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What’s it: Human resources is a term used to refer to people who work for companies which deliver economic benefits for the companies they work for. They range from staff to top management. They are managed under the human resources department responsible for recruitment, training, development, motivation, and industrial relations. A related term is human capital, which refers to the knowledge, skills, and health inherent in individuals in the company.
Why are human resources important for the company?
Human resources flow economic benefits to the company to create more value. Their contribution varies, depending on their role within the company. For example, staff work to perform operational tasks or jobs such as operating machines and making accounting records. Meanwhile, management plays a role in more tactical and strategic aspects such as planning, organizing, and controlling.
Ensuring the company has the right people is crucial. Without them, the company cannot effectively carry out its value creation activities and perform optimally. In addition, it makes the company easy to run operations, strategies, tactics and achieve targets.
If human resources function properly, the company will be more competitive and productive. They support a competitive advantage over the long term. And, on the operational aspect, the company can generate higher revenue at an efficient cost. In addition, the company needs them to get better over time through innovation.
Innovation requires individuals. It is impossible to develop new products, business processes, or techniques relying solely on machines or computers. They are just tools to make it easier for us to find new innovations.
How does the company manage human resources?
Human resource management ensures the company has a sufficient number of qualified people and keeps them productive. This function is under the human resources department (HR department). It is one of the strategic departments in addition to operations, marketing, and accounting departments.
The HR department exists to make sure the company hire the right employees and fire the wrong ones. And on another side, it helps employees retain and develop skills, thereby bringing their best to the company.
Maintaining motivation, morale, and interpersonal relationships in the organization is another task. This aspect is important because people don’t just work, go home and receive a salary. They should also enjoy their time while working in the company. When they are happy and satisfied, they can be more productive. Often, it also requires this department to manage employee feedback to create a conducive work environment, thereby encouraging high productivity and morale.
Then, other roles are to make compensation plans, create and maintain performance appraisal programs, and manage industrial relations. Finally, this department is also responsible for occupational health and safety. It does not only take internal policies and regulations into account in carrying out this role. It also requires it to follow government laws and regulations such as those regarding employment and work safety.
In carrying out this role, the HR department considers how many staff the company needs and with what skills. And it also takes into account various other aspects such as available budget, appropriate employment contracts, staffing for positions within the organization, and government regulations.
Then, in some companies, not all of these roles are handled by the company’s internals. Instead, some roles may be selectively outsourced to external providers, for example, those related to external recruitment, compensation, and labor administration.
What is the compensation received?
Compensation to people within the company can take many forms. It can also vary between companies.
The most basic are salaries and wages, which are received every month, per unit of output or per project. There are also time-based wages, where employees receive irregular payments according to their total hours worked.
Then, there is the commission, which is common for the salesperson. They receive payments based on a percentage of the products they sell. The more products they sell, the more compensation they receive.
Another compensation is profit-related pay and performance-related pay. The first is based on the company’s overall performance, for example, measured by realized profits. When the company exceeds the target, all employees receive a bonus.
Meanwhile, performance-related pay is based on the performance of each employee. If they exceed the target set by management, they get a bonus. However, unlike profit-related pay, it is not available to everyone, only top performers.
Some companies also offer a share ownership program. It can be an employee stock ownership program (ESOP) or a management stock ownership program (MSOP). It aims to motivate staff and management to give their best to the company, ultimately increasing their money. If the company performs better, its share price goes up, and so does their wealth.
Finally, another compensation is fringe benefits. Examples are insurance, pensions, and gym facilities, representing non-cash monetary rewards to employees.
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