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EMPLOYEE SELECTION FOR SMALL BUSINESS OWNERS: THE INFLUENCES OF THE UNIFORM GUIDELINES AND COURT DECISIONS Edward, Ph. D. McKendree College Business Division 701 College Road Lebanon, IL 62254 (618)-537-4481 ABSTRACT The Uniform Guidelines on Employee Selection Procedures (1978) were promulgated with large businesses in mind in order to affect large numbers of employees as rapidly as possible.

However, the employee selection validation procedure advocated by the Equal Employment Opportunity Commission, criterion related validity, is one that small business owners are unable to use due to statistical restraints and the lack of personnel with the esoteric knowledge of validation procedures. These restrictions, coupled with court decisions such as Albemarle Paper Company v.

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Moody in which the United States Supreme Court ruled the test validation guidelines issued by the EEOC were to be given “great deference” by lower courts, have left small business owners with one practical and potentially legally defensible approach to employee selection. This paper briefly mentions the advantages of valid employee selection procedures, followed by a detailed description of the Uniform Guidelines on Employee Selection Procedures (1978), relevant court cases, and a case study describing the validation of a small business employee selection test by the author.

INTRODUCTION The importance of small business to the U. S. economy was well summarized by Siropolis (1986), who wrote: … more than 99 percent of the nation’s 16 million businesses are small-even if we define a small business as one that employs fewer than 100 rather than 500 …. Further evidence of its vitality is the fact that small business employs roughly half of the nation’s workforce (pg. 8). In addition, Siropolis (1986) listed numerous other reasons for the importance of small business to the U. S. conomy, such as the higher return on equity small manufacturers earn than large manufacturers, the innovation found in small businesses as evidenced by small businesses accounting for half of all major inventions in the last 30 years in the U. S. , and the dependence of large businesses on small businesses as both suppliers and purchasers. These economic facts indicate that small business in the U. S. is the paramount force for economic growth and the creation of jobs, as noted recently: Small businesses are the principal job creating sector of the economy during recessions and expansions” (“The State Of”, 1985, pg. 46). Further evidence of the economic importance of small business has recently been published: Employment gains in small-business dominated industries in construction (18. 9 percent), finance, insurance and real estate (12. 7 percent), and services (12. 6 percent) are impressive when compared to the gains made in similar, large business dominated industries. In construction, the small business ted industries had employment gains of 18. 9 percent, while the large business industries showed an employment loss of 10. percent. The relative strengths of the small business gains in wholesale and retail trade are also significant …. Small firms with fewer than 100 employees… generated 52. 6 percent of net employment growth from 1976 to 1982. (“The State Of”, 1985, p. 17-21). One can add to this the reliance of the U. S. government on small businesses, as evidenced by the federal government purchasing almost 29% of its of goods and services from small businesses in 1983 (“The State Of”, 1985).

EMPLOYEE SELECTION An area of vital importance within small business management is the area of employee selection. An increasing awareness of the importance of employee selection has been noted: “Nearly 40% of surveyed employers are using more prehiring testing of job candidates than they were five years ago” (“Prehiring Tests”, 1986, p. 17). The importance to the U. S. economy of employee selection in a small business is due both to the fact that small businesses create the majority of new jobs in the U.

S. (Birch, 1979; “The State Of”, 1985), and the impact of the employee selection process on a small business. First, the results of a valid selection procedure include increased productivity of as much as 20 percent (Schmidt, Hunter, McKenzie, & Muldrow, 1979). This is an important result to small business owners, as productivity improvement has been rated as the number one concern of both CEOs and executives and engineers in separate surveys (“Productivity: A Top”, 1986, p. 46).

Other important results include an avoidance of lawsuits (Dreher & Sackett, 1981; Kleiman & Faley, 1978), greater job satisfaction and organizational commitment, reduced absenteeism and fewer disciplinary actions (Fear & Ross, 1983), reduced time spent in supervision for the small business owner, and reduced training costs and turnover (Stone & Ruch, 1974). The potential for reduced turnover is also important for small business owners, due to recent data indicating that: Small businesses have higher annual employee turnover than large companies.

The Administrative Management Society reports that businesses with 26-250 employees have a 19% turnover rate, while larger firms (more than 5000 employees) average only 7% (“Small Businesses, Turnover” 1986, p. 13). In total, these results are particularly important due to the greater relative effect each employee has in a small business as opposed to the effect of an individual employee in a large business. In the U. S. , the employee selection procedures used by all business owners are regulated by the Uniform Guidelines on Employee Selection Procedures (1978).

The Uniform Guidelines (UG) were designed to provide technical assistance to employers and were written following a review of relevant court cases and consultations with industrial psychologists. At present, the UG are serving as a reference for determining the legality of currently used selection tests. The UG are administered by the Equal Employment Opportunity Commission (EEOC), which is empowered to do so by Title VII of the Civil Rights Act of 1964.

As Landy and Trumbo (1980) have noted: “The EEOC has evolved from a weak public advocate status to a strong and active enforcement agency, with broad powers to initiate and negotiate legal and administrative action on behalf of protected minority groups” (p. 92). Although the UG are not “law” as a lawyer would define law in that they were not passed as bills in Congress, they are frequently referenced as technical guides by judges. In the UG, the employment decisions made by business owners and managers are regulated and broadly defined, e. . , promotions, referrals for training, as well as selection for hiring are all subject to the influence of the UG. The UG list three allowable approaches to validating a selection test used by a business. Briefly, criterion related validation approaches focus on the statistical ability of the selection test to predict the criterion, or as noted by Dreher and Sackett (1981): “… criterion-related approaches focus on the relationship between a hiring requirement and job behavior” (p. 552).

Another way of describing criterion-related validity was written by Landy and Trumbo) (1980): “When we are investigating the validity of a selection procedure using a criterion related design, typically, we are looking for a significant correlation between a test (predictor) and job behavior (criterion)” (p. 70- 71). The UG define criterion related validity in this way: “In criterion related validity, a selection procedure is justified by a statistical relationship between scores on the test or other selection procedure and measures of job performance” (P. 8292, Federal Register, 1978). According to the UG, the requirements of the job analysis, which is a comprehensive definition of the tasks performed by a job incumbent, are: “There should be a review of job information to determine measures of work behavior(s) or performance that are relevant to the job or group of jobs in question”. The paramount difficulty with conducting a criterion related validity study for the small business owner is the required number of hirees, which is discussed in the UG under the term of “technical feasibility”.

Although the minimum is not specified in the UG, an absolute minimum is 30 employees (Heneman, Schwab, Fossum, & Dyer, 1986). For many small business owners, this minimum number is more employees than they hire in a year, which in turn makes the criterion related validation approach of little value. In addition, the statistical measures required by the criterion related validity approach are often recondite for a small business owner.

Construct valuation approaches attempt to measure an applicant’s amount of psychological characteristics such as “need for achievement”. The UG discuss construct validity in this manner: “Construct validity involves identifying the psychological trait (the construct) which underlies successful performance on the job and then devising a selection procedure to measure the presence and degree of that construct” (p. 38292, Federal Register, 1978). The construct validity of a test refers to the extent to which it measures the construct it is supposed to measure.

Landy and Trumbo (1980) noted: “It is the most theoretical of the definitions of validity, since it is concerned with the abstractions used in referring to psychological structures, functions, or traits, rather than to the prediction of some external criterion” (p. 73). The job analysis for a construct validity study involves a list of critical job behaviors and the constructs believed to underly the behaviors. These studies are difficult to do, as a “construct” is a hypothetical attribute of a person that underlies and guides their behavior. Content validation approaches are oncerned with the job relatedness of the selection test rather than a concern with the criterion. Landy and Trumbo (1980) defined this approach toe employee selection procedure validation as: “Content validity is concerned with the extent to which the sample of items in a test (and the sample behavior elicited by these items) is an unbiased representation of the domain (i. e. , attribute or trait) being sampled” (p. 71). According to the UG: “A selection procedure can be supported by a content validity strategy to the extent that it is a representative sample of the content of the job”.

An important concept for a content valid selection procedure is the job analysis, which was defined by Schultz (1978): “The purpose of the job analysis is to describe, in specific term, the precise nature of the component tasks performed by the workers on a particular job” (p. 76). A job analysis can be approached in a variety of ways, as noted by McCormick and Tiffin (1974): “Job analysis can be considered as embracing the collection and analysis of any type of job related information, by any method, for any purpose” (p. 9). The job analysis for a content validity study involves interviewing and observing incumbents: Job analysis for content validity. There should be a job analysis which includes an analysis of the important work behaviors(s) required for successful performance and their relative importance and, if the behavior results in work product(s), an analysis of the work product(s). Any job analysis should focus on the work behaviors and the tasks associated with them …

The work behaviors selected for measurement should be critical work behaviors and/or important work behaviors constituting most of the job. The key to content validity is the answers to the questions the small business owner must ask: “How representative of on the job behaviors is the test? Does it sample all important aspects of the job? ” Landy and Trumbo (1980) wrote “Content validity is determined on the basis of how well the test material samples the job performance domain” (p. 72). The validity of a content validation study is judgmental; no statistical analysis is done (Robinson, 1981).

The value of the content validation approach to a small business owner is that it allows a selection test to be validated within the UG restraints, and at the same time it does not require large sample sizes or recondite statistical analyses: When is content validation appropriate? One circumstance is when there are too few people available to form a sample for purposes of empirical validation. While there are differences of opinion on what the minimum necessary sample size is for empirical validation, an absolute minimum is 30 individuals who all perform the same job (Heneman et al. 986, pg. 281-283). The restrictions of the content validity approach are few. One of the restrictions is that the selection test should consist only of knowledge or skills that cannot readily be learned on the job (Miner & Miner, 1980). In addition, content validity is prohibited by the UG to measure mental processes as part of a selection procedure. An example of the content validation approach to employee selection is the appropriately titled Content Oriented Personnel Selection in a Small Business Setting by Robinson (1981).

In his article, which involved the content validation process needed in designing a selection procedure which was used to hire one construction superintendent for a small construction firm, Robinson (1981) informs the reader of the steps necessary in a job analysis for a content valid selection test: 1. Convene a panel of experts…. 2. Ask the panel to identify all the broad objectives to be met by an ideal incumbent on the target job. If objectives can be so quantified that they can properly be called standards, so much the better…. 3.

List specific behaviors required to meet each objective …. 4. Identification of “critical” tasks … The content sample will be valid to the extent that the critical tasks reflect actual job performance …. 5. Determination of interjudge agreement as to the importance of major dimensions of the job… (pgs. 78-79). The importance of such a systematic approach to the job analysis was emphasized by Dreher and Sackett (1981): “The quality of any content validation effort depends on the thoroughness and appropriateness of the job analysis” (p. 54); the job analysis will be used to determine if the content valid test actually samples relevant job behavior mentioned in the job analysis as important. Having conducted the job analysis, Robinson (1981) constructed a test battery based upon work sample procedures. As an example, the applicants were given a construction error recognition test in which the applicants were required to inspect a 8′ by 12′ shed that contained 25 construction errors. The applicants were to list the construction errors they spotted during their inspection.

This emphasis on the UG when discussing employee selection approaches for small business owners stems from two major court cases which directly ruled on the use of content validity as a way of validating a selection instrument. In Firefighters Institute for Racial Equality v. City of St. Louis, a promotional examination for fire captains was ruled to have adequate content validity within the directives of the UG. In U. S. v. Connelie, a selection procedure for New York State Police was ruled to be invalid due to in large part the lack of a task-oriented job analysis nor was the frequency and importance of job duties identified.

In both of these cases, the UG used in making the judicial rulings. Two other court cases which indicate the importance of understating content validity are Harless v. Duck and King v. New Hampshire Department of Resources and Economic Development. In Harless v. Duck, a structured oral interview was found to be rejecting more female applicants than male applicants, however, the employer argued the interview had content validity in that hypothetical situations were used that a police officer might actually face.

The court ruled the selection interview was valid, in large part due to its content validity. In King v. New Hampshire, a business lost a discrimination lawsuit due to applicants being asked questions which were not job related, i. e. , not based on a job analysis and therefore not content valid. With the importance of employee selection validation in mind, coupled with the feasibility of the content validation approach for small business owners, I would like to describe the approach I used for a small business owner located in the Midwest.

The small business is a general purpose real estate office (“general purpose,” in the sense that it handled farm, commercial, and private dwelling real estate sales) which has two owner managers and 10 sales associates. The primary function of the sales force for this small business is to sell as much real estate as possible, in terms of monetary value rather than number of units sold. The organization did not have a job analysis of the job of real estate agent and was using an unstructured interview to hire applicants. The initial step was to develop a job analysis.

The purposes of the job analysis were to (a) define the job duties being performed by the job incumbents, (b) obtain a listing of the requisite knowledge, skills, and abilities to perform each job duty, and (c) determine the importance and time spent on each job duty as perceived by the incumbents. For this small business, the process of collecting information for the job analysis consisted of three steps: (a) reviewing the appropriate entry in the Dictionary of Occupational Titles, (b) reading the job related material from the firm’s files, and (c) a series of interviews with all 10 real estate agents and both of the owner-managers.

Due to the job analyst’s lack of familiarity with the job, the first step was to review the job description in the Dictionary of Occupational Titles. Its value is noted by Bass and Barrett (1981): “The job analyst can turn to the Dictionary of Occupational Titles to get a concise definition of almost any job in American industry” (p. 238). The use of this volume when approaching a job one is not familiar with was also noted by Cascio (1978): “First, the reader can become familiar with the vast array of jobs in general and with appropriate terminology in each job, (p. 47). The second step also involved acquiring some job related information about being a real estate agent; this step consisted of a reading of the informational and training manuals that are made available to the real estate agents. The perusal of these manuals was valuable in giving the job analyst background information necessary to conduct the third step of the information collection, the interviews with job incumbents. These interviews were conducted in a private room and ranged from 30 to 90 minutes.

The interviews followed a patterned interview form, as recommended by Cascio (1978). The interview questions asked for traits, behaviors, and knowledge that the incumbents deemed necessary for the completion of the job of real estate agent. The interviewees were also informed that any knowledge or behaviors an applicant could learn within eight hours was not to be included. An example of an interview question is “What is the order of behaviors from the time you contact a customer until you are through with a sale? ” The interviews generated a list of 106 job duties.

Each of the interviewees received a copy of the 106 job duties, along with an instruction sheet asking them to rate each item as to its importance to their job and the relative amount of time they spend performing that job duty. The mean rating given each of the 106 job duties was computed by the job analyst for both the rating dimensions. With the interview information and summary statistics on hand, a selection instrument was constructed which was based on job duties which were rated highly in terms of their importance and time spent on each of them by job ncumbents, and which job incumbents considered were not trainable within eight hours. The selection instrument was based on a job sample approach, which is valid for a content validity based selection instrument. As an example, the selection instrument asked an applicant to calculate monthly payments on a home given certain financial parameters. The questions were given to six randomly selected job incumbents who were asked to choose which of the job sample test questions an applicant would have to pass in order to meet minimum standards as a new employee.

The job incumbents overall picked an average of 80% of the job sample items as being necessary for a new employee to pass to be acceptable at a minimum level of acceptability. Therefore, an applicant would have to score a minimum of 80% in order to be considered for employment. As a check on the validity of the 80% cutoff score, the job sample questions were given to the four other job incumbents. All of these incumbents were considered to be satisfactory employees by the business owners, and all received a passing score of over 80%.

In summary, small business owners need to be aware of the UG, the court cases which have resulted from the UG, the one practical approach to validating a selection procedure, and the advantages to having a validated selection procedure. By following the outline of Robinson (1981) or the case presented in this paper, the small business owner can both enjoy the benefits of a validated selection procedure and lessen any worry over an EEOC lawsuit. REFERENCES Bass, B. M. , & Barrett, G. V. (1981). People, work, and organizations.

Boston: Allyn and Bacon, Inc. Birch, D. L. (1979). The job generation process. M. I. T. Program on Neighborhood and Regional Change. Cambridge, Massachusetts. Cascio, W. F. (1978). Applied psychology in personnel management. Reston, Virginia: Reston Publishing Company, Inc. Dreher, G. F. , & Sackett, P. R. (1981). Some problem with applying content validity evidence to assessment center procedures. Academy of Management Review, 6, p. 551-560. Fear, R. A. , & Ross, J. F. (1983). Jobs, Dollars, and EEO: How to Hire More Productive Entry- Level Workers.

New York, McGraw-Hill. Harless v. Duck, 14 FEB 1616 (1977). Heneman , H. G. , Schwab, D. P. , Fossum, J. A. , & Dyer, L. D. (1986). Personnel/Human Resource Management. Homewood, Illinois: Irwin. King v. New Hampshire Department of Resources and Economic Development, 15, FEB 669 (1977) Kleiman, L. S. , & Faley, R. H. (1978). Assessing content validity: Standards set by the court. Personnel Psychology, 30, 701-713. Landy, F. J. , & Trumbo, D. A. (1980). Psychology of Work Behavior. The Dorsey Press, Homewood, Illinois.

McCormick, E. J. , & Tiffin, B. L. (1974). Jobs and their requirements. Industrial Psychology, (6th ed. ). Miner, M. G. & Miner, J. B. (1980). Uniform Guidelines on employee selection Procedures. Washington, D. C. , The Bureau of National Affairs. Prehiring Tests. (1986, June). Small Business Report. Business Research and Communications, Monterey, California. Productivity: A Top Concern. (1986, February). Small Business Report, Business Research and Communications, Monterey, California. Robinson, D. D. (1981).

Content-oriented personnel selection in a small business setting. Personnel Psychology, 34, pgs. 77-87. Schmidt, F. L. , Hunter, J. E. , McKenzie, R. C. , and Muldrow, T. W. (1979). Impact of valid selection procedures on work-force productivity. Journal of Applied Psychology, 64, 609-626. Schultz, D. P. (1978). Psychology and industry today. New York: Macmillan Publishing Company. Siropolis, N. C. (1986). Small Business Management. Houghton Mifflin Company, Geneva, Illinois. Small Businesses’ Turnover High. (1986, January).

Small Business Report, Business Research and Communications, Monterey, California. Stone, C. H. , & Ruch, F. L. (1974). Selection, interviewing, and testing. ASPA Handbook of Personnel and Industrial Relations: Staffing Policies and Strategies, ed. Dale Yoder and Herbert G. Heneman (Washington, D. C. , The Bureau of National Affairs), 4, 137-138. The State of Small Business: A Report of the President. (1985, May). United States Government Printing Office, Washington, D. C. Uniform guidelines on employee selection procedures (1978). Federal Register, 43, 38290- 38309.

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