Chapter Eighteen: Human Resource Management For Small Busine

Chapter Eighteenhuman Resource Management Small Business Considerati

Chapter Eighteen human Resource Management: Small Business Considerations Because learning changes everything.® The Bigger Small Business: Hiring Employees Of all the decisions a small business faces, none is as important or complex as the decision to hire an employee – many never do. Adding employees increases the amount of work that can be done but also increases the demands on the owner. The next key decision is what work should be done, who the best people are to do the work, and how the firm should take care of them. Think about the work to be done and carefully balance costs with increased productivity. Finding the right employee fit is important, consider using a probationary period.

Taking care of employees includes understanding the many laws that apply to small businesses as your number of employees grows. © McGraw-Hill Education © Figure 18.1: Federal Laws That Apply as Small Businesses Grow The U.S. Department of Labor provides help in determining if laws apply to you. State laws are varied. Different states may have the same law but the specifics may differ. Determine the laws that apply as you start hiring.

Hiring employees makes your firm more professional, but comes with a need to deal with more laws and regulations. The best way is to work with an attorney. Access text alternative for this image. © McGraw-Hill Education © Attracting Employees Networking is a low-cost, though time-intensive, method of recruiting. Internet recruiting may speed up hiring and increase accuracy. Employee referral is underused and low-cost.

Company websites can be used to post job openings. Universities have career service offices. Professional groups can be a resource for recruiting new talent. Outsourcing may be the answer in the form of a virtual employee. Employee leasing is a hybrid of outsourcing and paid staff.

Contact local churches for parishioners looking for a new job. Check with local senior centers for residents who might like to work. Visit local high schools and community colleges for interest. State unemployment offices are a great, free resource. Three unpaid options – barter, internships, volunteers. © McGraw-Hill Education

Matching the Worker to the Work Even before your first hire, you need to know your basic needs and what roles the new employee will fit into. Ultimately, you want to “match” the job with the ideal individual. Your first step is to define and describe all the work that will be part of the new job. Then you will need to know how to evaluate potential employees to see how well they match your ideal set of requirements. © McGraw-Hill Education

Writing a Job Description A job description defines all knowledge, skills, and abilities needed to fill the position, including personality, experience, and education. A job analysis defines the job itself, job tasks, critical tasks, and critical competencies. To get started, write down the job title and state whether the position is exempt or nonexempt.

Next, develop a job statement describing the position’s major and minor duties. List any educational requirements, desired experience, and specialized skills or knowledge required. Include the salary range and benefits. Finish by listing any physical or other special requirements for the job. © McGraw-Hill Education

Evaluating Job Prospects In making successful hiring decisions, rely on the job description to identify important knowledge, skills, and abilities the ideal candidate needs. If flooded with applicants, use essential factors from the job description to screen applicants, adding factors until you have a pool of applicants.

Once you have the pool, use the job description to create a set of questions you will ask of all candidates. A behavioral-interviewing approach generates responses the owner can directly understand and relate to the applicant and the job. Construct questions to elicit descriptions of situations the interviewee encountered – most lead to follow-up questions. Consider involving one or two other interviewers. If you check one applicant’s social media, you must check it for all.

Take your time and make sure you have the right person. © McGraw-Hill Education

Selecting the Right Person You are hiring your first employee and have two nice candidates you think you could get along well with – one with experience, one without. Consider future growth – if your current pace of business is fine, consider the inexperienced person at a lower hourly rate. If you want to grow, choose the experienced candidate. For first-time hiring situations, you may try part-time first. This allows you time to refine what you want to see in the job description and in the business.

In other situations, make use of the probationary period. This leaves a graceful way out of having the wrong person in a job. © McGraw-Hill Education

Training Your Employees To begin, assess your training needs to answer the following questions. Where is training needed? What key areas need the most attention? What specifically must an employee learn to be more productive? Who needs to be trained? Once you have answered these questions, design your training program. There are two different types of training: initial and ongoing. Offering training makes new employees feel valued, challenged, and rewarded. © McGraw-Hill Education

Initial and Ongoing Training Methods Two broad types of training: on-the-job and off-the-job. On-the-job training occurs while performing the regular job. Techniques include orientations, job instruction, apprenticeships, internships and assistantships, job rotation, and coaching. Off-the-job methods include: Lectures, special study, videos, conferences or discussions, case studies, role-playing, simulation, programmed instruction, and laboratory training. Ongoing training can be less formal – by encouraging employees to meet regularly to discuss issues and share new ideas. Three training guidelines. Give your employees opportunities to use their new skills. Make training an ongoing process. Think of training as an investment (as opposed to expense). © McGraw-Hill Education

Rewarding Employees Six recurring factors among the most valuable to employees. Teamwork. Recognition. Training. Empowerment. Contribution. Communication. Entrepreneurs need to make job offers and manage based on an open-book policy. Owners often communicate conflicting terms when making psychological contracts. Reviewing performance is an ongoing process. The performance review. The pay review. © McGraw-Hill Education

Compensation, Benefits, and Perks The first step in a compensation plan is to determine if hiring an hourly or a salaried position. The federal government defined nonexempt and exempt employees in the Fair Labor Standards Act (FLSA). The next step is determining your compensation philosophy. Do you believe in higher base pay, or do you like flexible pay? The next step is to find comparison factors for salary. A living wage is needed to meet basic needs. Benefits include – bonuses and long-term incentives, health insurance, retirement plan, and perks. Good perks do not need to cost a lot, some free perks are powerful. Perks should take no more than 3% of the personnel budget. © McGraw-Hill Education

HRM at the Founder’s Level Three issues to think about. The leadership you provide. The advisers you secure. The partners you select. © McGraw-Hill Education

The Leadership You Provide Two key factors in traditional leadership theories is task and person. But neither of these does much to explain what we think of as leaders. Leadership is essential to the growth of any small business. Many entrepreneurs realize there is an optimal size of the firm. Leadership looks at three key components other than task and person. Innovation – we look to the leader as its key visionary. Operation – the ability to manage the business as it grows. Inspiration – the owner should be the biggest booster and champion. Experience and formal learning provide what it takes to be a leader. © McGraw-Hill Education

The Advisers You Secure You may have a board of directors, but also an advisory board. A group of people you assemble because you trust their judgment. An owner often cannot discuss problems or prospects with employees. Having advisers gives you a chance to articulate your thoughts, try them out on others, and get feedback and possible suggestions. Advisers may be recruited from people you know from anywhere. What is important is whether they have knowledge or connections that can help you do your business better. Many advising relationships are unpaid, but some are paid a stipend. Advisers serve at your pleasure – you can set a time limit, which you can extend. © McGraw-Hill Education

The Partners You Select Selecting partners is one of the greatest challenges. Issues of mutual responsibility and support are both important. Success comes from shared core values and complementary skills. The core values relate to: mission, money, and method. Partners who agree on the “why” of the business are more likely to share and generate passion in the firm. Disagreements about money may be the top reason for conflict. Money and mission represent the “ends” of your business – method represents the “means” and is the most involved of the three. Note that partners can be more than a legal term. You can apply the same thinking to employees. © McGraw-Hill Education

Human Resource Issues in the Family Business Family business is a catchall term covering tens of millions of firms. There are two key HRM issues that continually surface in family businesses. Striking a balance between nepotism and meritocracy. Managing privilege. © McGraw-Hill Education

Nepotism, Meritocracy, and the Family Business Nepotism is the philosophy of selecting/promoting based on family ties. Advantages are involving people you trust and having the loyalty and support from your family. Meritocracy is the philosophy of selecting/promoting based on merit. When the family member is the best for the job, the two live in harmony. When they differ, you must make a difficult decision. The answer to the nepotism versus meritocracy issues is simple, work somewhere else first. There will be nagging doubts if a family member is hired right out of college – so, work somewhere else first. Work in a related industry, with a customer, or a competitor. If you succeed elsewhere and then enter the family business, it will give you a stronger basis for your worth. © McGraw-Hill Education

Managing Privilege Easy to say and hard to do – separate family and business. Family members should be treated like everyone else, no privileges. Either give all employees similar privileges, or deny favorable treatment for family members. Other staff may view hard working family members negatively, as the hard work could give them a larger payout (ownership) in the future. Having career ladders for all employees minimizes differences and shows the importance of employee contribution. Family members may guilt an owner into hiring an incompetent family member – put them in a position where they do the least harm. Disciplining and firing relatives may be necessary – just remember the business, not you, dictates the terms of work behavior. © McGraw-Hill Education

Good Human Resource Practices for All Businesses

Transparent procedures with consistent application. Job basics: consisting of the job description. Job metrics: use objective evaluation. Task repair: have processes in place to help the mistake-maker learn. Lines of communication: a suggestion box, an open-door policy, a scheduled time for issues, or an ombudsperson as a go-between. Clear termination rules: make sure reasons are clear, known, fair, and consistently enforced. Line of appeal: have a way for a disciplined employee to have their side of the story heard. © McGraw-Hill Education

Dividing Up Ownership and Dividends

Family members may receive compensation or benefits packages that look more like owner packages than employee packages. To handle this, create profit-sharing plans or a bonus system for nonfamily employees based on performance. When applying benefits, treat family and nonfamily staff the same. Even when family is not involved, the employees’ share of the rewards should equal their share of at-risk contributions. Convert share contributions to cash equivalents at fair market value. Each person’s share is divided by the total of all shares. This determines the employee’s share of ownership. This provides a relatively transparent way to build out the equity shares. © McGraw-Hill Education

References

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