International HRM Policies - Essay Example

International HRM Policies: Germany Vs UK Introduction Today we are in an era of globalization and intense competition, which calls for a professional approach on behalf of companies and organizations. Quality is now regarded as an important means of bringing in product differentiation. In the world we live today, quality has no substitute and active participation of all concerned towards delivering a quality product or service is of prime importance. Organizations have therefore started adopting the strategy of seeking employees’ participation as well in management. Such participative management encourages workers to do more for the company while diligently performing their duties and responsibilities. Oakland (2000) proposed that employees’ participation helps in implementing the total quality management (TQM) strategy. The participative form of management is stated to help the subordinates in sharing the decision making power with their superiors. But the success of any strategy depends upon a number of factors, implementation policy and prevailing circumstances. How such policies are implemented by the companies, depends upon the laws of the land and the factors like union’s bargaining power, relationship employees’ unions and the management, the composition of public equity in the company etc. Participatory form of management includes quality circles, collective bargaining, job control, works councils or workers council, co-determination, employee participation on company boards, labour-controlled investment funds and employee stock ownership plans (O’Hara, 1999). Such participation leads to involvement of employees in key decision making processes and the employee feels empowered at the workforce, as he has a say in setting the course instead of just following the orders. How this empowerment is carried out, depends upon the way decentralisation takes place within the organisation Today, in view of the competition, profit margins have become quite thin, which sometimes forces the management towards taking cost-cutting initiatives, that includes outsourcing, retrenchments, relocation of employees, pressure on employee benefits etc. Germany and UK too are affected by the phenomenon of outsourcing and availability of skilled workforce at cheaper rates from places like India, China, Philippines, Malaysia etc. Under such circumstances, the unions as well as the management come under pressure to fine-tune their strategies in order to retain the loyalties and goodwill. While Unions in these nations are busy fighting for the retention of jobs, managements too appear busy in taking on unions, political opposition and dwindling profit margins. During the course of this study an effort would be made to study the prevailing participative form of management in general and how the system works in Germany and UK in particular. Industrial Relations in UK and Germany Recognition of ‘conflict’ on issues in the management process is central to the difference between HRM and Industrial Relations policies. While HR theory quietly sidesteps conflict and its origins, IR accepts the possibility of difference in opinion and focus between employer and employee. Industrial relation theory tries to identify how the power is exercised in running an organisation. Negotiating the issues in a collective manner between groups of workers and the employer results in ‘collective agreements’ on the issues and effective running of the company. While globalization has brought about uniformities to a great extent in the way economies function all around the globe, this has also affected the way employees’ participation is regarded in fulfilling the desired tasks. Increased emphasis on quality also implies increasing role of workers in delivering quality to the customer. The Japanese concept of ‘Quality Circle’ for example is a fine example of worker’s participation in quality management. Quality circles are in general defined as small groups formed primarily on a voluntary basis to address organizational quality problems. After its beginning in Japan Quality circles program did flourish in industrial nations like the UK and North America until the 1980s (Stires et al. 1991). Gradually, the concept of quality circles evolved to include different forms of employee participation. In simple words, Quality Circles are problem-solving teams whose ideas can improve Quality, increase motivation, boost Productivity and add Profits to the bottom line, all at the same time. In Britain and Germany also industrial relations have undergone a sea change during the last couple of decades. Schmidt and Dworschak (2006) contend that the multi-employer agreements and collective bargaining agreements have suffered in view of the aggressive policies being pursued by the managements. Now in Germany the practical working conditions are decided by the managers and works councils with limited role of trade unions in regulating the terms of trade for labour. With similar reduction of the roles of trade unions in collective agreements in Britain as well, now questions are being raised about the relevance of term ‘industrial relations’ as such, instead the term ‘employee relations’ has now become more prominent. As against the practices of industry standards prevailing in the employee compensation policies, there are now increasing instances of single-employer setting standards of functioning and compensation packages for its employees. While at some places this has resulted in motivating the workforce, there are instances indicating that such scenario results in putting the workforce under extreme pressure for delivering the desired performance. Workplace Employment Relations Survey (WERS) has come out with facts which are a pointer towards the decline in the instances of collective bargaining agreements. This study indicates that the rates of collective bargaining have fell from 70 percent of all employees in 1984 to 54 percent in 1990 and to 41 percent in 1998. The survey further points out that by 2004, only 34 percent of employees in private manufacturing had their pay set by collective bargaining, as against 75 percent in the public sector (Schmidt and Dworschak, 2006). There was a time, when UK and Germany used to be favourite places for skilled workforce to have decent jobs, higher salaries and an assured career. But now, the situation has become somewhat different. UK in particular has taken a deeper dent as far as attractiveness of the job market is concerned. As per a study conducted by Organisation for Economic Co-operation and Development (OECD), one out of ten well-educated Britons are opting to move abroad (CIPD, 2008). This study also suggests that the trend is prevalent in Germany as well, but to a lesser extent. The study shows that 1.1 million well-educated Britons are moving out for better job opportunities to other countries as compared to 860,000 from Germany. This sort of brain drain indicates among other things that there are regions which are more attractive from the HR perspective. Though the space left by the people moving out of these nations is fulfilled by workers from some other nations entering into Britain and Germany, but it somehow leaves a lot to think over about the policies being practices in the European community and the influence being created by other nations. The migrant workforce is also not very keen towards joining the trade unions mainly because; i. They are relatively well paid ii. There are many legal and/or other restrictions in their way As the MNCs grow individualistic, such companies also try to influence the manner in which the employees behave. While on the one hand, efforts are made to give fullest priority to the interests of the company, companies also try to influence the individual behaviour of the worker by offering some of them exclusive benefits or even threatening them with reprisal. This comes in the way of efforts for uniting the workforce and hence results in affecting the overall collective bargaining environment. With the increasing say of MNCs in running the governments and affecting the policy formations, the respective governments too have come under pressure in respect of the welfare of the workers. In fact, the liberalisation process demands that governments must shed the tag of being a ‘welfare state’ and instead become partner in marketing efforts. Such pressures often results in situation like the one experienced by the working community in UK in the recent past, when the government of Gordon Brown decided not to extend the demanded hike to the public sector employees in UK, the important stakeholders in running the public sector units (BBC, 2007). The reason extended for holding the pay hike is to keep the inflation in check. Employee relations in Germany and UK have suffered in the recent past on account of the increasing tendency of outsourcing jobs to cheaper destinations like India and China from these countries. But there are certain features of the employee participation practices in UK and Germany which sets them apart in respect of industrial relations; i. Germany provides a constitutionally guaranteed freedom of collective bargaining (Tarifautonomie- from the Greek autonomia- implying self-legislation) to unions and employers´ associations, with active political support. This gives enormous power and influence to the employees in deciding the affairs of the company1. On the other hand the collective bargaining and union movement in UK has suffered lot of contradictory approaches in the political arena. It started off with the aggressive policies of reforms of Mrs. Thatcher, which resulted into weakening of the bargaining powers of unions, their membership strength and coverage. But the trend continued even after that, for example; In 1998 Tony Blair said, “There will be no going back. The days of strikes without ballots, mass picketing, closed shops and secondary action are over” (Department of Trade and Industry, 1998). Subsequently in 1999 he said, “I see trade unions as a force for good, an essential part of our democracy, but as more than that, potentially, as a force for economic success. They are a part of the solution to achieving business success and not an obstacle to it” (Brown, 2000). ii. Germany has a dual system of industrial relations involving two pillars in the form of ‘free collective bargaining’ and the ‘Works Constitution Act’. In the first tier, unions and employers are empowered to negotiate and bargain collective agreements on a range of issues. Subsequently if the issue remains unresolved it comes to the works council, which is granted legally independent status and works with the mission to ‘work together in a spirit of mutual trust and cooperation with the employer and trade unions’. The works constitution act 1952 has been amended from time to time to make it more relevant with the times. This dual system is stated to be highly stable (Jacobi, 2003). In UK, industrial relations aspect is not given priority instead ‘collective bargaining’ is considered as the be all and end all of employee participation which gives it a voluntary, decentralised and conflict based system’s look (Williams, 1988). In general some of the pros and cons of both the systems can be identified as; 1. While the German system of industrial relations and trade union management is considered to be more of conciliatory in nature, the British trade union system has been known for its aggression, which had the potential of paralysing the industrial activities. The number of industrial actions witnessed in the past is an indication. The retaliatory moves of curtailing union powers by the Conservative government of Margret Thatcher, is a result of the notoriety earned by union in UK. This government systematically privatised many public industries and introduced laws which restricted the influence of trade unions. 2. UK as considered more of an example of liberal Anglo-Saxon market economy (LME), while Germany is known as a centralized social-market economy (CME). Now, after the emergence of EU, an intense debate is going on as to which format would be the most beneficial. There are suggests for EU to come out the old Europe mould and adopt a more ‘progressive’ version of Anglo-Saxon capitalism. The performance of UK in terms of growth and employment is cited as an example to strengthen this argument (Barysch, 2005). 3. The industrial relations in UK are characterised by a voluntary system, without much of support mechanism encouraging the trade union movement, but in Germany there is institutionalised cooperation amongst the different stakeholders namely the government, employer and the trade union representatives. 4. The industrial scene in UK has seen a dramatic change from public sector dominance to the one where private sector is being encouraged. This reduces the influence of Trade unions to the political system. In Germany on the other hand, the influence of state is mostly limited to setting up of a normative framework and support systems like ‘works council’ helps in encouraging the trade union movement. 5. Though, UK has been the stronghold for trade unions in the past, the membership strength is dwindling very fast, both in terms of the number of members as well as the percent of working population represented by the trade unions. We are in an era today, where globalisation rules the roost, and trade union movement is not encouraged by the MNCs. Moreover in view of the number of a large number of migrant workers in both UK and Germany, who do not join trade unions, the percent of working population in a country under trade union representation is bound to come down. But it is quite interesting to see that in Germany, which did not have a big number under the trade union membership strength, has been able to maintain comparative strength in its trade union membership, both in terms of members as well as the percentage (Visser, 2006). 6. The German system of works council initially had a separate structure and set up which was distinct from that of trade unions. But as the world is moving towards a global village and there are increased instances of convergence in almost all walks of life, the industrial relations structure too has taken cue and trade unions are ensuring that the works councils do not become bargaining competitors, and instead a multi level bargaining structure is set up to complement each other’s view points (Weiss, 2004). Such structure has helped in ensuring that different political and ideological wings get amalgamated in the representative association. On the other hand in UK, after the coverage of union representation displayed a decreasing trend by the late 1980s, there were increasing signs of erosion of collective bargaining (Summers and Hyman, 2005). Trade Union Membership Statistics UK Vs Germany (for the period 1970-2003) (Visser, 2006) Strengths (thousands) Union Density (%age) Year Germany UK Germany UK 1970 6965.6 10068.3 32 44.8 1980 8153.6 11652.3 34.9 50.7 1990 8013.8 8952.3 31.2 39.3 1991 11969.4 8626.5 36 38.5 1992 11083.1 8142.9 33.9 37.2 1993 10264.9 7831.3 31.8 36.1 1994 9709.5 7450.2 30.4 34.2 1995 9334.8 6791.0 29.2 32.6 1996 8826.5 6631.0 27.8 31.7 1997 8538.0 6643.0 27 30.6 1998 8326.9 6640.0 25.9 30.1 1999 8218.3 6622.0 25.6 29.8 2000 8067.0 6636.0 25 29.7 2001 7601.8 6558.0 23.5 29.3 2002 7433.9 6577.0 23.2 29.2 2003 7120.0 6524.0 22.6 29.3 Employees tend to enjoy participation in running an organisation contributing their might towards the well being of the organisation if they feel that their contribution is being valued by all concerned which includes the management of the company as well as the government functionaries. Mayo2 believed that workers are not just concerned with monetary benefits but they could be better motivated by taking care of their social needs while at work. He basically introduced the Human Relation School of thought which believed in treating the human beings as an integral part of the society and encouraging them to remain in social groups. Mayo concluded that employees are best motivated by; Better communication between the managers and employees Greater managerial involvement in working lives of employees Encouraging team/ group spirit In simple terms the measures of employee participation could be; The Level of Satisfaction: Satisfaction level depends upon a range of factors like job design, pay, creativity and of course participation. But, the form of participation holds the key for all other factors, because once the employee feels that he or she can suggest constructive changes to the job designs, wage agreements etc. the satisfaction level is bound to increase. In the absence of any participatory form of management, the worker is left doing similar kind of job for years together without granting any appreciable monetary benefits as well. It also pointed out that such an approach leads to underutilization of the full potential of the worker and since the worker is supposed to do the same operation again and again, which leads to boredom and dissatisfaction. Adam Smith3 anticipated such consequences two centuries ago: “The man whose whole life is spent in performing a few simple operations….becomes as stupid and ignorant as it is possible for a human creature to become”. Commitment: Worker’s commitment can be judged by his devotion to the job, to the society and to his or her family. The participative form of management instils a team spirit amongst workers. A chain is said to be as strong as the weakest link in it. A team is also composed of a number of people with differing abilities, qualification and motivation levels. A cohesive team of highly motivated and well organized members can do wonders for the growth of the organization. On the other hand a group of individuals concerned with only their work and their own benefits can potentially harm the interest of the organisation. An organization can no doubt function with the boss giving commands to his/ her subordinates and the subordinates in turn following the instructions and completing the tasks. But a basic disadvantage in this type of functioning is that the employee doesn’t feel the belonging to the organization and therefore may not go for value addition and creativity to the task. Stability at work: For industrial peace and workplace stability, an atmosphere of bonhomie amongst the workers and management is a prerequisite. Trade unions play an important role in bringing up a stable environment at workplace. Collective bargaining agreement if realised in a peaceful manner without actually resorting to strikes and other industrial actions, go a long way to this end. Control: How the management is able to keep a balancing act in protecting the interests of the employees as well as the company also determines the nature and success of participatory form of management. Control and actuation make crucial components in inspiring the workforce to come out with the optimum. Howard Good (2006), the former president of Highland Central School Board in Highland, N.Y., says, “Being board president brings power and prestige, but you must inspire and help others to be successful”. Inspiring others takes various forms like training and development, encouraging quality circles, health and safety standards, bonuses, regular interaction and of course the financial aspect. Tesco, for example, has been following the industry practice of providing competitive remuneration to its employees. From time to time, the company sets up the ‘The Remuneration Committee’ in accordance with the principles outlined in the ‘Listing Rules of the Financial Services Authority derived from Schedule A and B of the 2003 Revised Combined Code4. Though In framing the remuneration policy full consideration is given to best practice. The Remuneration Report complies with the disclosures required by the Director Remuneration Report Regulations 2002. The legal system is often considered quite complicated by the individual as well as the organization, as it involves lengthy procedures in settling the disputes and even minor issues. In a survey carried out by the Chartered Institute of Personnel and Development (CIPD, 2002), it was found out that, ‘human resource management professionals are divided on how they perceive the relationship between employment law and business and HR strategies. About half of the respondents expressed the opinion that the legal system in fact comes in the way of effective functioning of their organization. Just about 36% believe that such laws are helpful, while the remaining were of the opinion that the law has no significant effect on their business and HR strategies. The department of trade and industry (DTI) in UK states that individual contracts of employment are not always agreements between equal partners. Good employers and employees recognise that there is a basic justification in terms of fairness at work for fair representation of all employees. Collective representation of individuals at work can be the best method of ensuring that employees are treated fairly, and it is often the preferred option of both employers and employees (DTI, 1998, Para. 4.2). But the ground situation is far off from this guiding principle. Companies are being given a free hand in ‘dealing’ with employees’ grievances which is resulting in weakening of the collective bargaining power of the unions. Smith and Morton (1994) suggest that the emergence of UK variation of HRM since the mid-1980s as it has resulted in marginalising the trade unions because the state and employers prefer to exclude them from collective relations. Such discriminatory policies results in encouraging the company management to act more towards achieving the objectives of the company and less towards recognising the rights and privileges of the employees. This is evident in a survey conducted by Union Network International (UNI), a global union comprising of millions of working people from many countries around the world. The survey conducted in 2006 and 2007 sought the opinions of many companies and unions on assessing the companies’ commitments to the freedom of association and the effective recognition of the right to collective bargaining (UNI, 2007). In addition the survey also sought the assessment of unions about union’s point of view on the practice and behaviour of multinational companies in different regions and countries. While asking to assess the policies of Allianz, a German company with offices in many countries, the company was assessed very positively by the Hungarian unions but the same company was assessed negatively by unions in Germany. German unions contend that they have to fight for their position as the management would prefer having negotiations only with the works council. Similarly, the company was rated as ‘average’ in its commitment to collective bargaining by the UK unions. It is therefore amply clear that these companies take advantage of the policies of the respective governments. Conclusion The ‘Human’ element is indeed quite an intriguing and unpredictable element in any business venture. As the studies in previous sections indicate, maintaining good relations is not only a prerequisite for the effective functioning of the company, but it also works wonders for the employees as well. The employee is happier when the management values his contribution and gives due consideration to such contributions by way of granting pay hikes, perks and other privileges. Such gestures definitely result in motivating the employee, which in turn helps the company. Though in modern time’s rewards come in many forms like a family day out, night parties, foreign tours, sponsorships etc. but the financial hikes still remain the potent motivator for an individual. The traditional policy of “carrot and stick” still seems to working quite well. Money being the carrot and stick is in the form of physical, financial or social punishments. It is assumed that people will work harder and produce more if substantial financial rewards are placed before them or if they are threatened with dismissal or peer embarrassment or physical punishment. It is quite apparent from the foregoing discussion that the relations with employees cannot be taken for granted by the company. Organizations need to handle such issues with utmost caution, without allowing them to flare up in big controversies. Diversity and disputes consist of visible as well as non-visible factors, which require to be handled with care. Harnessing these differences is bound to create a productive environment in the organization in which everybody feels valued, their talents are fully utilized and organizational goals are met. Therefore, the way to place this on the corporate agenda is to see the concepts of employee’s relations as providing both tangible as well as intangible benefits, besides being socially and morally right. How a particular country adopts the welfare measures and synchronises the needs of business with the needs of the public at large also affects the HR policies being adopted by the companies in general. Though such policies depend upon the company, but the role of nation’s policies hold the key to HRM policies in general. While German government has provided a constitutional and legal support to the trade union movement, government of UK seems to be fluctuating in its approach, often appearing indecisive. Some of the companies have indeed put in place best practices as far managing the human resources is concerned. But there are a number of other instances where employee’s participation is discouraged. Similarly in cases of merger and acquisitions as well, addressing the HR concerns is the key for the success of any M&A exercise. There are other issues as well, like finance, accounting, technology implementation, marketing, supply and distribution chains etc. but it is the human aspect which requires maximum efforts. It will be therefore a wise move if some of the features of German HR policies are also implanted in UK, which will indeed go a long way in defining a direction to the HR management scene. References: 1. BBC (2007). Brown rejects union pay demands. Available online at http://news.bbc.co.uk/1/hi/uk_politics/6986469.stm (Feb 18, 2008) 2. BBC (1998). Daimler and Chrysler to merge. Available online at http://news.bbc.co.uk/1/hi/business/88873.stm (Feb 22, 2008) 3. Barysch, Katinka (2005). Liberal versus Social Europe. Centre for European Reforms. Available online at http://www.cer.org.uk/articles/43_barysch.html (March 8, 2008) 4. 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