Human Resource Management & The Effect of Employee Benefits
There are different departments within businesses. Two areas which we don’t think so much about are Human Resource management and personnel management. What is Human Resource Management, and how does it differ from Personnel Management? The purpose of this blog is to understand what Human Resource Management encompasses, and why do we utilize it over Personnel Management. Also we will cover how employee benefits affect the HR Management resource
Human Resource Management (HRM) is defined as “a function performed in organizations that facilitates the most effective use of people (employees) to achieve organizational and individual goals.” (Ivancevich & Konopaske, 2013) The main purpose of HRM is to emphasis on them organization’s members and their work within the business. Surbhi S. describes Human Resource Management as “a continuous process of ensuring the availability of eligible and willing workforce” (S., 2015) Edward L. Gubman describes HRM as “the basic mission of human resources will always be to acquire, develop, and retain talent; align the workforce with the business; and be an excellent contributor to the business. Those three challenges will never change.” All these points make Human Resource Management as the critical branch of management, as well as an asset to the treatment of manpower.
A similar area to Human Resource Management is Personnel Management. Personnel management is defined as a scope that “includes functional activities such as manpower planning, recruitment, job analysis, job evaluation, payroll administration, performance appraisals, labor law compliance, training administration and related tasks.” (Wistrom, 2015) This makes Personnel Management a more concentrated scope than HRM, and is the aspect of management that is concerned with the work force and their relationship with the entity. Personnel Management is a more traditional approach of management and may appear to treat manpower as machines or tools. One main issue with Personnel Management is that the decision making process tends to be slow because of the top down management style it implies. Surbhi explains that the primary roles of personnel management are in two categories:
“Operative Functions: The activities that are concerned with procurement, development, compensation, job evaluation, employee welfare, utilization, maintenance and collective bargaining.
Managerial Function: Planning, Organizing, Directing, Motivation, Control and Coordination are the basic managerial activities performed by Personnel Management.”
Human Resource Management is important role in companies. Another role of HRM is to assist the company’s existing employees and talent to the needs of the business. They also consult with the organization’s executives on diverse calculated strategies that may help improve the work environment of the employees also function as a connection between and firm’s management team and their team members. The major difference between HRM and Personnel Management is that Personnel Management “is a predominantly administrative record-keeping function that aims to establish and maintain equitable terms and conditions of employment.” (Wistrom, 2015), and that HRM “integrates the traditional personnel management functions to corporate goals and strategies, and performs additional people-centered organizational developmental activities.” (Wistrom, 2015). We utilize HRM over Personnel Management, because it is a more rounded role, and more cost effective for a business, and gives a better way of dealing with employees individually, as well as helps with employee development.
Now that we have talked about why we use HRM over PM, how do Employee Benefits play into Human Resource Management? The rebound US economy has made a major impact on how the workforce view the positions they are in at their current employers. Things like growth opportunities and compensation obviously have always played a major role, but as Bryan Pritchard of National Life Group, says in his blog post on the Main Street blog “Employee loyalty is not what it used to be.” So very true especially with today’s growing millennial workforce. Studies show the approximate average of millennials who frequently change jobs every 2 to 3 years is 64%. This is a staggering number and a major impact to employee retention. So what can employers do to “sweeten the deal” to keep the job hopping generation?
Opportunity alone isn’t going to keep employees anymore. Properly constructed compensation packages are the main street to employee retention. With high cost of living, such as housing, food, transportation, health care costs, taxes, etc, compared to 20 years ago, the new aged workforce is looking for higher wages and better benefits. Employee benefits make all the difference when making offers to potential highly qualified people. Things like group health care insurance, key employee benefit plans, deferred compensation plans, alternative retirement planning, short-term disability, and more.
Group health insurance is often the major point in a benefit package employers go to, but it’s just not enough. With most plans costing to much and employees not understanding exactly what they are getting, I recommend employers to find advisers who can be at the ready for their and their employees needs and questions. Things like PPO & HMO plans, High deductible vs Low deductible plans, and HSA or Flex spending accounts can be confusing , but should be understood and explained effectively by a benefits adviser.
Key employee benefit plans (KEBP) or Restricted Endorsement Bonus Arrangements (REBA), are regularly overlooked when trying to attract or retain key employees. Many companies don’t offer these types of plans and that number is reported to be about +33%. These companies offer the same benefit packages to their key employees as everyone else. Don’t shoot the messenger. I’m not saying that the other employees aren’t as important, however, a key employee is defined as “an employee with a major ownership and/or decision-making role in the business.” (Kenton, 2018) So, we can see why compensation packages should differ for these employees.
I won’t bore you to much with the variety of products that can be offered in a benefit package, however there is only one more that I want to point out. This is probably one that is rarely presented by benefit advisers to business, and that is short-term disability insurance, or also known as income protection plan. What is short-term disability insurance/income protection plan? Don’t people already get that from the state? I hear that all the time, but let’s look at it like this… In New York state the average short-term disability claim pays out $170/week, I don’t know about you, but I sure couldn’t live off that, let alone someone with a family of 4. Yes families often have more than one person working, but what does this mean for employers & employees? At $170/week, 1 of 2 things is going to probably happen…
1. The employee is going to keep coming into work, struggle and not be at their best
2. Possibly file a worker’s compensation claim so they can recover while having an ok income.
Yes these things happen. So as a business owner, you know what a worker’s compensation claim does to your rates, and as an employee, yep, not a quick turn around for a check if your claim goes through. So when we explain short-term disability insurance or Disability Insurance, which is often called DI or disability income insurance, or income protection, we explain it as a form of insurance that insures the beneficiary's earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work. As a business owner/employer this protects your operating cost, and as an employee this gives you and your family a piece of mind knowing that if you get hurt while playing flag football with your kids, or jogging with your friend, and can’t work, that you will still be able to keep the lights on and food in the fridge.
I don’t believe in a one stop shop carrier for benefit packages, because products aren’t all the same. One carrier’s product may be better for a construction company over a law firm. This is why I custom tailor all benefit packages for each company based on a variety of data, and I strongly urge other advisers do the same. It makes the benefit packages more cost effective, comprehensive and strategic and helps the employer in recruitment and retention.
So I know we covered a lot in this article today, but the point was to understand what Human Resource Management encompasses, and why do we utilize it over Personnel Management. Human Resource Management (HRM ), encompasses a large area of personnel management and development. Human Resource Management, differs from Personnel Management by offering a better way to manage individual employees. We utilize this over Personnel Management because it’s a better and more effective business practice. In addition we covered importance of offering comprehensive strategic & tailored benefit packages to employees to help recruit & retain a viable workforce, as well as lower operating costs.
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Kenton, W. (2018, February 3). Key Employee. Retrieved from Investopedia: https://www.investopedia.com/terms/k/key-employee.asp
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Pritchard, B. (2019, October 2). PROTECT YOUR BUSINESS FROM LOSING ITS MOST VALUABLE ASSET, ITS PEOPLE! (National Life Group) Retrieved from Main Street Blog: https://blog.nationallife.com/protect-your-business-from-losing-its-most-valuable-asset-its-people/
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