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A dominant archetype of the HRM system in Russian industrial

companies in post-recession times

Igor Gurkov

Distinguished University Professor of Strategy and Organizations, National Research

University Higher School of Economics, Moscow, Russia

Alexander Settles

Professor, National Research University Higher School of Economics, Moscow, Russia

Address for correspondence:

Gurkov, I. Department of General and Strategic Management, National Research

University Higher School of Economics, Myasnitskaya 20, Moscow 101000, Russia

e-mail: gurkov@list.ru

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A dominant archetype of the HRM system in Russian industrial

companies in post-recession times

Abstract Russian Human Resource Management practices remain durable even

with onslaught of economic change and exposure to global HRM practices and

international competition. Based on survey results of 201 CEOs of domestic

industrial companies located in central region of Russia we identify the resilient

archetype of Russian HRM system. Even in companies that have achieved high

levels of profitability or those that engage in innovative practice continue to

practice retrograde HRM techniques left over from an earlier era. We are able to

identify strategic misfits that are a direct result of the continuation of rigid HRM

system that prevent the development of an organizational climate to support

innovative or dynamic firms.

Keywords: HRM, Russia, upper echelon, survey, CEO

Introduction

In this paper, we provide a detailed account of the prevailing model of HRM in Russian

industrial companies. Previous research has indicated the relative limited role of HRM

officers of Russian firms in firm strategy development (CRANET, 2012). Thus, in this

study we concentrated our attention on CEOs as they provide the leadership and

expectations for the development of HRM systems. There exists extensive empirical

research focus on the perception of HR directors on the HRM systems while only a

limited number of studies that focus on the CEOs role in developing HRM practices.

CEOs attention to the HR function plays key role in the strategic direction of the firm

(Hambrick 1997, 2007) and the role the HR plays in the firm may be based on CEOs

perception of the HR function (Brandl and Pohler, 2010). This study expands both

theoretical framework applicable for predicting the patterns of HRM systems in post-

recession times and tests the proposed framework using the data from the survey of

CEOs.

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This paper is organized as follows. In the first section, we present the pre-

recession findings on HRM system in Russian industries and shortly present the

development of the labor conditions during the recession of 2008-2009. The second

section contains the general research framework for investigation of HRM issues in

Russia in the post-recession settings, including the theoretical framework and

hypotheses development, the survey instrument, the rationale concerning the choice of

respondents and information about the sample. The third section presents the results that

enable us to draw the generalized picture of HRM systems patterns in Russian

industries. The next section deals with variations in HRM patterns and the recent

evolution of such patterns. The last section presents conclusions and suggestions for

further research.

Distinctive features of HRM in Russian companies system prior to the recession

and immediate reaction to the recession

The evolution of Russian management practices over the past decade was documented

in a series of studies. Among the most visible characteristics of national HRM system

may be listed:

the negligible share of officially guaranteed payment (i.e. industry-wide wage

rates or salaries based on the officially set minimum wage) in take-home pay

(Gurkov and Zelenova, 2009);

high rigidity of labor legislation regarding employment and redundancies (see

Kapelyushnikov et al. 2011) coupled with very high flexibility of working and

payment conditions (Gurkov and Zelenova 2011);

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visible shortage of skills (Gimpelson et al 2010) and high demand for retraining

(Gurkov 1999, 2002a) coupled with inability of the majority of industrial

companies to allocate sufficient funds for personnel development;

high uniformity of HRM practices within industries regardless of different

strategic types of companies (Gurkov et al., 2007); and

coexistence of Soviet heritage in job design and remuneration schemes in

“genuine” Russian companies (see Gurkov et al., forthcoming) with the

replication of modern Western HRM techniques in Russian affiliates of foreign

multinationals (see Zavyalova et al. 2011).

In 2008 a survey of Russian HRM directors was included for the first time into

the CRANET framework for the comparative study of human resource practices that

allowed further international comparison. This survey uncovered the distinctive

characteristics of Russian HRM system such as low unionization and a low degree of

formalization of performance assessment. That study also confirmed the low relative

rank of the HRM function within Russian companies. The low status of HRM in

Russian firms was exhibited by the low level of participation by personnel directors in

executive boards, their low involvement in strategic issues, and minimal authority of

personnel departments on deciding or influencing remuneration levels and decisions

about lay-offs. HRM directors were often unable to provide even basic data on firms’

financial performance. HR department appears to merely fulfill an administrative

function in Russian firms and be incapable to provide strategic advice to the top

management (see Gurkov et al. 2012).

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The economic recession of 2008-2009 put additional challenges in Russian

HRM system. In many Russian industries, stagnation in output started as early as in

November-December 2007, and the financial crisis in August-September 2008 merely

accelerated the negative trends in firm performance. The fall in output between the

highest and the lowest points was in average for all industries as 23%. The minimum

fall in output was observed in oil extraction (1.2%), the maximal one – in machine-

building (56.9%). However, Russian companies were able to adjust the labor and

employment conditions to the crisis quickly. Firms were able to cut real take home

salary by an average of 30 % and most enterprises were able to avoid politically

undesired large-scale lay-offs either by cutting the remuneration to the minimum wage

thus provoking voluntary redundancies or by offering employees to take “mutually

agreed voluntary leave without pay”. One indicator was that in 2009-2010 the total

number of those on “voluntary leave without pay” equaled the officially unemployed

two million persons or three percent of the total labor force. As a result, the fall in

output did not create a high level of unemployment (unemployment level by ILO

standards has not surpassed 9% in 2009). As the economic situation improved in 2010-

2011, “voluntary leaves without pay” declined and remuneration levels partially

returned to pre-crisis times. Therefore, the experiences of the period between the end of

2008 and 2009, especially the proliferation of voluntary unpaid leaves, confirmed the

‘effectiveness’ of the established system of HRM for solving the current problems of

companies that have found themselves in the midst of a crisis. However, it was stressed:

It is this high effectiveness of adaptation at the micro-level that raises the question of

the socioeconomic costs of the recession in the context of Russia’s entire national

economy. The issue here is not so much the number of jobs lost as the quality of the

jobs that remain. The quality of the remaining jobs has declined as a result of even more

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flexible use of working hours and even more high-handed behavior by management on

matters of performance appraisal and wages” (Gurkov and Zelenova 2011, p. 77).

That prediction was taken into account in designing the research framework for

the present study aimed to depict the post-recession patterns of HRM systems.

Research framework

Theoretical framework for evaluation of HRM in turbulent times including normative

theory of organizational design and the basic hypotheses

The connection between the organization design and strategy has been examined in a

wide-ranging literature (Becker and Gerhart 1996; Delaney and Huselid 1996; Delery

and Doty 1996; Wright and Snell 1998; Martin-Alcazar et al. 2005; Chenevert and

Tremblay 2009). What we propose in this paper is a theoretical framework to study

HRM systems in extremely turbulent times of crisis and post-crisis recovery based on

normative theory of organizational design (see Burton and Obel 2004; Burton et al.

2006). Using the Miles and Snow’s typology of strategic orientation of the firm (e.g.

reactor, defender, analyzer, prospector) (Miles and Snow 1978) the normative theory of

organizational design prescribes particular kinds of organizational parameters for the

case of human resources such as the type of incentives, level of formalization of work

tasks, and type of organizational climate that better “fit” a specific strategic type. Our

major hypothesis was that during the times of rapid and often unpredictable changes in

macroeconomic and market conditions most Russian companies will exhibit the

strategic orientations of “defender” (when companies strive to maintain efficiency of

operations by creating “enclaves of stability” in narrow defined market domains) or

“reactor” (strategy where firms have lost their strategic orientation and simply wish to

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adapt themselves to the rapidly changing market conditions by inconsistent piecemeal

changes in any area of enterprise management).

Burton et al. (2011) predicts the following common characteristics of

“defenders” and “reactors”:

Extremely high centralization of resources.

High formalization of job content.

Incentives (either individual or group) based on behavior.

Organizational climate that is characterized by a variable level of tensions but by

a high resistance to change (“group climate” or “climate of internal processes”).

An additional hypothesis related to HRM management in uncertain times is that despite

the strong objective necessity to enhance quickly the firm’s base of competences the

majority of firms will decrease the amount of internal uncertainty by avoiding

recruiting employees with unusual work experience and dissimilar job preferences.

The choice of respondents

As the previous research of Russian firms (Gurkov et. al 2012) found that there existed

only limited organizational power for Russian personnel directors, we decided to use as

informants on HRM systems top executives, especially CEOs. These respondents

played a central role during the Great Recession and the period of fragile recovery as

they made the final decisions on all strategic personnel issues and shape the HRM

system in their companies. In doing so we continued the tradition of using Russian

CEOs as informants on HRM issues (see Gurkov 1999; Gurkov 2002a; Gurkov, 2002b;

Gurkov and Zelenova, 2009). In addition, we decided to narrow our focus to industrial

companies. Industry was historical the leading sector of the Russian economy and had

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set the model of human resource management in all other sectors (Gurkov et al.,

forthcoming). Although employment in the industrial sector has drastically decreased in

1990-2000s, industrial sectors including extraction and processing industries;

electricity, gas and water; construction still employ in Russia around 20.7 million

persons or almost 30% of the total employment by the 2010s. The working conditions

of industrial jobs in Russia still influence HRM patterns in most other sectors or, at

least, serve as reference points for differentiation.

Constructs and measures

Within the proposed framework, we selected the constructs that may better reflect the

theoretically prescribed characteristics of companies of different strategic types. Type of

remuneration system was assessed by evaluating the proportion between fixed and

variable parts in home-take pay of three categories of employees – managers, non-

managerial white collar workers (also known in Russia as “specialists”), and shop-floor

workers. The variation in remuneration instruments was assessed by the frequency of

use of various monetary incentives and benefits and applicability of non-monetary

benefits to various categories of employees. The formalization of job content was

assessed by the availability of written job description for various employee categories

and by strictness of supervision to ensure compliance with job descriptions and

performance standards. The latter instrument was proposed in Barton et al. (2006).

CEOs were also asked to indicate which type of organizational climate (the

development climate, rational goal climate, group climate, or the internal processes

climate) is currently observed in their companies and which type of climate is the

desired one. Here we used the instrument proposed in Burton and Obel (2004). The

level of centralization of resources was assessed by the degree of discretion of middle

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managers in forming and using budgets of their departments. Finally, CEOs were asked

to assess the expected shortage of particular types of employees and difficulties in

filling the particular types of position. This was a variation of the instrument used in

Gimpelson et al. (2010).

There are exogenous and endogenous factors that may shape or affect patterns of

HRM systems. Thus we collected information at the firm level that included industry

information, absolute size of a company (measured by the number of employees),

relative size of a company (measured by the volume of annual sales by relation to the

average company in the industry), and the CEOs’ participation in firm’s ownership

structure. We put special emphasis on perceived innovativeness (number of types of

innovations that are mastered regularly) and assessment of the current company

performance as the both measures play an important role in assessing the strategic type

of the company.

Data

The survey was conducted in the second half of 2011 and the sample consisted of 201

CEOs of companies from Central Russia involved in various production activities.

National champions, companies that qualify for state aid and subsidiaries of foreign

companies were excluded from the sample.

The sample screen was designed to select firms that operate in the Russian

market without reliance of state aid or under the control and influence of non-Russian

owners as other studies in Russian HRM stress visible differences between “indigenous

Russian companies” and foreign MNCs (see Zavyalova et al. 2011). The number of

employees of the surveyed companies ranged from 150 to 16,100 employees with a

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median size of 500 employees. We could consider our sample, albeit not large, as

representative to the “indigenous” Russian industrial companies.

We also should remind to the reader that we observed industrial companies

during the period of fragile recovery. In our survey almost 63% of our respondents

acknowledged they their industry has experienced a serious recession at the end of 2008

and first half of 2009. Again, in the second half of 2011 CEOs demonstrated very

limited optimism about the current state of their markets.

A generalized view of HRM system of Russian industrial companies

Our research findings are organized beginning with HRM features that are common to

the majority of firms followed by those characteristics with greater variation.

Centralization of resources

A common feature of most Russian HRM systems is extremely high centralization of

resources. Merely eight percent of the surveyed CEOs indicated that middle managers

such as plant superintendents, department chiefs, and others manage separate budgets,

while 92% of CEOs admit that decisions about all significant expenses are made at the

top. This high level of concentration of control reduces dramatically the likelihood of

innovation in process or product by middle managers or shop-floor employees. As all

innovations in employment or work design are centrally controlled, this deadens the

level of initiative of middle managers.

Formalization of job content

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The second universal feature of Russian HRM system is high formalization of job

content (see Table 1 and Table 2). More than 80% of the surveyed CEOs indicated that

written job descriptions are available to all employees, including top managers. In

addition, such job descriptions are controlled tightly or very tightly.

----------------------------

Put Table 1 here

--------------------------

------------------------

Put Table 2 here

--------------------------

So far, we observed organizational characteristics that correspond well to the

theoretically prescribed characteristics of “defenders” or “reactors” – high centralization

of resources and high formalization of jobs.

Demand for the workforce

The experienced recession has not solved the problem of shortage of skills. In our

survey, 24.2 of the surveyed CEOs indicated that their firm has a lot of vacancies that

are filled slowly. This is roughly the same figure (27.2% of companies with significant

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shortage of employees) that was observed in “fat times” of 2005 (see Gimpelson 2010,

p. 315).

It is important to clarify which areas need immediate strengthening. Russian

industrial CEOs see the urgent need to strengthen by qualified employees the three key

functional areas -- production (operations), marketing and sales, and technical support

(see Table 3). It worth to note the complete disregard by CEOs of all “techno-structure”

(in H. Mintzberg’s terms) positions – business planning, finance and accounting and

especially, human resource management. This means that during times of crisis and

post-crisis recovery the existing techno-structure of Russian industrial companies is

considered by CEOs as incapable to offer especially valuable solutions to enhance

radically company’s competitiveness.

----------------------------

Put Table 3 here

--------------------------

If the overall shortage of workforce has not changed much between 2005 and

2011, the selection criteria for the workforce have seriously changed. This became

visible as we compared the perceived difficulty of selecting employees for particular

positions in 2005 and 2011 (see Table 4).

----------------------------

Put Table 4 here

--------------------------

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The recession made easier the shortage of professionals and workers, but

imposed new, much higher standards for selection of managers. It became visible as we

assessed the expressed needs for particular types of employees (see Table 5).

----------------------------

Put Table 5 here

--------------------------

As it was expected, Russian industrial companies have no place for old men, for

strangers (employees exposed to direct or indirect foreign working experience), and, for

young ambitious graduates in economics, management and business administration who

pretend to occupy staff functions. Thus we confirmed our secondary hypothesis about

the reluctance of Russian CEOs to increase internal uncertainty by offering jobs to

unusual types of persons. We should add to the picture of the very low level of

companies’ expenses for personnel training and development. Around 14% of the

surveyed CEOs reported no expenses at all on personnel development in their

companies in 2009-2010, a further 63% assessed the total expenses on personnel

development (including the use of external services providers, purchase of the necessary

literature and teaching materials, tutoring and mentoring, on-the-job training etc.) as

less than one percent of the total sales. So, Russian industrial firms want their

employees to come to the firm with the necessary skills and competences to do their

job. Fortunately (for both employees and employers), Russian industrial companies are

not affected by discrimination practices that became visible in service sectors race

(nationality) is not taken into account as a selection criteria. Gender issues are important

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for clerical positions (for example, job advertising usually require females as book-

keepers and accountants), but do not affect managerial positions.

In general, CEOs desire that they staff their companies by employees at the

heights of their physical and mental abilities who will have no trouble in adaptation and

will not introduce unfamiliar working habits and standards. The clearly articulated

avoidance of employees with exposure of foreign experience either acquired in Russian

subsidiaries of MNCs or by working abroad indicates that CEOs have a strong bias

against employees who may question their power and expertise.

Organizational climates – expected and desired

The important measure of HRM system is assessment by CEOs of the current

and desired type of organizational climate. On these questions we received the most

interesting results (see Table 6).

----------------------------

Put Table 6 here

--------------------------

First, the observed organizational climates of the majority of companies are the

climates theoretically prescribed for “reactors” or “defenders”. Around 18% of CEOs

observe in that their companies group climate, prescribed for “reactors” where the

company is like an extended family; atmosphere is friendly, top managers are

considered as parental figures. Further 48% observe the “climate of internal processes”

prescribed “defenders” when the firm is a set of well-built and effective procedures,

processes and structures; leaders are good coordinators. Regarding the desired climate,

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the situation is similar as 12% of CEOs wish to see a group climate and 49% a climate

of internal processes. The majority of CEOs who observes either group climate or

climate of internal processes are satisfied with the atmosphere in their companies and

wish to keep the climate unchanged.

The most interesting, however, are desires of those CEOs who observe in their

company “climate of rational goals” (an organization is oriented towards properly

measured financial results; high demands are imposed on employees, and internal

competition is encouraged) or a “developmental climate” (the firm is a dynamic and

creative place to work; leaders are considers as innovators with a bit of adventurism and

individual initiative, constant readiness to change and to surpass competitors are

encouraged). Almost half of CEOs who observed a developmental climate and a third

of CEOs who observe a climate of rational goals wish to move their company towards a

climate of internal processes which fits better a strategic orientation of “defenders.”

So far, we have found evidence supporting our initial hypotheses that the

overwhelming majority of industrial Russian companies assemble HRM systems for the

better fit with “defender” and “reactor” strategic postures. However, the picture of

remuneration system in the surveyed companies turned out to be less uniform.

Remuneration systems

Remuneration systems were assessed by the estimation of the overall flexibility

of the current payment conditions, reasons for offering variable parts of home-take pay,

the structure of additional benefits offered to employees and the methods of non-

financial recognition used (see Table 7-Table 10).

----------------------------

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Put Table 7 here

--------------------------

CEOs present a very interesting picture of the division between fixed and

variable parts in home-take pay. Although the mean and median do not differ for

various employment categories as around 30% is the average share of the variable part

in home-take pay, the mode seems to be a more informative parameter. The modal share

of the variable pay is 50% for managers, 30% of non-managerial white collar

employees and 20% for shop-floor workers. The trend is obvious as an employee moves

up through the hierarchy the higher the share of his/her total pay consists of variable

pay.

This contradicts our initial hypothesis of shaping the remuneration system

accordingly to “behavior-based” measures. This became even more obvious as we

assessed the prevalence of particular reasons for administering awards and bonuses (see

Table 8).

----------------------------

Put Table 8 here

--------------------------

Result-based measures, including measures based on company’s performance

are prevalent forms of additional remuneration of employees in Russian industrial

companies. At the same time, the system of social benefits offered to employees

somehow counterbalance the measures based on company’s performance (see Table 9).

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----------------------------

Put Table 9 here

--------------------------

The majority of social benefits are offered to a limited fraction of employees,

mostly to managers or senior employees from other categories of workforce

(“specialists” and experienced skilled workers). This weakens the role of result-based

monetary bonus system.

We should also remember that besides monetary benefits Russian industrial

enterprises inherited from the Soviet time a developed system of measures of non-

financial recognition (see Table 10). Such measures are given at the discretion of top

management and enforce the individualistic and merit-based character of remuneration

system.

----------------------------

Put Table 10 here

--------------------------

Prevailing model of HRM system in Russian industrial companies – preliminary

results

Based on the previous and the present studies, we may depict the following dominant

features of the typical Russian HRM system:

Decision-making on every important issue of enterprise development is

concentrated at the very top of management hierarchy, with very limited

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discretion of middle managers on budgets of their departments and remuneration

of subordinates.

A low level of unionization and minimal state guaranties of payment enable

companies to alter both payment levels and work regimes in very broad limits.

While the job content is highly formalized and the current control of behavior

and performance of employees is tight, personnel evaluation is done in a great

extent in informal way thus increasing the power of top managers over

employees.

Russian industrial CEOs wish to see their companies as smoothly run

“machines” assembled from sets of well-built and effective procedures,

processes and structures. At the same time, functional departments of Russian

industrial companies (so-called “techno-structure”) are mostly seen as

“auxiliary” units. Moreover, aspiring to achieve smoothness and efficiency of

operations, Russian CEOs avoid as much as possible recruiting persons with

unusual skills and experience, especially employees who are exposed directly or

indirectly to Western management techniques and practices such as former

employees of foreign subsidiaries of MNCs, and young graduates of business

schools.

Such a grim picture should be complemented by a very complicated remuneration

system that, first, should ensure the connection of individual additional monetary

rewards that occupy between a third and a half of the total home-take pay to company

performance, second, should enable top managers to divide employees into separate

groups with contradicting interests and, third, should facilitate to assure loyalty of key

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employees by offering to them individualized monetary rewards, unique social benefits

and various measures of moral recognition.

Variances in HRM systems in Russian industrial companies

The picture presented above is uniform regarding the level of formalization of

job content, the powerlessness of middle managers and avoiding to recruit “suspicious

subjects.” At the same time, we found visible variances in

the organizational climates Russian CEOs observe and wish to establish in their

companies;

peculiarities of remuneration system based on the share of a variable part in

home-take pay; and

the use of particular measures of material remuneration and non-financial

recognition.

In this respect, we attempted to understand how such variations are related to two

parameters the relative profitability and the innovativeness of companies. The choice of

these two parameters followed a quite simple logic. As the business conditions improve,

the greater share of industrial companies will exhibits higher profitability and

innovativeness. Thus, by evaluating how HRM systems are organized now in small

fractions of profitable and/or innovative companies, we may predict the possible after-

stagnation evolution of HRM systems in Russia.

For our analysis, we measured perceived profitability as relation between the

assessment by CEOs of costs and prices of their companies versus direct competitors.

Innovativeness was measured by the number of areas production, marketing, finance,

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internal organization of the firm that experienced significant changes in 2009-2010. In

our sample there were 30% of companies with abnormal low profitability, 57% of

standard profitability and 13% of companies with abnormally high profitability. Again,

there were 37% of companies with extremely low innovativeness, 36% of low

innovativeness, and 27% of companies demonstrated high innovativeness. It should be

noted that in current conditions of Russian industries the level of innovativeness and

profitability are completely independent parameters (corr. 0.074; sign. 0.305).

The results of our analysis were discouraging in terms of the implementation of

HRM systems design to support firm level strategy. First, innovative companies do not

differ from their less innovative colleagues in assessing the need of personnel of

specific experience and skills. In a comparison of the variation of level of profitability,

only very profitable companies differ significantly (sign. 0.060) from their less

profitable colleagues in terms of a higher desire to recruit persons with foreign working

experience.

Profitable and innovative Russian companies also do not differ from other

companies by the share of a variable part in home-take pay. The variance in types of

monetary benefits was also very limited – only most innovative companies use more

often quarterly/annual bonuses based on department’s performance (sign. 0.016).

Regarding social benefits, both very profitable and innovative companies use additional

medical insurance for a wider circle of employees (sign. 0.030 for profitability and

0.080 for innovativeness). In the Russian context, additional medical insurance has real

significance to employees. State medical care remains substandard and additional

medical insurance enables insured persons to visit better clinics or to be placed in better

hospitals.

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In a examination of the correlation between variables concerning the measures

of non-financial recognition, profitable companies use more often verbal recognition to

employees either in private conversation (sign. 0.066) or at the presence of the top

management (sign. 0.037). Innovative companies put greater emphasis on “written

recognition in an official letter” (sign. 0.008). It terms of “moral” persuasion and

recognition both innovative and profitable firms do attempt to create a non-financial

connection between their employees and the firm, though limited in scope. Most

importantly CEOs of innovative companies do not differ from their colleagues at non-

innovative companies in their preferences in the desired organizational climate as the

absolute majority (55%) of CEOs of innovative companies desire a “climate of internal

processes” in their companies.

So, we may see that profitable and innovative enterprises differ from other

companies only in a few minor aspects of HRM system – the both types of companies

are more willing to spend the time of the top management on moral recognition of

employees and also inclined to spend a fraction on their profit on health care of their

employees. However, even profitable or innovative companies do not see the reason to

change the essence of HRM system as they just wish to add more “lubrication” into

smoothly-run mechanisms of managing their companies as production units. This means

that the period of economic recovery in the post 2009 period will not adjust seriously

the prevailing features of “defender-oriented” HRM patterns. Results from our surveys

in 2011 indicated that firms are unaffected by market conditions on how they design

and implement their HRM systems. The expectation is that even in the post recessionary

period there will be limited evolution in HR practices and the dominate features of

Russian HRM archetype will remain in force.

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Evolution of HRM systems in Russian industrial enterprises

The conclusions in the previous paragraph do not mean that HRM systems in Russian

industrial enterprises are absolutely stable. We found significant shares of companies

engaging in implementing innovations in their HRM systems (see Table 11).

----------------------------

Put Table 11 here

--------------------------

The intensity of innovations in HRM system is in part related to the higher

articulated shortage of young line managers and older specialists with unique

experience. However, such shortages are in turn, specified by higher innovative

activities of companies in product and technological innovations (see Table 12).

----------------------------

Put Table 12 here

--------------------------

Regarding the impact of innovations in HRM practices, we discovered that just the

beginning of considerations about the changes in HRM system signifies real

implementation of some changes. Companies that “consider”, “implement pilot

projects” or “implement regularly” the changes in performance assessment and

remuneration schemes, do not differ from themselves significantly, but they do differ

significantly (sign. 0.100 and less) from companies that do not consider changes as:

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they have higher level of expenses on training and personnel development;

they use more often “written recognition in a decree”;

they use more often “presentment of employees to honorary titles”; and

they use more often all forms of material benefits -- personal additions to the

salary based on personal results (achievement of targets); irregular bonuses for

extraordinary achievements; quarterly/annual bonuses based on individual

performance; personal additions to the salary based on personal merit

(competences, loyalty, length of service); quarterly/annual bonuses based on

performance of a department; quarterly/annual bonuses based on company

performance.

Thus, the majority of Russian industrial companies as the business conditions are

improving are keen to expand the repertoire of remuneration measures. At the same

time, the key element of remuneration system – the proportion of a variable part of

home-take pay -- is exactly the same in all the selected groups of companies (in average

32-37% for managers; 31-33% for “specialists” and 32-34% for workers).

Discussion

Our study indicates that the traditional form of administration and control dominates the

HRM practices of Russian firms as this survey of CEOs demonstrates. Russian firms are

not constrained by traditions of worker involvement, labor representation, or employee

rights and the institutions support the dominate position of the employer in the

relationship.

Within the institutional environment the dominate HRM model thrives without

limited regard to strategic demands of the firm or changes in the market place or society

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in general. There exists widely recognized problem relating to the supply and quality of

new employees due to the changes in the demographic conditions in Russia as the very

small generation of the people born in 1990-1999 enters the job market from 2008 to

2018. Firms have not adjusted the HRM practices to account for these changes in the

supply of workers (as they still avoid to recruit younger employees). Simultaneously,

the ability of firms to recruit necessary personnel within the given system of preferences

and constraints in employee selection is decreasing. As we have seen, the shortage of

qualified managers became acute. This research indicates that the majority of CEOs

understand that practices need to react to market and demographic forces but such

reactions are mostly superficial and do not affect the essence of HRM system – arbitrary

evaluation practices, complete lack of power of middle managers in remuneration of

their subordinates, limited proportion of a variable part in home-take pay.

Another dominate feature of Russian HRM has been the stability of practices. A

longitudinal analysis of Russian HRM practices (Gurkov at al. forthcoming) indicates

that many current practices (especially the forms of “moral recognition”) stretch back

into the Soviet period. The durability of these conditions regarding CEOs practices

concerning HRM practices is not new as demonstrated by the conclusion drawn by

Gurkov (2002) in a study after the 1998 crisis.

Innovations in HRM as our survey of CEOs are subordinated to other types of

innovations – product and technological innovations. Such innovations are implemented

regularly only in a minority of firms (see Gurkov, 2011). These firms may have also had

either analyzer or prospector strategies prior to the period of crisis and continued or are

now reviving these practices as stability returns to the Russian market. However, such

“would be” analyzers or prospectors miss the key ingredient of their strategic type – the

25

desire of CEOs to maintain the corresponding organizational climates (developmental

climate or “climate of rational goals”). This means that innovations, including gradual

innovations in HRM systems will create “strategic misfits” (unbalanced situation

between structure, strategy, HRM systems and organizational climate). Serious mental

shifts in “upper echelons” are needed to give innovative firms rid from the formalized

and centralize nature of the Russian HRM archetype.

Conclusions

The economic recession of 2008-2009 put most of Russian industrial enterprises into

defensive or even reactive positions. Companies strove to defend their market niches

and to re-establish stability. The design of HRM system has been subordinated to that

task. Thus, the observed high centralization of resources and high formalization of job

content, and an emphasis on climate of internal processes are quite logical. These

patterns shape HRM system for the best fit with the theoretically prescribed

organizational design of a “defender” based on the Miles-Snow typology of strategic

types. The position of a defender, especially a low-cost defender also explains the

reluctance of Russian CEOs to increase labor force diversity through the avoidance of

younger and older employees and especially of employees with greater exposure to both

direct and indirect foreign working experience and to spend funds on training and

development.

However, the observed features of remuneration systems contradict the patterns

theoretically prescribed for “defenders” such as group measures oriented towards

motivation of behavior (opposed to result-based motivation). Russian industrial

companies widely use highly individualized systems of results-based motivation,

26

carefully selecting employees of extraordinary performance and offering for such

persons a broad range of measures of both material and moral recognition.

These patterns (especially the individualized remuneration system) coupled with

earlier observed characteristics of Russian HRM systems (Gurkov et al. 2012) as low

level of legally guaranteed pay, low unionization rates, extremely poor unemployment

protection and low level of formal procedures in performance appraisal form all

together a consistent system of “Theory X” industrial relations system similar to the US

system in 1930s which were the recovery years after the Great Depression of 1929-

1933. More importantly, companies that demonstrate higher profitability and

innovativeness still do not differ in their HRM arrangements except for a few minor

details. We have demonstrated that the “explosive” changes in the dominant HRM

archetypes are related with regular implementation of both product and process

innovations, and also requires profound changes in the mind-sets of “upper echelons”.

However, the changes in mind-sets are feasible as the new ways of thinking and

behavior are properly rewarded. Under present conditions of Russian industries, there is

minimal coincidence between higher innovativeness and abnormally higher

profitability. Unless such connection will be re-established (perhaps, in the next stages

of the current business cycle), we cannot expect serious adjustment of the described

dominant archetype of HRM system in Russian industries.

Acknowledgements

This study was carried out within “The National Research University Higher School of

Economics’ Academic Fund Program in 2012-2013, research grant No. 11-01-0022” and with

support from the research grant of the Faculty of Management of the National Research

University Higher School of Economics.

27

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Table 1. Presence of job descriptions

Variant of answer Percent of

CEOs

No job descriptions 1

For some positions 4

For all shop-floor employees 5

For shop-floor employees and middle managers 9

For all employees, including top managers 81

30

Table 2. Control of job descriptions

Variant of answer Percent of

CEOs

Loose 16

Tight 58

Very tight 26

31

Table 3. Indication of functions that need immediate strengthening

Area Percent of CEOs

Production 73

Sales and marketing 48

Technological department 44

Design of new products 19

Planning 8

Finance and accounting 8

Supply 7

HRM 6

32

Table 4. Comparison of perceived difficulty of selection of various skill groups in

2005 and 2011

Managers Professionals

(“specialists”)

Workers

2005 2011 2005 2011 2005 2011

No difficulties 57.1 16.0 4.2 14.4 1.5 21.2

Some difficulties 33.5 56.5 57.6 58.7 41.4 48.5

Extreme difficulties 9.3 27.5 38.0 26.9 56.9 30.3

Note: data for 2005 was recalculated from (Gimpelson et al 2010, p. 319). For workers

we took Gimpelson et al. 2011 data for “skilled workers.”

33

Table 5. Reported shortage of particular categories of employees (percent of

CEOs)

Employee category No need Some need Acute shortage

Workers of unique professions 24 50 26

Specialists of unique professions 31 46 23

Young workers 39 40 21

Young line managers (foremen,

shop managers)

38 43 19

Young specialists of functional

departments (finance, marketing,

supply, personnel etc.)

56 35 9

Older employees with unique

experience

54 36 10

Employees with experience in

Russian subsidiaries of MNCs

74 19 7

Employees with oversea working

experience

74 19 6

Other categories 93 2 5

Table 6. Current and desired organizational climates

Current climate Desired climate Percent of

34

Group Internal

processes

Rational

goals

Developmental companies

with the

current

climates

Group 58 18 12 12 18

Internal processes 3 67 17 12 48

Rational goals 0 34 51 15 22

Developmental 8 44 0 48 12

Percent of

companies with

desired climate

13 49 22 17

Note: data in italic presents the distribution of answers about the current and desired

climates, data in bold presents the shares of CEOs who which to maintain the current

organizational climates, data in plain text presents percentages of CEOs who wish to

move from the indicated current climate towards the indicated desired climate.

35

Table 7. The share of the variable part in home-take pay (percent)

Measures Employment category

Managers Non-managerial

“white collars”

Shop-floor

workers

Mean 36 32 33

Median 30 30 30

Mode 50 30 20

Percentage of

respondents with

mode value

17 17 15

36

Table 8. The shares of the firms that regularly use various measures of material

remuneration (percent)

Measure Regularly Occasion

ally

Not used

Measures of bonuses based on individual results

Personal additions to the salary based on personal

results (achievement of targets)

36 41 33

Irregular bonuses for extraordinary achievements 31 55 14

Quarterly/annual bonuses based on individual

performance

37 25 38

Merit pay

Personal additions to the salary based on personal

merit (competences, loyalty, length of service)

28 39 33

Bonus based on performance of a department

Quarterly/annual bonuses based on performance of a

department

37 27 36

Bonuses based on company performance and profit sharing

Quarterly/annual bonuses based on company

performance

50 23 27

Stock options 2 10 88

37

Table 9. Use of social benefits (percent of companies)

Type of benefit Not used Some

employees

Selected

categories

of

employees

All full-

time

employees

Additional sickness allowance 21 22 16 41

Additional medical insurance 48 12 11 26

Holiday premium 48 12 12 25

Compensation of training

(learning) expenses

44 31 17 8

Housing allowance 56 28 10 7

Credits to employees 56 32 8 4

38

Table 10. The use of measures of moral recognition (percentage of companies)

Measure Frequency

Not used Occasionally Regularly

Verbal recognition in private conversation 10 40 50

Verbal recognition in presence of his/her

colleagues

8 39 52

Verbal recognition in presence of top

management

10 47 42

Written recognition in a decree 14 39 47

Recognition before colleagues (the board of

the best employees, radio announcements,

Intranet announcements etc.)

24 31 44

Invitation of employees to events where the

firms receive awards, prizes etc.

25 37 37

Dignity “The best in the firm” etc. 39 25 35

Industry honorary titles 33 33 34

Presentment to state orders 52 29 19

Table 11. Innovations in HRM systems (percentage of companies)

Type of innovation Degree of actions

Not

considered

Under

consideration

Realized as

pilot

projects

Realized

regularly

39

New sources of personnel

recruitment

33 26 22 19

New methods of performance

assessment

22 25 27 25

New remuneration schemes 19 23 38 20

40

Table 12. Correlation of innovations in HRM practices in other innovations

Type of innovation Type of innovations

New

products

New

marketing

channels

New

technologies

New

methods of

quality

control

New sources of personnel

recruitment

0.323** 0.240** 0.103 0.229**

New methods of performance

assessment

0.275** 0.154* 0.266** 0.339**

New remuneration schemes 0.284** 0.083 0.413** 0.345**

Note: * - significance at 0.05 level (2-tailed), ** - significance at 0.01 level (2-tailed)