gerhart, 1996; Colbert, 2004; Barney and Wright, 1998), but beyond Gerhart et al. (1996) there has not been

much application to pay strategy.

Turning to methodology, a challenge in studying contextual or contingent effects is that if only firms and units

that achieve some minimal level of alignment survive (Hannan and Freeman, 1977), alignment may be so

important that it is almost impossible for the researcher to observe substantial departures from alignment

(Gerhart et al., 1996; Gerhart and Rynes, 2003). In this case, restricted range in alignment would reduce the

statistical power available to observe a relationship between alignment and performance. This may help ex-

plain why the idea of fit, while often thought to be critical, has not received as strong support as might be

expected in HR research broadly and in the area of compensation, specifically (Gerhart et al., 1996; Gerhart,

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2007; Wright and Sherman, 1999).

Finally, although fit is typically seen as an important goal, this should perhaps be tempered by the possibility

that fit can be a double-edged sword when it comes to compensation and HR systems. Gerhart et al. (1996)

pointed out that the system (and resulting workforce) that fits the current business strategy may quickly be-

come a poor fit if the business strategy changes. A less tightly aligned set of HR practices, where bets were

hedged, might make a successful adaptation more likely. As Boxall and Purcell (2003: 56) put it: ‘In a chang-

ing environment, there is always a strategic tension between performing in the present context and preparing

for the future.’ Perhaps in recognition of the limitations of static vertical fit, some recent work on HR systems

emphasizes the importance of agility in HR systems and strategy (Dyer and Shafer, 1999) and relatedly, of

flexibility (Wright and Snell, 1998), or what might be seen as a capability for achieving dynamic fit. As a key

part of an HR system, compensation must then be evaluated on an ongoing basis to consider its contribution

to flexibility. Some examples of compensation programs that are seen as promoting flexibility are skill-based

and competency-based pay, as well as broadbands (in place of more detailed pay grades).

Conclusion

Compensation involves decisions in multiple areas. My focus in this chapter has been on PFP and, to a lesser

extent, pay level. I provided an overview of some of the most important theoretical approaches in under-

standing the potential impact of compensation decisions on performance. I have highlighted the potential for

well-designed PFP plans to make a substantial contribution to organization performance through effects on

intervening mechanisms such as incentive and sorting. I have also noted the potential for PFP plans to cause

serious problems, often as a result of unintended consequences. To an important extent, these unintended

consequences stem from the difficulty in specifying and measuring performance, a challenge that is perhaps

often overlooked and/or underestimated in the literature on PFP.

I suggested that the probability of success of PFP plans might be improved by effective alignment with con-

textual factors such as organization and human resource strategy. However, no matter how well thought-out

and planned, the fact remains that the stronger the incentive intensity, the greater not only their potential pos-

itive impact, but also their potential to have a negative impact. At the same time, the risk of having strong

incentives must be balanced against the risk that using weaker incentives will miss the opportunity to help

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drive stronger performance. In closing, I note that firms achieve success by taking different paths, which vary

both in terms of how much they pay and how they pay, including how strong incentives they use.

Notes

1 Even in an environment where there is little discretion in compensation policy and practice (e.g., because

of legal and institutional forces within a particular country), an organization can often obtain greater discretion

by expanding its business in a different environment (e.g., a different industry, a different country, etc.) that

permits greater discretion in policy and practice.

2 Benefits represent a substantial share of compensation cost to employers in the US, for example, given that

many (especially larger) companies fund retirement and health care for employees.

3 Compensation can be defined to include non-monetary rewards as well. Both monetary and non-monetary

rewards are important in the workplace. For a review of the importance of monetary and non-monetary re-

wards in the workplace, see Rynes et al. (2004). However, monetary compensation is unique among rewards

in the following respects (Gerhart and Rynes, 2003; Lawler, 1971; Rottenberg, 1956). First, compensation is

one of the most visible aspects of a job to both current employees and job seekers. Second, unlike some

other job characteristics (e.g., job responsibility, working in teams), most people prefer more money to less.

Third, money can be instrumental for meeting a wide array of needs, including economic consumption, self-

esteem, status, and feedback regarding achievement. Given the central importance of monetary compensa-

tion, as well as limits on what can be covered in a single chapter, the main focus here is on pay or monetary

rewards.

4 A strict, traditional, neoclassical economics view would find the notion that employers (at least within a par-

ticular market) have a choice when it comes to pay level to be misguided, because the forces of supply and

demand yield, in the long run, a single going/market wage that all employers must pay to avoid too high costs

in the product market on the one hand and the inability to attract and retain a sufficient quantity and quality of

workers in the labor market on the other. The only way that an employer could pay higher wages than other

employers would be if better quality workers were hired. In that case, the ratio of worker quality to cost would

be unchanged, meaning both that the apparent difference in pay levels was not real, disappearing upon ap-

propriate adjustment for worker quality and that employers would not necessarily realize any advantage from

using a high wage, high worker quality strategy. However, evidence of persistent and arguably non-illusory

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differences in compensation levels (see Gerhart and Rynes, 2003 for a review) between companies operating

in the same market has resulted in greater attention to why such differences exist and more general acknowl-

edgment, including in economics (Boyer and Smith, 2001), recognition that employers have some discretion

in their choice of pay level. In response, efficiency wage theory provides an economics-based rationale for

why some firms may benefit from higher (lower) wages.

5 This idea is similar to Karl Marx’s concept of the ‘reserve army’ of unemployed being used by employers to

keep their workforces in line.

6 This section draws freely on Gerhart (2007).

7 This section draws freely on Gerhart (2008).

8 The d statistic is defined as the difference between the dependent variable mean for Group A versus Group

B, divided by the pooled standard deviation of Groups A and B. Thus, it gives the difference between Group

A and B in terms of standard deviation units.

9 This section draws freely on Gerhart and Rynes (2003).

BarryGerhart

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• pay for performance

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• staff

• agency theory

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• human resource strategy

• executive compensation

https://doi.org/10.4135/9780857021496

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SAGE Reference

The SAGE Handbook of Human Resource

Management

Author: Filip Lievens, Derek Chapman

Pub. Date: 2010

Product: SAGE Reference

DOI:

https://doi.org/10.4135/9780857021496

Keywords: recruiting, turban, criterion-related validity, research staff, personality inventories, employee

selection, job choice

Disciplines: Human Resource Management (general), Human Resource Management, Business &

Management

Access Date: March 2, 2023

Publishing Company: SAGE Publications Ltd

City: London

Online ISBN: 9780857021496

© 2010 SAGE Publications Ltd All Rights Reserved.

Retrieved from https://sk-sagepub-com.ezproxy.umgc.edu/reference/hdbk_humanresourcemgmt/n9.xml

Recruitment and Selection

Recruitment and Selection

Few people question that recruitment and selection are key strategic domains in HRM. At the same time,

recruitment and selection also have an image problem. First, recruitment and selection are often viewed as

‘old’ ingrained HRM domains. It seems like the traditional recruitment and selection procedures have been

around for decades, which is at odds with the ever changing internal and external environment of organiza-

tions. Hence, practitioners often wonder whether there are any new research-based ways for recruiting and

selecting personnel. Another image problem for recruitment and selection is that a false dichotomy is often

created between so-called macro HR (examining HR systems more broadly) and micro HR (examining in-

dividual differences). It is further sometimes argued that organizations should value macro approaches and

write off micro approaches as not being relevant to the business world. We posit that these image problems

and debates only serve to distract and fracture the field and hide the fact that excellent HR research and

practice needs to take both macro and micro issues into consideration. For example, creating an effective

recruiting strategy (some would describe this as a macro process) requires considerable understanding of the

decision making processes of potential applicants (viewed as micro processes). The same can be said with

respect to designing effective selection systems, etc.

The challenge for many researchers then has been to demonstrate how scientifically derived recruiting and

selection practices add value to organizations. Unfortunately, when the quality and impact of recruitment and

selection procedures for business outcomes are investigated, they are often described in rather simplistic

terms. For example, in large-scale HR surveys (e.g., Becker and Huselid, 1998; Huselid, 1995; Wright et al.,

2001, 2005) ‘sound’ selection practice is often equated with whether or not formal tests were administered or

whether or not structured interviews were used. Similarly, effective recruitment is associated with the number

of qualified applicants for positions most frequently hired by the firm. Although such questions tackle impor-

tant aspects of recruitment and selection we also feel that such descriptions do not capture the sophisticated

level that recruitment and selection research and practice has attained in recent years. This oversimplifica-

tion in large-scale HR surveys is understandable due to the difficulty of getting usable survey data across a

diverse set of companies. However, the goal of demonstrating the utility of recruiting and selection systems

may be undermined by this practice and risks setting the field back if the results are interpreted out of context.

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In light of these issues, the aim of this chapter is to highlight key new research developments in recruitment

and selection. The general theme of this chapter is: ‘Which new research developments in recruitment and

selection have occurred that advance recruitment and selection practice?’ In terms of time period, our review

primarily focuses on developments between 2000 and 2007. Given the huge volume of work published during

this time frame we do not aim to be exhaustive. Instead, we aim to cover broad themes and trends that in our

opinion have changed the field.

Overview of Key Research Findings in Personnel Recruitment

In this section, we review recent developments in the field of recruiting since 2000. For an excellent and

comprehensive review of earlier recruiting research, we recommend Barber (1998) or Breaugh and Starke

(2000). Tight labor markets in North America have helped fuel interest in recruiting research and considerable

progress has been made in the recruiting field over the past seven years. As noted above, we especially fo-

cus on research that has practical implications for organizations.

The Impact of Technology on Recruiting

Organizations have had to adjust to the new reality of online recruiting. These technologies have created both

problems and opportunities for organizations. Organizations can significantly reduce costs to advertise posi-

tions by using third party job boards (e.g., http://Monster.com) or through company websites. The inexpensive

nature of online recruiting permits the conveyance of large amounts of information to potential applicants at a

minimal cost relative to traditional advertising venues such as newspapers. Media content can be substantial-

ly richer, including graphics, photos, interactive text, and video (Allen et al., 2004). The potential also exists

for the immediate tailoring of recruiting information to target the needs of prospective applicants (e.g., Dineen

et al., 2002, 2007). For example, after completing a needs questionnaire online, a prospective applicant could

conceivably be provided with targeted information about the organization, its benefit programs, and opportuni-

ties that addresses their individual needs. Along these lines, Dineen et al. (2007) discovered that customized

information about likely fit (combined with good web aesthetics) decreased viewing time and recall of lowfit-

ting individuals, suggesting a means to avoid these individuals of being attracted to the organization. Clearly,

customized real-time recruiting approaches are within the realm of existing technologies.

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Despite the benefits and efficiencies of online recruiting, a downside is that many employers complain about

the flood of unqualified applicants that can result from online advertising (Chapman and Webster, 2003). This

deluge of applicants can inflict considerable costs on the organization if the online recruiting process is not ac-

companied by an effective and efficient screening technology. The importance of integrating efficient screen-

ing tools and online recruitment needs to be emphasized to a greater extent in HR practice.

Researchers have also begun to focus more specifically on what makes an effective company website for re-

cruiting purposes (e.g., Cober et al., 2004, 2003; Lee, 2005). Specifically, these authors suggest that web site

content (e.g. cultural information), appearance (e.g., use of colors and pictures) and navigability (e.g. links to

job applications and useable layout) are all important for recruiting purposes. Cober et al. (2003) found that

perceptions of the website aesthetics and usability accounted for 33 per cent of the variance in pursuit inten-

tions and 31 per cent of the variance in recommendation intentions. Clearly, investing resources in web site

aesthetics such as the use of pleasing colors, pictures of smiling employees, and easy to navigate functions

such as direct links to application forms can have appreciable benefits for recruiting. A study of Williamson et

al. (2003) provided another practically important finding. They discovered that setting up a recruiting-orient-

ed web site (instead of a screening-oriented web site) was associated with significantly higher attraction by

prospective applicants.

Applicant Quality as Recruiting Outcome

Traditional recruiting outcomes have been categorized into four major constructs: Job pursuit intentions, or-

ganizational attraction, acceptance intentions, and job choice (Chapman et al., 2005). Breaugh and Starke

(2000) presented a large number of potential organizational goals that recruiters, could strive to reach from

shortening recruiting processing to reducing turnover. More research is emerging on these additional out-

comes. For example, although recruiters have always been concerned about the quality of applicants attract-

ed, few researchers have focused on this area. This area has perhaps become more popular recently due to

the concerns about online applicant quality noted in the technology section. Specifically, Carlson et al. (2002)

argued that assessing the quality of the applicants attracted is a useful tool in assessing the overall utility of

the recruiting/selection system. To this end, they provided a useful assessment framework. This outcome has

become an important focus of recruiting research (e.g., Collins and Han, 2004; Turban and Cable, 2003).

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The Renewed Importance of the Recruiter

A longstanding debate in the recruitment field has examined the role that recruiters play in influencing appli-

cant decisions. Earlier work suggested that recruiters play either no role or a minor one in determining appli-

cant decisions. However, research since 2000 has confirmed that recruiters, in fact, do play a significant role

in applicant job choice (Chapman et al., 2005). In their meta-analytic review, Chapman et al. tested several

models to account for how recruiters influence job choice. Their best fitting model involved job and organiza-

tional characteristics as mediators of recruiter influence on attraction and job choice. In other words, recruiters

appear to influence job choices by changing applicant perceptions of job and organizational characteristics.

Even more importantly, this influence was most pronounced for the best candidates – those with multiple job

offers (Chapman and Webster, 2006).

Ironically, there is little guidance in the selection literature regarding how to identify and select individuals well

suited for recruiting. Early studies showed that applicants pay attention to and are positively influenced by re-

cruiter behaviors such as being informative and expressing warmth (Chapman etal., 2005) but we know little

about individual differences that may be associated with recruiting success. A recent meta analysis demon-

strated that simple demographic factors (e.g., recruiter sex or race) are not good predictors (Chapman et al.,

2005). However, there are potentially many more individual differences such as personality traits and cogni-

tive ability that may predict recruiting outcomes. We believe that more work on individual differences in re-

cruiting success is critical.

Despite the growing role of technology in the recruiting process, most employers and applicants continue to

value an opportunity for face-to-face interaction at some point in the recruitment process. Employers who im-

plement effective technology-based screening practices find that their recruiters are freed up from the manual

sorting of resumes in order to spend more ‘face time’ with qualified candidates. Interestingly, this is the oppo-

site of what most employers fear when they consider implementing online recruiting and screening processes.

Rather than becoming cold, sterile places, they actually have more time to interact with their top prospects to

connote empathy and warmth; exactly the recruiter traits most associated with applicant attraction (Chapman

et al., 2005).

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Organizational Image and Employer Branding

It is clear that applicants consider the image of an organization as an important factor for evaluating em-

ployers. Chapman et al.’s (2005) meta-analysis on organizational image in recruiting found a corrected mean

correlation of 0.50 between image and job pursuit intentions, 0.40 for attraction, and 0.41 for acceptance in-

tentions.

In recent years, a lot of work has emerged on how applicants form images of organizations. One simple

mechanism appears to be familiarity. Applicants are generally more attracted to companies that have name

or brand recognition (Cable and Graham, 2000; Cable and Turban, 2001; Collins and Stevens, 2002; Turban,

2001), although it should be acknowledged that being familiar and having initially negative views of the or-

ganization can have deleterious effects on recruiting outcomes (Brooks et al., 2003). Efforts then to invest in

becoming more recognized within a targeted applicant population are generally likely to prove useful for or-

ganizations. For example, for organizations who recruit primarily on university campuses, sponsoring events

attended by students and advertising broadly within the campus community should increase both familiarity

and attraction.

Beyond brand recognition, Lievens and Highhouse (2003) suggest that in forming images of organization in-

dividuals draw symbolic associations between the organization and themselves. This anthropomorphic ap-

proach to conceptualizing organizational image demonstrated that applicants ascribe human personality traits

such as sincerity, excitement, competence, sophistication, and ruggedness to organizations (Aaker, 1997;

Lievens and Highhouse, 2003). In general, people seem to be more attracted to organizations whose traits

and characteristics are perceived to be similar to their own (e.g., Slaughter et al., 2004). Another approach

to organizational image has focused on the issue of corporate social responsibility (CSR), also termed cor-

porate social performance (CSP). Applicants have been shown to take note of CSR information such as an

organization’s environmental practices, community relations, sponsorship activities, and treatment of women

and minorities (e.g., Aiman-Smith et al., 2001; Backhaus et al., 2002; Turban and Greening, 1997). For in-

stance, Greening and Turban (2000) found that organizational CSP appears to influence the attractiveness

of a company to applicants, such that all four of the CSP dimensions were significantly related to job pursuit

intentions and the probability of accepting both an interview and a job. Aiman-Smith et al. (2001) conducted a

policy-capturing study and found that a company’s ecological rating was the strongest predictor of organiza-

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tional attraction, over and above pay and promotional opportunities. These authors and others (see Greening

and Turban, 2000; Turban and Cable, 2003; Turban and Greening, 1997) suggest that attraction stems from

interpreting company image information as a signal of working conditions – a proxy of ‘organizational values’

– and applicants develop an affective reaction to these signals which may manifest in being attracted to that

organization.

At a practical level, this increased research interest in organizational image is paralleled by the approach of

employer branding (Avery and McKay, 2006; Backhaus and Tikoo, 2004; Cable and Aiman-Smith, 2000; Ca-

ble and Turban, 2003; Lievens, 2007). Employer branding or employer brand management involves promot-

ing, both within and outside the firm, a clear view of what makes a firm different and desirable as an employer.

According to Backhaus and Tikoo (2004), employer branding is essentially a three-step process. First, a firm

develops a concept of what particular value (‘brand equity’) it offers to prospective and current employees.

The second step consists of externally marketing this value proposition to attract the targeted applicant popu-

lation. To this end, early recruitment practices have been found to be particularly useful (Collins and Stevens,

2002). The third step of employer branding involves carrying the brand ‘promise’ made to recruits into the firm

and incorporating it as part of the organizational culture. Recent evidence has shown that a strong employ-

er brand positively affected the pride that individuals expected from organizational membership (Cable and

Turban, 2003), applicant pool quantity and quality (Collins and Han, 2004), and firm performance advantages

over the broad market (Fulmer et al., 2003).

Addressing Aging Populations

Whereas traditional recruiting research has predominantly examined attracting young employees from univer-

sities and colleges, looming demographic realities involving a major shift in the age of employees are forcing

employers and researchers to learn more about attracting and retaining older workers. Information about at-

tracting older workers has just recently begun to emerge. For example, Rau and Adams (2004) examined

the growing area of ‘bridge employment’ whereby older workers seek out a semi-retirement opportunity. This

typically involves part-time employment that can serve to supplement retirement income as well as serve to

fill a variety of social and esteem needs in older workers. Emphasizing equal opportunity for older workers,

flexible schedules, and pro older worker policies have been shown to interact to improve attraction of older

workers (Rau and Adams, 2005). Other suggestions for appealing to older workers include flexible compen-

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sation and benefits programs, and job redesign to accommodate and appeal to older workers (Hedge et al.,

2006). Clearly, more empirical data are needed to test many of the ideas posited for attracting older workers.

Attracting Temporary Workers

One response to staffing highly volatile work demands has been to rely more heavily on temporary workers,

interns, and employment agency employees. This approach represents a significant recruiting challenge as

employers often offer lower pay, few benefits, and little training to these temporary workers as compared

to core employees. There has been little empirical work examining the attraction of temporary employees,

however, research conducted on cooperative education programs shows that temporary employees tend to

be attracted to many of the same organizational and job characteristics as full time employees. Therefore,

employers offering better pay, prestige, locations, and opportunities for advancement are likely to be more

successful in attracting temporary employees. As many of these employees use internships and temporary

work as a stepping stone to full-time employment, employers would benefit considerably from considering

their temporary hires as a potential full-time talent pool and treat them accordingly.

Applicant Reactions to Selection Procedures

Although recruitment and selection are often viewed as separate processes, recent studies are increasingly

showing that the two processes have considerable interactive effects. Negative reactions to selection proce-

dures have been shown to correlate with attraction, intent to pursue, job recommendations, and intentions to

accept a job offer (see meta-analysis of Hausknecht et al., 2004). Applicant reactions are a complex phenom-

enon. For instance, many researchers have emphasized the perceptions of injustice as the primary outcome

of applicant reactions (e.g., Gilliland, 1993; Bauer et al., 2001), whereas others have called for more behav-

ioral outcomes such as effects on attraction and job choice (e.g., Chapman and Webster, 2006; Ryan and

Ployhart, 2000). What is well established is that applicants make inferences about organizations based on

how they are treated during the selection process. In turn, these inferences might influence how attracted they

are to the organization. In designing selection procedures, HR managers should balance their recruiting and

selection needs and pay attention to the potential effects that their selection practices can have on applicant

attraction and job choice.

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Directions for Future Research on Personnel Recruitment

Emphasizing Proactive Approaches

Unlike selection research, which has a rich history of exploring very practical approaches to personnel selec-

tion, recruiting research has tended to focus on more distal predictor-attraction relationships. For example,

we still lack simple descriptive information on the specific recruiting tactics used by employers. As a result,

there is a dearth of research examining the effectiveness of particular recruiting tactics and strategies. The

growing body of research on decision processes should help recruiting researchers make informed predic-

tions about the likely success of these specific tactics and provide potential moderators of these approaches.

Likewise, incorporating and refining theories of persuasion from social psychology in the recruiting context

should provide a rich source of predictions about the crafting of recruitment messages. For instance, studies

incorporating the Elaboration Likelihood Model (ELM) can tell us how to craft recruitment messages that are

effective for busy job fairs or for quiet deliberation of information from a web page (e.g., Jones et al., 2006;

Larsen and Philips, 2002).

Another example of such a proactive recruiting approach might consist of organizations seeking to maximize

fit perceptions in order to enhance attraction. For example, through online assessments it may be possible to

identify that an applicant has higher potential person-job fit than person-organization fit. As a result, a proac-

tive recruiting approach would be to emphasize the benefits for person-job fit for that individual throughout the

recruiting process. This might involve presenting more detailed information to that individual on job character-

istics, tasks, roles, etc. The aforementioned studies of Dineen and colleagues exemplify how such a proactive

and customized fit approach might be accomplished in early (web-based) recruitment stages. These studies

also go beyond the notion off it as be inganatural process whereby applicants self-select into organizations.

Demonstrating value to Organizations

To date, recruiting researchers have largely had to rely on logical arguments to demonstrate the value of re-

cruiting to organizations. For example, utility analyses can demonstrate the theoretical return to the company

of employing an effective recruiting system over a weak recruiting system (e.g., Boudreau and Rynes, 1985).

We can also argue that effective recruiting is necessary in order to generate the types of selection ratios

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needed to make our selection systems more effective (Murphy, 1986). However, we believe that the time has

come for recruiting researchers to capture organizational level outcomes such as firm performance, organi-

zational training costs, and turnover expenditures to more directly demonstrate the utility of recruiting practice

in organizations. Along these lines, Breaugh and Starke (2000) provided a comprehensive framework for ex-

amining the type so frecruiting goals that organizationscan align with their overall corporate strategies. For

example, as a cost-reduction strategy HR departments could design recruiting practices aimed at attracting

experienced employees who need little training, thereby saving training costs. Alternatively, a company em-

phasizing success through teamwork would benefit from recruiting practices that attracted individuals who are

comfortable and motivated in team environments. Recruiting materials then would display photos of employ-

ees engaged in team-based tasks, advertising outlets could include publications that attract a team focused

audience, and benefits and rewards should emphasize rewards for team performance. Other demonstrations

of value to organizations can be seen in an exemplar paper by Highhouse et al. (1999) which showed how

recruiting image information (i.e., an image audit) can be applied to real world recruiting issues (in this case,

the fast food industry). Understanding how your organization is viewed by potential employees is a first and

necessary step toward determining recruiting strategy. Generating effective strategies to address these im-

ages (such as hiring popular students to work in your fast food restaurant in order to attract more students),

can flow from studying these issues empirically.

Disentangling Content from Method

In order to better determine recruiting effects, researchers are urged to design multiple manipulations for var-

ious recruiting tactics. Too frequently, recruiting researchers have single manipulations of information which

makes it difficult to determine whether the approach to recruiting is driving any observed differences or

whether the content of the single manipulation is causing the effects. For example, in designing a study ex-

amining the role of a recruiting tactic, such as comparing the job opening to a competitor’s offering versus a

tactic involving simply providing additional information about the company, researchers should endeavor to

provide several examples of each manipulation so that the content of the manipulation is not confounded with

the tactic. Accordingly, we can gauge the relative effects of the recruiting tactics independent of the job and

organizational content used in the manipulation.

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Focusing on Job Choice

We know a lot less about behavioral outcomes such as actual job choice than we do about attitudinal out-

comes such as attraction, job pursuit intentions, and job acceptance intentions. What is clear from the few

studies examining actual job choice is that our traditional recruiting predictors are much weaker in their pre-

dictions of behaviors then they are of their predictions of attitudes. We need to pay more attention to multiple

outcomes, longitudinal outcomes and behavioral outcomes if we are to provide organizations with information

that will be practical.

Overview of Key Research Findings in Personnel Selection

In this section, we review recent developments with regard to personnel selection. Due to space constraints,

we refer readers to Schmidt and Hunter (1998) and Hough and Oswald (2000) for excellent overviews of the

state-of-the art of personnel selection until 2000. Note too that this section deals only with developments with

respect to predictors (although we acknowledge there have also been substantial developments in the criteri-

on domain).

Rapid Technological Developments in Personnel Selection

In the last decade, the face of personnel selection has changed substantially due to the increased use of

information technology (the internet) for administering, delivering, and scoring tests (Chapman and Webster,

2003). Actually, use of the internet in selection is nowadays a necessity for firms to stay competitive. The

efficiency and consistency of test delivery are some of the key benefits of internet-based selection over com-

puterized selection. Extra cost and time savings occur because neither the employer nor the applicants have

to be present at the same location.

The good news is that research generally lends support to the use of the internet as a way of delivering tests.

Both between-subjects (Ployhart et al., 2003) and within-subjects studies (Potosky and Bobko, 2004) have

provided evidence for the equivalence of internet-based testing vis-à-vis paper- and-pencil testing. For exam-

ple, Potosky and Bobko (2004) found acceptable cross-mode correlations for noncognitive tests. Timed tests,

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however, were an exception. For instance, cross-mode equivalence of a timed spatial reasoning test was as

low as 0.44 (although there were only 30 minutes between the two administrations). As a main explanation,

the loading speed inherent in internet based testing seems to make the test different from its paper-and-pencil

counterpart (Potosky and Bobko, 2004; Richman et al., 1999).

Research with regard to transforming face-to-face interviews to videoconferencing interviews reveals a more

mixed picture. While considerable cost savings are realized from using these technologies, ratings have been

shown to be affected by the media used (e.g., Chapman and Rowe, 2001; Chapman and Webster, 2001). The

increased efficiency of technology mediated interviews (e.g., videoconferencing interviews, telephone inter-

views, interactive voice response telephone interviews) seems also to lead to potential downsides (e.g., less

favorable reactions, loss of potential applicants) as compared to face-to-face interviews, although it should be

mentioned that actual job pursuit behavior was not examined (Chapman et al., 2003).

One of the more controversial technological developments relates to unproctored internet testing. In this type

of testing, a test administrator is absent. Accordingly, unproctored internet testing might lead to candidate

authentication, cheating, and test security concerns. To date, there seems to be relative consensus that un-

proctored testing is best suited for low-stakes selection (Tippins et al., 2006). As a possible solution, some

organizations have moved toward a two-tiered approach whereby unproctored internet-based tests are ad-

ministered for screening purposes only, followed by on site proctored administration of a parallel test for those

passing the online version. Sophisticated verification procedures are then used to examine whether the same

person completed both tests, or alternatively, only the proctorered test is used for final hiring decisions. Other

organizations combine this two-tiered approach with item response and item generation techniques so that

candidates seldom receive the same test items. This requires considerable sophistication as large databases

of questions must be generated and the difficulty level of each item must be determined to ensure parallel

tests are generated each time. Once constructed, however, the organization can reap the benefits of unproc-

tored testing and extend the life of the system by making fraudulent activity less damaging.

The Growing International Face of Personnel Selection

The face of personnel selection has changed not only due to rapid technological developments. The glob-

alization of the economy has also considerably affected personnel selection practice and research. This in-

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ternationalization causes organizations to move beyond national borders, as reflected in international collab-

orations, joint ventures, strategic alliances, mergers, and acquisitions. One well-known HR consequence of

this rapid internationalization is the need to develop selection procedures that can be validly used to predict

expatriate success. Research has a long history here (going back to the Peace Corps studies). One of the

problems is that the selection of people for foreign assignments has traditionally been based solely on job

knowledge and technical competence (Schmitt and Chan, 1998; Sinangil and Ones, 2001). However, a re-

cent meta-analysis of predictors of expatriate success (Mol et al., 2005) revealed that there are many more

possibilities. In this meta-analysis, four of the Big Five personality factors (extraversion, emotional stability,

agreeableness, and conscientiousness), cultural sensitivity, and local language ability were predictive of ex-

patriate job performance. A problem with the large body of research on predictors of expatriate success is

that research has mainly tried to determine a list of (inter) personal factors responsible for expatriate adjust-

ment versus failure (e.g., Mendenhall and Oddou, 1985; Ones and Viswesvaran, 1997; Ronen 1989). Unfor-

tunately, there is little researchon designing a comprehensive selection system to predict expatriate success

in overseas assignments.

Another consequence of the increasing internationalization is the need for selection systems that can be used

across multiple countries while at the same time recognizing local particularities (Schuler et al., 1993). This

is not straightforward as differences across countries in selection procedure usage are substantial. This was

confirmed by a 20-country study of Ryan et al. (1999). Apart from country differences, differences grounded

in cultural values (uncertainty avoidance and power distance) also explained some of the variability in selec-

tion usage. Another large-scale study showed that countries differed considerably in how they valued specific

characteristics to be used in selection (Huo et al., 2002; Von Glinow et al., 2002). Countries such as Australia,

Canada, Germany, and the US assigned great importance to proven work experience in a similar job and

technical skills for deciding whether someone should have the job. Conversely, companies in Japan, South

Korea, and Taiwan placed a relatively low weight on job-related skills. In these countries, people’s innate po-

tential and teamwork skills were much more important. We need more studies to unravel factors that might

explain differential use of selection practices across countries. In addition, we need to know how one can

gain acceptance for specific selection procedures among HR decision makers and candidates. Clearly, this

is complicated due to tensions between corporate requirements of streamlined selection practices and local

desires of customized ones.

A final pressing issue for organizations that use selection procedures in other cultures deals with knowing

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whether a specific selection procedure is transportable to another culture and whether the criterion-related va-

lidity of the selection procedure is generalizable. So far, there is empirical evidence for validity generalization

for cognitive ability tests (Salgado et al., 2003a, b) and personality inventories (Salgado, 1997) as the criteri-

on-related validity of these two predictors generalized across countries. Research dealing with the criterion-

related validity of other selection procedures in an international context is scarce. One exception is a study of

Ployhart et al. (2004) who examined whether the criterion-related validity of various predictors (measures of

team skills, work ethic, commitment, customer focus, and cognitive ability) differed across 10 countries. They

found that criterion-related validity was largely constant across countries and unaffected by culture.

Unfortunately, no studies have examined conditions that predict when the criterion-related validity of selection

procedures will generalize across countries. Along these lines, Lievens (2008) highlighted among others the

importance of matching predictor and criteria in an international context. The importance of predictor-criteria

matching can be illustrated with assessment center exercises. The dimensions and exercises that are typ-

ically used in assessment centers in North America and Europe might be less relevant in other countries.

Perhaps, in a high power distance culture, candidates are extremely uncomfortable engaging in role-plays.

This does not imply that such exercises will be invalid in these cultures. The question is: Are these exer-

cises indeed relevant for the criterion domain that one tries to predict in these cultures? Empirical research

supports this logic. Lievens et al. (2003) examined whether two assessment center exercises were valid pre-

dictors of European executives’ training performance in Japan. They found that a group discussion exercise

was a powerful predictor of future performance as rated by Japanese supervisors later on. The presentation

exercise, however, was not a valid predictor. According to Lievens et al. (2003), one explanation is that the

group discussion exercise reflected the Japanese team-based decision making culture.

Another hypothesis put forth by Lievens (2008) is that the predictor constructs (especially cognitive ability) will

often be very similar across cultures, but that the behavioral content and measurement of these predictors

will vary across cultures. For example, Schmit et al. (2000) developed a global personality inventory with

input from a panel of 70 experts around the world. Although all experts wrote items in their own language

for the constructs as defined in their own language, construct validity studies provided support for the same

underlying structure of the global personality inventory across countries. This might also mean that ratings

in non-personality situations such as assessment centers or interviews might be prone to cultural sensitivity

because there is ample evidence that the behavioral expressions and interpretations for common constructs

measured might differ from one culture to another. Future research should test these hypotheses about pos-

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sible moderators of the cross-cultural generalizability of the validity of selection procedures.

Development and Validation of New Selection Procedures

One of the questions at the start of this chapter was whether in recent years new selection predictors have

been developed. We believe that three ‘relatively’ new selection procedures have gained increased interest

from researchers and practitioners alike. First, emotional intelligence measures have come under scrutiny in

personnel selection. Although the concept of emotional intelligence has fuelled a lot of criticism (Matthews et

al., 2004; Landy, 2005), a breakthrough is the division of emotional intelligence measures into either ability or

mixed models (Zeidner et al., 2004). The mixed (self-report) model assumes emotional intelligence is akin to

a personality trait. A recent meta-analysis showed that emotional intelligence measures based on this mixed

model overlapped considerably with personality trait scores but not with cognitive ability (Van Rooy et al.,

2005). Conversely, emotional intelligence measures developed according to the ability (emotional intelligence

as an ability to perceive emotions of oneself and of others) model correlated more with cognitive ability and

less with personality.

Second, situational judgment tests (SJTs) are another emerging selection procedure. SJTs present applicants

with (written or video-based) work-related situations and possible responses to these situations. Applicants

have to indicate which response alternative they would choose. Granted, SJTs are not new selection proce-

dures (the first situational judgment tests were already used in the 1930s). Yet, they have recently become

increasingly popular in North-America. SJTs are somewhat of a misnomer because they do not measure ‘sit-

uational judgment.’ Instead, SJTs are measurement methods that can measure a variety of constructs. For

example, SJTs were recently developed to capture domains as diverse as teamwork knowledge (McClough

and Rogelberg, 2003; Morgeson et al., 2005; Stevens and Campion, 1999), aviation pilot judgment (Hunter,

2003), employee integrity (Becker, 2005), call center performance (Konradt et al., 2003), or academic perfor-

mance (Lievens et al., 2005; Oswald et al., 2004).

One reason for the growing popularity of SJTs is that they enable to broaden the constructs being measured.

Research has shown that SJTs had incremental validity over cognitive ability, experience, and personality

(Chan and Schmitt, 2002; Clevenger et al., 2001). McDaniel et al. (2001) meta-analyzed 102 validity coeffi-

cients (albeit only 6 predictive validity coefficients) and found a mean corrected validity of .34. Another reason

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is that SJTs can be used to test large groups of applicants at once and over the internet. Finally, research on

applicant reactions to SJTs showed that SJTs were perceived as favorable and that video-based interactive

SJT formats even resulted in more positive perceptions than written SJT formats (e.g., Chan and Schmitt,

1997; Kanning et al., 2006; Richman-Hirsch et al., 2000). Given these advantages, SJTs constitute an attrac-

tive alternative to more expensive predictors such as assessment center exercises or structured interviews

because SJTs can be used in early selection stages as an inexpensive screen for measuring interpersonally-

oriented competencies. A possible downside of SJTs is that they might be prone to faking. Along these lines,

recent research has shown that the type of response instructions affects the cognitive loading and amount of

response distortion in situational judgment tests (Nguyen et al., 2005). Behavioral tendency instructions (e.g.,

‘What are you most likely to do?’) exhibited lower correlations with cognitive ability, lower adverse impact

but higher faking than knowledge-based instructions (e.g., ‘What is the best answer?’). In addition, a recent

meta-analysis of McDaniel et al. (2007) reported that SJTs with knowledge instructions correlated more highly

with cognitive ability measures (0.35) than SJTs with behavioral tendency instructions did (0.19). Conversely,

SJTs with behavioral tendency instructions correlated more highly with Agreeableness (0.37), Conscientious-

ness (0.34), and Emotional Stability (0.35) than SJTs with knowledge instructions did (0.19, 0.24, and 0.12,

respectively). These results confirm that SJTs with knowledge instructions should be considered maximal per-

formance measures, whereas SJTs with behavioral tendency instructions should be considered typical per-

formance measures.

Third, implicit measures of personality have been developed as a possible alternative to explicit measures

of personality (e.g., the typical personality scales). One example of this is Motowidlo et al.’s (2006) measure

of implicit trait theories. They theorize, and then offer evidence, that individual personality shapes individual

judgments of the effectiveness of behaviors reflecting high to low levels of the trait in question. Thus, it may

prove possible to make inferences about personality from individual’s judgments of the effectiveness of var-

ious behaviors. Another approach to implicit measurement of personality is conditional reasoning (James et

al., 2005) based on the notion that people use various justification mechanisms to explain their behavior, and

that people with varying dispositional tendencies will employ differing justification mechanisms. The basic par-

adigm is to present what appear to be logical reasoning problems, in which respondents are asked to select

the response that follows most logically from an initial statement. In fact, the alternatives reflect various justifi-

cation mechanisms. James et al. present validity evidence for a conditional reasoning measure of aggression.

Other research found that a conditional reasoning test of aggression could not be faked, provided that the

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real purpose of the test is not disclosed (Le Breton et al., 2007).

Improvements in Existing Selection Procedures

In recent years, some interesting developments with respect to existing selection procedures have emerged.

One development consists of increasing the contextualization of sign-based predictors (cognitive ability tests,

aptitude tests, and personality inventories). Although contextualization has also been used in aptitude tests

(Hattrup et al., 1992), this trend is best exemplified in personality inventories. Contextualized personality in-

ventories use a specific frame-of-reference (e.g., ‘I pay attention to details at work’) instead of the traditional

generic format (e.g., ‘I pay attention to details’). Recent studies have generally found considerable support for

the use of contextualized personality scales as a way of improving the criterion-related validity of personality

scales (Bing et al., 2004; Hunthausen et al., 2003). Yet, some questions remain. For instance, how far does

one have to go with contextualizing personality inventories. Granted, adding an at-work tag is only a start to

a full contextualization of personality inventories (e.g., ‘I pay attention to details when I am planning my meet-

ings with customers.’). In light of the fidelity-bandwidth trade-off, perhaps the answer is related to what one

wants to predict. Narrow contextualized scales might be better predictors of narrow criteria, whereas more

generic scales might be better predictors for a more general criterion such as job performance.

Another development relates to the increased recognition that practitioners should carefully specify predictor-

criterion linkages for increasing the criterion-related validity of selection procedures. As conceptualizations

of job performance broaden beyond task performance to include the citizenship and counter productivity do-

mains it is important for organizations to carefully identify the criterion constructs of interest and to choose

potential predictors on the basis of hypothesized links to these criterion constructs. All of this fits in a gener-

al trend to move away from general discussions of predictors as ‘valid’ to consideration of ‘valid for what?.’

This was first exemplified by the taxonomic work on the dimensionality of performance led by Campbell et al.

(1993). This project illustrated, for example, that cognitive measures were the most valid predictors of task

performance, whereas personality measures were the best predictors of an effort and leadership dimension

and a counterproductive behavior dimension (labeled ‘maintaining personal discipline’; McHenry et al., 1990).

Now, it is generally acknowledged that this mechanism might increase the validity of personality inventories

(e.g., Hogan and Holland, 2003 as the best example), assessment centers (Lievens et al., 2003).

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Another recent stream of research with considerable value for selection practice is that one should be aware

of potential interactions among predictor constructs (competencies). For example, interactions between con-

scientiousness and agreeableness (Witt et al., 2002), conscientiousness and extraversion (Witt, 2002), and

Conscientiousness and social skills (Witt and Ferris, 2003) have been discovered. In all of these cases, high

levels of conscientiousness, coupled with either low levels of agreeableness, low levels of extraversion, or in-

adequate social skills were detrimental for performance. At a practical level, these results highlight, for exam-

ple, that selecting people high in Conscientiousness but low in Agreeableness for jobs that require frequent

collaboration reduces validities to zero.

Finally, recent research is also informative as to what interventions not to undertake to increase criterion-re-

lated validity. For example, it is often thought that social desirability corrections (e.g., lie scales) should be

used when one gathers self-report ratings (e.g., in the context of personality measurement). We have now

compelling evidence that social desirability corrections should not be applied. Schmitt and Oswald

(2006)

showed that correcting applicants’ scores had minimal impact on mean criterion performance. The futility of

using social desirability corrections was also demonstrated at the individual level (i.e., who gets hired on the

basis of applicant rankings, Ellingson et al., 1999). Although it is interesting to know that social desirability

corrections are not useful, the question remains as to what practitioners can do when applicants fake (and

we know they do). In fact, isn’t it awkward that we ask applicants to be honest when responding to self-re-

ports, while we know that this will lower their chances of being selected. Therefore, various faking reduction

approaches have been tried out. However, most of them (e.g., warnings, forced choice formats) had only

meager effects (Dwight and Donovan, 2003; Heggestadt et al., 2006). One promising approach consists of

requiring candidates to elaborate on the ratings provided, although this strategy seems useful only when the

items are verifiable (Schmitt and Kunce, 2002; Schmitt et al., 2003). Last, it was discovered that faking does

not seem to be a problem when personality inventories are used for selecting out candidates (i.e., a selection

process with a high selection ratio, Mueller-Hanson et al., 2003).

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Directions for Future Research on Personnel Selection

Disentangling Content from Method

In the past, selection procedures were seen as monolithic entities. Recently, there is increased recognition to

make a clear distinction between predictor constructs (content) and predictor measures (methods). Content

refers to the constructs and variables (e.g., conscientiousness, cognitive ability, finger dexterity, field depen-

dence-independence, reaction time, visual attention) that are being measured. Methods refers to the tech-

niques or procedures (e.g., graphology, paper-and-pencil tests, computer-administered tests, video-based

tests, interviews, and assessment centers, work samples, self-reports, peer reports) that we use to measure

the specified content (Arthur et al., 2003; Chan and Schmitt, 1997; Schmitt and Chan, 1998; Schmitt and

Mills, 2001). Crossing these two features leads to different modalities of selection procedures. For example, a

specific construct such as extraversion might be measured via various methods such as interview questions,

self-report items or situational judgment test items.

This division is of paramount importance because it impacts on virtually all research done on personnel selec-

tion procedures. For example, incremental validity research of predictors (e.g., assessment center exercises

used in addition to structured interviews and self-report personality inventories) that fail to take this distinc-

tion into account are misleading and are conceptually difficult to interpret. Unless one either holds the con-

tent (constructs) constant and varies the method, or holds the method constant and varies the content, one

does not know what (method or construct) leads to the incremental validity obtained. Another example is re-

search on adverse impact. For example, Chan and Schmitt (1997) showed that changing the method of an

SJT (video-based instead of paper-and-pencil) resulted in less adverse impact, even though the content of

the test was not changed. Likewise, in applicant reactions research it is important to know whether applicants

perceive a test favorably or unfavorably because of the content of the test or because of the method of mea-

suring the substantive content (Hausknecht et al., 2004).

Going beyond Validity

Prior selection research has usually taken a micro analytical perspective. That is, the effectiveness of a selec-

tion procedure was examined for predicting individual performance. Several authors (Ployhart, 2006; Schnei-

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der et al., 2000; Schmitt, 2002) have argued that future selection research should take a more macro ana-

lytical approach to exert a real impact on organizations and organizational decision makers. This implies that

the consequences of using specific selection procedures should also be ascertained at levels other than the

individual level. Examples are the team, job (occupational), and organizational level.

To date, only a very limited number of studies have taken such an organizational perspective. For instance,

Terpstra and Rozell (1993) correlated HR managers’ use of selection procedures with performance of the

firm. As argued by Ployhart (2006), this is only a first step as this study was based on self-reports of firm

performance. In a similar vein, the well-known study of Huselid (1995) demonstrates that use of high perfor-

mance work practices (e.g., Do companies use employment tests prior to hiring?) are related to better firm

performance. Yet, they do not show that selecting better employees adds strategic value to the firm.

Future research should use a truly multilevel perspective to demonstrate whether validities at the individual

level also translate into differences at other levels (and especially at the organizational level). An excellent

example is the recent study of Ployhart et al. (2006). They showed that individual, job, and organizational

level means personality were positively associated with job performance and job satisfaction, whereas job

and organizational level variances were often negatively associated with performance and satisfaction. These

results highlight the importance of personality homogeneity at different levels (cf. attraction-selection-attrition

framework).

‘Selling’ Selection Innovations

At the start, we mentioned that personnel selection is typically viewed as an ‘old’ and ‘narrow’ domain in HRM.

In addition, it is often viewed in rather simplistic dichotomous terms. One of the aims of our review was to illus-

trate the various exciting developments that have taken place in this field in recent years. As demonstrated,

many of these developments have substantial value for HR practitioners working in organizations. However,

this is only side of the equation. An equally vital issue is to implement these developments in organizations.

One stumbling block is the lack of awareness of these new trends. For example, it was telling that a recent

survey revealed among HR professionals that two of the greatest misconceptions among these professionals

dealt with personnel selection, namely the relative validity of general mental ability tests as compared to per-

sonality inventories (Rynes et al., 2002).

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Therefore, future research is needed to uncover factors that encourage/impede organizations’ use of selec-

tion procedures. For example, a recent study (Wilk and Cappelli, 2003) showed that (apart from broader le-

gal, economic, and political factors) the type of work practices of organizations was one of the factors that

might encourage/impede organizations’ use of selection procedures. Specifically, organizations seem to use

different types of selection methods contingent upon the nature of the work being done (skill requirements),

training, and pay level.

In a similar vein, we need to find out ways to sell selection practices to practitioners and to overcome potential

resistance (Muchinsky, 2004). Probably, the provision of information about the psychometric quality and legal

defensibility of selection procedures to decision makers in organizations is insufficient. An alternative might

consist of linking the adoption of sound selection practices not only to validity criteria but also to organization-

al-level measures of performance such as annual profits, sales, or turnover (see the section ‘Going Beyond

the Validity of Selection Procedures’). Another way might be to use more vivid information (case studies) to

persuade decision makers. However, even this way of communicating selection interventions to practitioners

might fail. Along these lines, Johns (1993) posits that we have typically placed too much emphasis on selec-

tion practices as rational technical interventions and therefore often fail to have an impact in organizations

(e.g., attempts to ‘sell’ utility information or structured interviews). Conversely, practitioners in organizations

perceive the introduction of new selection procedures as organizational interventions that are subject to the

same pressures (power games, etc.) as other organizational innovations. Although Johns’ article dates from

1993, we still have largely neglected to implement its underlying recommendations.

One possible approach to improving the use of scientifically validated recruiting and selection procedures

is through the increasing professionalization of the field of HR. As more organizations insist on hiring HR

personnel with professional training and credentials, the greater the likelihood that research-based practices

will be valued and adopted in organizations. For example, Chapman and Zweig (2005) and Lievens and De

Paepe (2004) found that trained interviewers were much more likely to practice structured interviews than

their untrained counterparts. We are also hopeful that ongoing learning through professional development

requirements for maintaining professional credentials will further infuse and update practice in the field. Like-

wise, it is necessary for researchers and instructors to engage the professional community to ensure that the

research we are conducting is both relevant and timely.

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Epilogue

The central question of this chapter was: ‘Which new research developments have occurred that advance

recruitment and selection practice?’ On the one hand our review exemplified many areas wherein both re-

cruitment and selection research might have practical implications for organizations. A key example is the

rapid increase of technology in both recruitment and selection, as showcased by the tailoring of media rich

information in recruitment and the use of videoconferencing and (un) proctored web-based testing in selec-

tion. Other examples are the renewed importance of recruiter behaviors, the value of investing in employer

brand audits and employer brand management, specific guidelines for increasing the validity of extant selec-

tion procedures, the development of new selection procedures, and the adaptation of selection procedures to

a cross-cultural context.

On the other hand, a common thread running through our review is that we have the difficulty of bringing our

message that recruitment and selection matter to the organization across. In both recruitment and selection,

we need to find ways of demonstrating the value of recruiting and selecting to organizations. In recruitment,

this might be done by developing frameworks for assessing the quantity and quality of the applicant pool. In

selection, a macro oriented (multilevel) approach might be needed for showing the effects of selection proce-

dures on individual, group, and organizational outcomes.

FilipLievens and DerekChapman

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• recruiting

• turban

• criterion-related validity

• research staff

• personality inventories

• employee selection

• job choice

https://doi.org/10.4135/9780857021496

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Learning Topic

The

Employee Life Cycle

The employee life cycle refers to the steps that employees go through

from the time they enter the organization to the time they leave. It covers

the relationship between the employee and the organization from the

first contact with a recruiter to the separation process. HR plays an

essential role in this relationship and is typically involved in every phase

of the cycle (Vadakkanmarveettil, 2021).

Employee Life Cycle

The Employee Life Cycle https://leocontent.umgc.edu/content/umuc/tus/hrmn/hrmn495/2225/lear…

1 of 8 3/1/2023, 11:20 PM

UMGC (n.d.). The Employee Lifecycle. Retrieved from https://leocontent.umgc.edu/content/umuc/tus/hrmn/hrmn495/2225/learning-topic-list/
the-employee-life-cycle-.html#

Planning

Ideally, planning happens before there is an

open position. Strategic HR will ensure that

planning for human capital aligns with the

organizational goals and objectives. The

organizational image is important here

because an organization should try to brand

itself as a desirable employer in order

to attract well‐qualified employees.

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Recruitment

Recruiting includes several steps, including

creating a job description, posting for the

open position, searching for candidates,

interviewing candidates, and finally,

selecting the best individual (or individuals)

for the position. Clear criteria and processes

should be used to avoid legal compliance

issues as well as to increase employee

retention.

The Employee Life Cycle https://leocontent.umgc.edu/content/umuc/tus/hrmn/hrmn495/2225/lear…

3 of 8 3/1/2023, 11:20 PM

Onboarding

The onboarding process is essential because

this is the first experience the employee has

with the organization. Onboarding should

help employees feel like a valuable part of

the team and educate the employees on

rules and regulations in the workplace.

Onboarding includes training to help

employees understand their role in the

organization.

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Development

Employee training and development

increase the employee’s competencies and

help align human capital with the

organizational strategy. Ideally, each

employee will have a professional

development plan that not only addresses

organizational goals but also the employee’s

individual career goals.

The Employee Life Cycle https://leocontent.umgc.edu/content/umuc/tus/hrmn/hrmn495/2225/lear…

5 of 8 3/1/2023, 11:20 PM

Retention

Employee turnover is a critical aspect of

human capital management and can cost an

organization a lot of time and money.

Retention includes performance

management, compensation, and

recognition to encourage employees to stay.

Organizational culture and communication

can help not only to attract new employees

but also to retain top employees.

The Employee Life Cycle https://leocontent.umgc.edu/content/umuc/tus/hrmn/hrmn495/2225/lear…

6 of 8 3/1/2023, 11:20 PM

References

Vadakkanmarveettil, J. (2021, March 30). Stages of the employee life

cycle: An easy overview (2021). Jigsaw Academy.

https://www.jigsawacademy.com/blogs/hr‐analytics/employee‐

life‐cycle/amp/

The 6 stages of the employee life cycle. (2020, September 22). SpriggHR.

Separation

Employees may end the life cycle reasons

including retirement, better opportunities,

or life choices. Exit interviews are an

important tool for understanding and

improving the life cycle processes in the

organization. It is the responsibility of HR to

ensure that these transitions occur as

smoothly as possible and do not impact

employee moral or performance.

The Employee Life Cycle https://leocontent.umgc.edu/content/umuc/tus/hrmn/hrmn495/2225/lear…

7 of 8 3/1/2023, 11:20 PM

https://sprigghr.com/blog/360‐degree‐continuous‐feedback

/the‐6‐stages‐of‐the‐employee‐life‐cycle/

© 2023 University of Maryland Global Campus

All links to external sites were verified at the time of publication. UMGC is not responsible for the

validity or integrity of information located at external sites.

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