HUMAN RESOURCE MANAGEMENT PRACTICE

IN

RUSSIA
 SUMMARY
Human resource management is the management of an organization's workforce,
or human resources. It is responsible for attracting, selecting and training,
providing assessment, and rewarding of employees, while also overseeing
organizational leadership and culture, and ensuring compliance with employment
and labor laws. In circumstances where employees desire and are legally
authorized to hold a collective bargaining agreement, HR will typically also serve
as the company's primary liaison with the employees' representatives (also known
as a labor union). This report is prepared to identify how Human Resource
Management can be a crucial factor for any business organization planning to run
business in a foreign land. The report focuses on the Human Resource
Management practices in Russia as well as the country’s management style.
 Table of Content
1. INTRODUCTION -------------------------------------------------------------------------1

2. BACKGROUND INFORMATION -----------------------------------------------------3

3. FACTORS affective HRM PRACTICES in Russia -------------------------------------------- 5

A) NATIONAL CULTURAL & INDUSTRIALIZATION ------------------------------------ 5

I. EXTERNAL FACTORS ------------------------------------------------------------------------- 5

a) Labor Union -------------------------------------------------------------------- 5

b) Labor Law ----------------------------------------------------------------------- 6

c) Socio-Political Issue --------------------------------------------------------- 6

d) Technological Issues -------------------------------------------------------- 7

e) Business Environment ------------------------------------------------------ 7

II. INTERNAL FACTORS -------------------------------------------------------------------------- 8

a) Country Management Style ------------------------------------------------ 8

b) Hidden Factor of Management Style ------------------------------------- 9

B) Govt. Business Relationship with Business Sector -------------------------------- 10

4. EXISTING HRM PRACTICE OF RUSSIA ---------------------------------------------------------------- 11

a) RECRUIT & SELECTION PRACTICES ------------------------------------------------------------

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b) TRAINING & DEVELOPMENT PRACTICES ----------------------------------------------------12
c) PROMOTION PRACTICES ---------------------------------------------------------------------------- 14
d) PERFORMANCE APPRAISAL PRACTICES ------------------------------------------------------ 15
e) COMPENSATION & BENEFIT PRACTICES ------------------------------------------------------17
f) INDUSTRIAL RELATIONS ------------------------------------------------------------------- 19

5. DISCUSSION --------------------------------------------------------------------------------------------------- 23

6.LESSON LEARN & RECOMMENDATIONS ------------------------------------------------------------ 25

7. CONCLUSION ------------------------------------------------------------------------------------------------ - 28
INTRODUCTION
Russia which is officially known as the Russian Federation is a country in northern Eurasia. It is
a federal semi-presidential republic, comprising 83 federal subjects. From northwest to southeast,
Russia shares borders with Norway, Finland, Estonia, Latvia, Lithuania and Poland Belarus,
Ukraine, Georgia, Azerbaijan, Kazakhstan, China, Mongolia, and North Korea. It also has
maritime borders with Japan by the Sea of Okhotsk, and the US state of Alaska by the Bering
Strait. At 17,075,400 square kilometers (6,592,800 sq. mi), Russia is the largest country in the
world, covering more than one eighth of the Earth's inhabited land area. Russia is also the eighth
most populous nation with nearly 143 million people as of 2010. It extends across the whole of
northern Asia and 40% of Europe, spanning nine time zones and incorporating a wide range of
environments and landforms. Russia has the world's largest reserves of mineral and energy
resources. Russia has the world's largest forest reserves and its lakes contain approximately one-
quarter of the world's fresh water.

The nation's history began with that of the East Slavs, who emerged as a recognizable group in
Europe between the 3rd and 8th centuries AD. Founded and ruled by Varangian warrior elite and
their descendants, the medieval state of Russ arose in the 9th century. In 988 it adopted Orthodox
Christianity from the Byzantine Empire, beginning the synthesis of Byzantine and Slavic
cultures that defined Russian culture for the next millennium. Russ' ultimately disintegrated into
a number of smaller states; most of the Russ' lands were overrun by the Mongol invasion and
became tributaries of the nomadic Golden Horde.

The Grand Duchy of Moscow gradually reunified the surrounding Russian principalities,
achieved independence from the Golden Horde, and came to dominate the cultural and political
legacy of Kievan Russ. By the 18th century, the nation had greatly expanded through conquest,
annexation, and exploration to become the Russian Empire, which was the third largest empire in
history, stretching from Poland in Europe to Alaska in North America.

Following the Russian Revolution, Russia became the largest and leading constituent of the
Soviet Union, the world's first constitutionally socialist state and a recognized superpower,

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which played a decisive role in the Allied victory in World War II. The Soviet era saw some of
the most significant technological achievements of the 20th century, including the world's first
human spaceflight. The Russian Federation was founded following the dissolution of the Soviet
Union in 1991, but is recognized as the continuing legal personality of the Soviet state.

Over the last twenty years Western companies have been working successfully in Russia. Their
challenges and opportunities are constantly discussed in academic and non-academic literature.
Although tendencies in personnel management still remain under-researched human resource
management is one of the main aspects that determine a company’s efficiency. In spite of the
fact that Western companies have been actively developing the Russian market over the last
twenty years, they are still faced with the Soviet-era heritage in human resource management.

This report gives an overview of the human resource management practices of Russia. The report
includes some background information of the country as well as other variables and factors
related to the human resource practices of the country including the external and internal factors.

Moreover this report also makes a few discussion and recommendations on the human resource
practices in Russia based on the internal and external factors which includes the Labor Laws,
Labor Union, Business environment and many more.

BACKGROUND INFORMATION
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Features Figures
Total Land 17,075,400 km²
Total Population 143,100,000(approx.)
Population increase % 0.15 (2011)
Climate Humid Continental &Subarctic
GDP (growth) $1.850 trillion
GDP per capita $12,993
Inflation Rate 3.62%
petroleum and petroleum products, natural gas
Core Export Item (Last 5 years) metals, wood and wood products, chemicals and
  wide variety of civilian and military manufactures
Total Export to foreign countries $498.6 billion (2011 est.)
machinery, vehicles, pharmaceutical products, iron,
Core Import Item (Last 5 years) plastic, semi-finished metal products , meat, fruits
  nuts, optical and medical instruments, steel
Total Employees Agriculture 8.6%, Services 62.4%, Industry 28.9%
Unemployment Rate 6.3% (2012)
Foreign Investment $40 billion (approx.)
Total Foreign Employees 25% of the total number of workers
Total Production Capacity 120,000 tones of aluminum/year
Number of Foreign Companies 84 including software bank airline etc.
Foreign Investment (Last 5 year) $48.5bn (2011) 28% more than in the previous year.

The population of Russia was 143,100,000 as per the official estimate for April 1, 2012.
Russians make up 81% of the total population while six other ethnicities have a population
exceeding 1 million – Tatars (3.9%), Ukrainians (1.4%), Bashkir (1.1%), Chuvash (1%),
Chechens (1%) and Armenians (0.9%). In total, 160 different ethnic groups and indigenous
peoples live within the Russian federation's borders.

The birth rate of Russia rose from its lowest point of 8.27 births per 1000 people in 1999 to 12.6
per 1000 in 2010. 2007 marked the highest growth in birth rates that the country had seen in 25
years, and 2009 marked the highest total birth rate since 1991.

The climate of Russia is formed under the influence of the enormous size of the country and the
remoteness of many areas from the sea result in the dominance of the continental climate, which
is prevalent in European and Asian Russia. Due to the moderating influence of the Atlantic or
Pacific, the most populous areas of the country in European Russia, in the south of West Siberia

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and in the south of the Russian Far East, including the cities of Moscow and Saint Petersburg,
experience a humid continental climate. Most of Northern European Russia and Siberia between
the Scandinavian Peninsula and the Pacific Ocean has a subarctic climate.

Russia’s economy is the ninth largest in the world. It has an abundance of natural gas, oil, coal,
and precious metals. Russia has undergone significant changes since the collapse of the Soviet
Union, moving from a centrally planned economy to a more market-based and globally
integrated economy by privatizing many sectors of the industry and agriculture, with notable
exceptions in the energy and defense-related sectors in 1991.This rapid privatization process has
left equity ownership highly concentrated. As of 2011, Russia's capital, Moscow, now has the
highest billionaire population of any city in the world.

In late 2008 and early 2009, Russia experienced the first recession after 10 years of experiencing
a rising economy, until the stable growth resumed in late 2009 and 2010. Despite the deep but
brief recession, the economy has not been as seriously affected by the global financial crisis,
compared to most of Europe, largely because of the integration of short-term macroeconomic
policies that helped the economy survive. In 2011 Russia’s gross domestic product grew by 4.2
percent, the world’s third highest growth rate among leading economies. The government
expects it to grow 3.7 percent in 2012.

Foreign investment in Russia is very low. The investment, which includes contributions to
starting capital and credits extended by foreign co-owners of enterprises, rose slightly in 1999
and 2000, but decreased in 2001 by about 10%. Foreign portfolio investment, which includes
shares and securities, decreased dramatically in 1999, but has experienced significant growth
since then. In 2001, foreign portfolio investment was $451 million, more than twice the amount
from the previous year. Inward foreign investment during the 1990s was dwarfed by Russian
capital flight, estimated at about $15 billion annually. During the years of recovery following the
1998 debt crisis, capital flight seems to have slowed.

FACTORS OF HRM PRACTICES

NATIONAL CULTURAL & INDUSTRIALIZATION

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In Russia many organizations continue to operate under an historic bureaucratic structure, though
changes away from this are more pronounced in Moscow. The transition of HR practices,
factoring in cultural and legal issues is one of the key challenges facing much of Russian
business at the beginning of the new millennium

EXTERNAL FACTORS
Labor Union
The Federation of Independent Trade Unions of Russia (FNPR) is the largest national trade
union center in Russia, with a membership estimated between 28 and 31.5 million. It is widely
recognized as the successor to the Soviet era trade unions system, although the General
Confederation of Trade Unions (GFTC), as the umbrella organization of trade unions in the
former Soviet Republics, is technically the equivalent of the former system. FNPR continued to
operate in a manner similar to soviet era unions. Members included both workers and
management, and often labor unrest was aimed at the government, rather than employers, in an
effort to preserve the command market economy, as opposed to a free market system.

FNPR still dominates organized labor and claims to represent 80% of all workers. About 54% of
the workforce is at least nominally organized, but only 4% of union members belong to
independent trade organizations. The legal right to strike is hindered by complex requirements.
Court rulings have determined that nonpayment of wages, the most prevalent labor complaint, is
an individual issue and cannot be addressed by the union. The right to bargain collectively is not
regularly protected.

Labor Law
Russia has a large and well educated labor market that remains generally inexpensive by Western
standards, although some categories of sought after employees command a significant premium.

Any company utilizing the labor of employees in Russia must strictly adhere to the requirements
of Russian labor legislation. Along with corporate law, labor law is one of the first legal matters
a foreign investor faces on the way to Russia. The new Labor Code, which was passed in 2002

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and provides the basis for Russian labor legislation, was followed by a large-scale labor law
reform in the summer of 2006.

The legislative framework remained unchanged; however multiple minor amendments of

considerable practical importance were adopted. The new regulations entered into force in early
October 2006. There may be discrepancies between the practice and the letter of the Russian
Labor Code. However, employers should be aware that should a conflict arise, an employee will
most likely be in the position to demand in court the application of the protective provisions of
the Labor Code, which will prevail over any conflicting provision of the individual labor
contract.

Socio-Political Issue
In Russia the governments have sought to limit the activities of opposition parties in order to
sustain the power of the ruling elite. Non-governmental organizations (NGOs) are experiencing
increasingly harsh control from the state. Legislation has recently been passed which mentions
the requirement all public organizations, including NGOs, to be re-registered with the respective
justice agencies.

Sociologists have good reasons to believe that during the years of reforms HRM, the most
qualitative new and quantitative widespread changes took place in three spheres of Russian
society: social stratification, social inequalities and social ordinariness. Qualitative and
quantitative characteristics, by means of which we could describe the depth of above changes, let
us conclude that in fifteen years of reforms Russian society was formed as a new social reality.

Technological Issues
In the late 1940s when the Soviet Union engaged in a technology race with the US in a wide
range of areas, such as the pursuit of the atomic bomb, development of radar techniques,
production of jet aircraft, and development of missile systems. However, sharagas dealt only
with non-core problems. The two greatest technological victories of the Soviet Union over the
US during the 1950s – the independent creation of a thermonuclear bomb in 1953 and first

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successful human space launch in 1957 – were achieved mostly through the zealous efforts of
free scientists and engineers, although their zeal was partly based on highly probable fatal
consequences of failure.

Moreover, Soviet law identified two types of creative persons – the original inventor and the
persons such as managers, engineers and workers who were actively involved in the
transformation of an invention into a workable product or process by conducting tests creating
prototypes, and developing new supportive technology. The current HRM practices that exist in
the Russian economy do not produce the necessary levels of innovation, productivity, and value
creation. The techniques of negative motivation, scapegoat, and importation of ill-adapted
western technology have not led to satisfactory results. There clearly has not been the
establishment of a community of HRM professionals interested in increasing human capital and
productivity.

Business Environment
Economic indicators over the past year were mixed, although a consensus view appears to be
forming that they were a net negative and, notably, underscored the long-run structural
deficiencies in Russia’s economic development model rather than short-term risks. The
cementing of this view gained traction in January, when Fitch cut Russia’s outlook from positive
to stable. In April, Fitch’s analysis was apparently vindicated by the announcement that Russia
was cutting its 2012 GDP growth forecast to 3.4% (compared to 4.3% in 2011). In March,
Financial Times published an in-depth analysis of Russia’s economic situation, finding that the
country will likely begin running twin deficits (i.e., budget and current account deficits) within
the next few years.

Also in March, the World Bank released its Russian Economic Report, which noted that, despite
recovering GDP growth to near-pre-crisis levels, most of Russia’s recent economic strength was
due to the recent surge in oil prices. Moreover, Russia’s post-crisis recovery has been weak
compared to other economies. The 2011 OECD Economic Survey of the Russian Federation
concluded that a primary source of Russia’s weakness remains the wide gap in the business
climate in Russia vs. OECD countries. The 2012-14 Forecast for Russia by the Bank of Finland
Institute for Economies in Transition similarly anticipates weak GDP growth over the next
several years (regardless of unusually high oil prices). BOFIT highlighted that, despite the oil

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price growth from early 2009 -11, Russia still experienced net capital outflows in 2011. In
addition, fixed capital investment growth remains tepid even now that capacity utilization is back
to pre-crisis levels.

INTERNAL FACTORS
Country Management Style
Russian management style tends to be centralized and directive. The boss, especially the ‘big
boss’, is expected to issue direct instructions for subordinates to follow. Little consultation will
be expected from people lower down the company hierarchy. Indeed too much consultation from
a senior manager could be seen as a sign of weakness and lack of decisiveness. Middle managers
have little power over strategy or input in significant strategic decisions.

The most powerful middle managers are the ones who have the most immediate entree to the
decision-maker at the top of the organization. There is little point in wasting time debating with
middle managers who do not have an easy access to the top. The most significant reason for
delay in reaching a decision in Russia is that the decision has not been put in front of the real
decision-maker. The effectiveness of the organization is determined by the way work is
organized and by the way people work with or against each other. The way in which people co-
operate with each other, with the leadership and with the community, indeed the extent of their
commitment to their organization.

Hidden Factor of Management Style

As far going through the Russian HRM policy we can conclude with these points that-their
management policy follows an unwritten rule while recruiting employees. As from the Country
Management Style we came to know that the big-boss is to issue direct instructions to the sub-
ordinates. So if any employee comes with such type of big bosses’ reference he or she will get
the preference first. So here we can see through reference they recruit or select people, which is
another hidden factor of Russian management style.

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Later Russia’s another hidden factor we found is-it follows Soviet Union’s policy. The Soviet
Union, which was officially established in December 1922 with the union of the Russian,
Ukrainian, Byelorussian, and Transcaucasia Soviet republics- each ruled by local Bolshevik
parties. The Bolsheviks were the majority faction in a crucial vote. So the Russian HRM
promotes employees by measuring how many votes he or she achieved-it may be at instant.

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Govt. Business Relationship with Business Sector

Governance and growth

Russia’s recent macroeconomic achievements are impressive indeed. But much still remains to
be done to put in place a framework that will support sustainable long-term economic growth
and the modernization of the economy.

The evidence shows that both macroeconomic stabilization and structural reforms contribute to
growth, and that the more structural reform that has taken place, the more rapidly the economy
grows for example, In Russia, sustainable growth, which has averaged 6.8% over the last five
years, began only following the crisis of 1998. While the immediate trigger was the
combination of a devalued exchange rate and higher oil prices, those gains would have been
quickly dissipated if not for the strengthened macroeconomic policies, the government’s
commitment to market-oriented reform and the improved investment climate.

Corporate governance

Russia has made progress in this area, and S&P and others have saluted the improved
transparency of Russian corporations. In this regard, the desire of Russian companies to access
the international capital markets has helped improved transparency and reporting standards.
The approval of a Code of Corporate Governance was also an important step. So was the
adoption of improved securities markets legislation.

EXISTING HRM PRACTICE OF RUSSIA

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RECRUIT & SELECTION PRACTICES

Companies operating in Russia today use the following recruitment tools:

 Internal recruitment
 Recruiting agencies and head-hunters,
 Internet job engines,
 Newspapers ads,
 Contacts or networking,
 College graduate recruitment.

The choice of a particular recruiting tool is based on the type of vacancy, the internal recruitment
policies and procedures and the location of a particular company. Many foreign companies
operating in Russia try to keep careful track of the Russians who are studying abroad, as they are
attractive candidates to recruit when they finish their studies. Russians living abroad for a long
time (re-emigrants) could, however, face some obstacles to their acceptance into Russian society.
It certainly varies from industry to industry and among different management levels according to
the duration of the work assignment of a re-emigrant.

Moreover, business techniques learnt in the west might not be applicable in Russian settings on a
one-to-one basis. They could be transferred to Russian subsidiaries, but they should be adapted
to suit Russian labor regulations and cultural norms.

A large company usually worked closely with high schools and universities, allowing students to
make an internship or write their research theses in the company. School and university students
could occasionally visit a company at open house events. Moreover, there was a system of
raspredelenie (‘distribution’), a special agreement between factories and universities and/or
technical schools for employing graduates. Each graduate had a guarantee to be hired by a
certain company.
Only graduates with the best academic records or those who were married had the privilege of
choosing between offers or even refusing universities’ offers – so called svobodnyi diplom (‘free
diploma’).

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Interviews are the most appropriate method of selecting new employees. Interviews are usually
conducted in several rounds. Transcripts and diplomas are also normally looked at, but they are
less important than the perception of the person as ambitious, hard-working, and beneficial to the
company because of his or her previous professional experience. Both Russian and Western
companies require applicants to submit a CV/resume. Often misrepresentations in language
proficiency, computer literacy, and previous employment dates, duties and responsibilities
appear in these resumes, and should be investigated. References are not usually required, but
submitted references are appreciated.

Some recruiting agencies provide ‘reference check’ services. It is crucial to specify what a
recruiting agency actually means by the term ‘reference check’. They might just contact a referee
or a previous employer and ask if she or he had written a letter of reference for a certain person,
or whether this person had indeed once worked for a certain employer. In fact, consulting a
previous employer without the written consent of a candidate is not allowed under Russian law,
but this practice is nonetheless widespread (Russian Labor Law 2001).

Moreover, as the system of providing working certificates is still in its infancy, some companies
simply make a statement about a particular person in terms of whether she or he has worked for a
particular company; qualifications, duties and other characteristics are not mentioned.
Developing a formal set of criteria is difficult for Russian HR Managers, and they usually rely on
their ‘gut feeling’ during the hiring process. According to Russian labor law, companies must use
a three-month (for non-management and management positions) or six-month (for top
management positions) probation period after someone has been hired to evaluate the new
employee before entering into a long-term relationship (Russian labor Law 2001).

TRAINING & DEVELOPMENT PRACTICES

In the early 1990s, Russia experienced a decline in personnel training in state-owned enterprises
due to financial constraints and declining demand for science-intensive products. However, the
private sector, foreign firms, and joint ventures started investing in employee development due to

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a lack of knowledge and skills necessary for successful operation in a market economy. Russian
managers’ lack of skills and knowledge which is considered vital in U.S. business was central in
most articles (e.g., Cooley, 1997; Messmer, 1994) and discussed as the first challenge for U.S.
firms operating in Russia. In the U.S., knowledge of business and HRD practice and business
skills are expected of effective HRD leaders. Not surprisingly, Russian managers are not familiar
with Western standards due to little managerial education and development during the Soviet era.

Training was aimed at developing skills need in the areas of general managerial (e.g.,
negotiation), business (e.g., free-market and organizational behavior), leadership (e.g., team-
building), and functional/technical (e.g., computer and software). Russian managers have more
an “engineering, problem –solving mind-set” with emphasis on quantitative skills, rather than
“the human behavior focus of many Western managers”; therefore, training had to provide them
knowledge and experience in strategic planning, leadership, and empowerment.

Due to difficulties and constraints during Soviet times, managers had to be “creative, resourceful
and industrious,” so they are good at the “ ‘input’ side of the equation, such as their ability to
acquire goods …while Westerners …are better prepared to deal with the ’’ ‘output’” aspects of
business, such as marketing products”.

Both what and how to train Russians is a challenge. Moscow McDonald’s, for example, uses the
same approach to human resources (i.e., “McDonald’s is one big family”) and techniques of
training and employee development in Russia as in the U.S. Top managers were sent to the
McDonald’s training centers in the U.S. and Canada, while employees were watching video
tapes that explained McDonald’s work philosophy, essentials of personal grooming, discipline
and responsibility, sense of initiative, and basic customer relations.

Training is conducted both internally and externally by Russian and U.S. trainers. In a study of
Western firms in Russia, Fey, Engstrom, and Bjorkman (1999) found that most of the HRM
training is offered internally and primarily in such areas as general induction, functional
management, and general management; external training targeted general management, English
course, and finance upgrading. Managers and expert employees are sometimes sent to the U.S. to

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receive not only training but hands-on experiences. U.S. retired senior level managers’ volunteer
in some Russian organizations to advice managers and executives. In U.S. companies and joint
ventures, training might be combined with assigning a mentor to foster learning. Much training is
conducted by U.S. partners and via interpreter which complicates the information exchange.

PROMOTION PRACTICES

Russian Internal rotation and promotion based on performance, knowledge and career growth.
This is still a challenge, especially in local Russian companies with a long tradition, where senior
managers still try to place their friends and relatives.

The mechanism designed to inspire innovations was the “Russian roulette” method of Stalin’s
promotion system. If an energetic manager or talented engineer with a proven track record of
achievements had an occasion to show off of his abilities, aspirations and valuable ideas to a
high-placed boss, he or she had the chance to be immediately promoted through the ranks. Stalin
himself was not hesitant to promote persons in their mid-30s through three or four ranks at once
and make them ministers, deputy ministers, directors of large factories or even field marshals or
admirals.

The danger here was that if one’s performance did not immediately improve productivity the
chances for such an ambitious person to survive in his or her position (or even to live) were
minimal. In addition, the widespread feeling of envy within the vast bureaucracy toward more
talented or successful colleagues and subordinates was another detrimental part of the Soviet
management system. There were always plenty of opportunities to accuse an ambitious person of
sabotage after ever a minor failure and send him to a labor camp with a sentence of twenty-five
years.

 There were also some distinctive features of the late-Soviet HRM system at the factory level.
The first feature was the relatively high rank of the HR function among all enterprise functions,
ranking just below that of the production function. The second feature was the decentralization
of the HRM function. In a large enterprise there were five units responsible for personnel issues.
The local Communist Party committee supervised general social atmosphere and had the final
voice in all promotions.

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PERFORMANCE APPRAISAL PRACTICES

There was no formal system of performance management of civil servants in Soviet Union in
Russia. The problem of performance was partially resolved through “socialistic competition” and
management of the incentives of civil servants performance.

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Performance management is often seen as a theme that holds relevance mainly for advanced
public management systems. Current performance management practices in Russia tend to rely
more on impacts of government policies measured through the dynamics of socio-economic
development indicators rather than on outputs of activities of particular ministries and
departments.

As a result, the linkage between the actual inputs and direct outputs, on the one hand, and
outcomes and impacts – on the other is still weak. Hence, the risk in the medium-term
perspective is that the whole accountability performance-based framework may become less
trusted as it tends to hold government bodies accountable for issues prone to the influence of the
factors that are far beyond the government control. There exists the crucial difference between
performance measurement systems in public and private sector in Russia, especially in the
question of specific indicators.

Private companies tend to measure both tangible and intangible fields of activity. The main
indicators usually are:
 Level of customer satisfaction,
 Level of efficiency,
 Quality and quantity (such as completion) characteristics,
 Timelessness
 Costs.
In other words, the aim of the performance measurement system in private organizations is to
cover an organization’s total span of activities and expenditure.
In public sector organizations main indicators are level of collected experience which is usually
substituted by seniority and accumulated skills and knowledge. Civil servants are expected to
develop constantly their skills and knowledge to better correspond to real line job requirements.
Professionalism, creativity, organizational and management skills are valued as most important
among performance measurement indicators. The whole process is called “attestation” meaning
that employees have to prove their qualification and also receive testimony from their colleagues
and Attestation Commission.

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In private sector performance appraisal is done not less than once a year. Results of performance
appraisal are closely tightened with the financial management cycles:
 Budgeting
 Reviewing
 Evaluating.

According to the “The Law of attestation of public servants”, attestation procedure is held not
often than once in two years, and not rarely than once in four years. This frequency is related to
the main outcome of the attestation, namely grade adjustment. In reality attestation is done once
in four years with one exception. An administration can use the procedure as a tool to ground a
dismissing.

Both systems also vary on adapted financial management cycles. As discussed above, according
to traditional Russian approach, attestation is done usually once in four years. Results of
attestation are not connected with annual financial results of an organization, although financial
efficiency should remain as the main concern of each organization. As a result financial aspect of
public sector outputs is lost during the attempts to reach high results in managing civil servants
performance.

COMPENSATION & BENEFIT PRACTICES

Russians are much more likely to be attracted by the guaranteed components of compensation,
rather than any potential upside at some stage down the line. Bonuses are important, but many
employees are skeptical that any additional remuneration will actually be paid out in full. One

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regular complaint regarding bonuses is not always the size but the lack of clarity — that the
bonus doesn’t always depend on the employee’s performance, but also on favoritism or other
arbitrary reasons.

There are a variety of benefits that employers can provide that can both reduce payroll costs and
in some cases be provided tax exempt to employees. Typically these focus on medical insurance
and company car provision for executives. The practice of employer loans for property
acquisitions is becoming less pronounced as the domestic mortgage market develops. Further,
greater focus is now being placed on remuneration structures and benefits packages that motivate
and retain staff, even where these have no specific tax advantages. For example, long term
incentive plans either in the form of savings plans, sometimes involving offshore vehicles, or
insurance products with risk reinsured abroad, which provide a certain level of security to
employees, or by use of deferred compensation arrangements, and even stock related
remuneration.

Salaries and social benefits are regularly handled by international and local agencies working in
Russia. They use different approaches. Some perform surveys for various positions in specific
industries in a particular region, e.g., only in the consumer goods sector in Moscow, while others
analyze salaries according to such criteria as human relation skills, job scope and duties – so-
called ‘job grading’.

However, the main problem for HR in Russia is keeping up-to-date with current levels of salary
and social benefits offered to managers. On the other hand, some Russian companies tend to pay
official and unofficial salaries. Russian enterprises have long traditions of keeping two sets of
books: one with actual results for internal usage and one with desired results for external audits
and/or reports by the old Soviet ministries.

There are still some reasons for paying in official and unofficial ways, such as the reduction of
social taxation and additional options for non-authorized work on holidays, vacations, and
overtime hours. This fact of unofficial income is even accepted by international banks operating
in Russia and providing loans for Russian citizens.

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Although incentive pay was a traditional part of the Russian compensation system, most bonuses
were divided equally across the organization or among members of a specific work group. Since
workers received incentives regardless of individual performance, they came to see them more as
an entitlement than as a reward for good performance.

Compensation for working in hazardous conditions provides a significant addition to the wages
of a substantial proportion of the labor force, many of whom would rather receive a bonus for
working in harmful conditions than see the money spent on removing such conditions. As a
result primary organizations in their negotiations over the collective agreement tend to give
priority to securing compensation for their members over increased spending on health and
safety measures.

Salaries must be paid in the currency of the RF and at least biweekly. At the same time, neither a
provision on accrual of salary in a foreign currency nor a provision on payment of salary once a
month may be established on the basis of a written application of an employee.

Overtime work may be compensated for by means of providing additional days-off or paying no
less than one and a half times the regular hourly rate for the first two hours and no less than twice
the regular hourly rate for subsequent hours. Premiums are also paid for night work. The
minimum amount of such premiums is established by the Government and is fixed by an
employer in consideration of the opinion of the employees’ representative body under a
collective agreement, other local regulatory act or the employment agreement.

INDUSTRIAL RELATIONS

Labor Law

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Russia has a large and well educated labor market that remains generally inexpensive by Western
standards, although some categories of sought after employees command a significant premium.
The Russian Labor Code forms the basis of labor relations in Russia and outlines the rights of
employees. The new Labor Code was adopted effective 1 February 2002. There may be
discrepancies between the practice and the letter of the Russian Labor Code.

However, employers should be aware that should a conflict arise, an employee will most likely
be in the position to demand in court the application of the protective provisions of the Labor
Code, which will prevail over any conflicting provision of the individual labor contract. Normal
working hours in Russia are 8 hours per day and 40 hours per week with a one hour lunch break.
Russian law is stringent in limiting overtime hours.

Under the Labor Code overtime work may be required with a written approval by the employee
and should be compensated at the increased rates. Employees are provided with 28 calendar days
of paid vacation a year. Significant maternity leave generally a mandatory 140 days compensated
in the amount of approx. $350 US at maximum and keeping the mother’s position open until the
child is three years old.

Due to the provisions of the Labor Code, once the trial period has ended it can be very difficult
to terminate an employee. An employee may only be terminated for one of the reasons
specifically listed in the Labor Code. The procedure of termination is also expressly provided in
the Labor Code and should be strictly followed, or the termination could be judged illegal by a
court. Cases of lawsuits resulting in the reinstatement of illegally dismissed employees and
payment of damages for wrongful dismissal are increasingly frequent, particularly for employees
of foreign or foreign owned entities. Potential damages include the amount of salary due to the
employee for the period during which access to work was denied to him or her as a result of
illegal termination, and moral damages.
The most frequently applied and costly termination ground is redundancy. An employee who is
made redundant is entitled to 2 months paid notice as well as 1 to 3 months’ severance pay
depending on whether the employee finds alternative employment. The performance of the

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employee may also be the grounds for termination, subject to certain performance and other
criteria and procedural conditions specified in the Labor Code. Certain categories of employees
(for example, pregnant women and women with children under three) are restricted from
dismissal at the initiative of an employer. In any event professional advice should be sought
before taking any decisions regarding termination.

Fortunately for the employers, the requirement to get the Trade Union approval in a number of
termination cases under the old Labor Code is replaced with a less burdensome requirement to
“consult” the Trade Union. In case of a negative response from the Trade Union, employers will
still be able to proceed with the termination. Similarly, the Trade Union discretionary role to
approve employment specific internal company regulations has been reduced to a mere
consultative function. Should the employer decide not to follow Trade Union recommendation,
the latter has the right depending on the nature of the disagreement to either commence the
collective bargaining procedures or challenge the employer’s decision in the Russian Federation
State Labor Inspection.

Factory Law

One of the areas of major importance for the overall investment climate in Russia is the level of
development of corporate and related business laws. The Russian Federation is a civil law
jurisdiction with a written constitution that lays down the fundamentals of Russian state
governance and its regulatory framework. Like in most civil law jurisdictions, Russia's legal
system is largely built upon the codified laws. In particular, the Civil Code is the consolidation of
basic legal principles that underpin economic relations. In addition to the Civil Code, the primary
legislative acts regulating operation of business in Russia are the Federal laws on Joint Stock
Companies, on Limited Liability Companies, on Securities Market, on Protection of the Rights
and Lawful Interests of Investors on the Securities Market, on State Registration of Legal
Entities, etc., as well as regulatory documents issued by the Federal Commission on Securities
Market and other governmental agencies.
As in majority of countries, there are various routine legal requirements for maintaining a
company in Russia. There are well developed procedures and fairly clear regulations in Russian

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law on registration of new companies, on disclosure procedures in connection with acquisition or
holding of securities, on major and related-party transactions, on 30% takeovers, on dealing with
the Ministry of the Russian Federation for Antimonopoly Policy (MAP) when the company is
involved in it taking a dominant position in the market or if the company plans to acquire a
substantial stake in or assets of a Russian company and on other various aspects of maintaining a
company under Russian law.

In addition, the Central Bank of Russia has developed substantial regulations regarding currency
control. All hard currency operation in Russian companies must be conducted in accordance with
the procedures established by the Central Bank of Russia. While these procedures are mandatory,
they do not interfere with business operations. Most importantly, hard currency is available for
any legitimate business purpose.

DISCUSSION
The type and level of complexity of HR practices varies depending on the region, industry, size
of company, age of company in its current form, and other factors. In many instances,
organizations seemed to have adopted traditional HR practices (what they knew best) and are

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struggling to adapt these practices or replace them to better fit the demands of a market-oriented
economy. In some cases, organizations perceived HR as a compliance function, existing to fill
out forms and enforce rules, rather than a strategic part of organizational performance and
success.

Since the collapse of the Soviet empire and consequent changes in the economy, Russia has been
attracting foreign investors and businesses. The number of U.S. businesses operating in Russia,
for example, increased from a couple of dozen in 1991 to several hundred in 1996. In 2001, the
U.S. was the biggest foreign investor in Russia with 5 billion dollars in direct investments and 10
billion dollars in two-way trade of goods and services (Evans, 2001).

It is a difficult task to develop a good HRM system in a foreign company that starts operating in
Russia. It usually takes at least two years to implement even a basic HRM system. In order to
understand how to design efficient human resource management systems for Russia today, it is
important to know traditional HRM practices in the Soviet era. Unfortunately, there is not much
information about ex-communist company cultures. Success of foreign firms and joint ventures
in Russia depends on the people working for them, but the areas of human resource development
and human resource management represent challenges. The concept of human resources called
“kadri” or cadre differed during the Soviet era.

However compared to U.S. today Russian and U.S. managers’ engagement in managerial
activities differs. Although the importance of managerial activities is similar, Russian managers
at a large manufacturing factory were found to spend more time and effort on traditional
management activities, including planning, decision-making and monitoring, and communication
activities, which entail information exchange and paperwork whereas U.S. managers spend more
time than Russian on human resource management like motivating, staffing, and training and
networking which includes socializing.
Similarly, Russian entrepreneurs in executive positions were found to spend most of their time
on strategic planning, financial planning, and development of organizational structures. Slightly
less effort is used to working with customers, quality control, and performance appraisal.

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Since the average Russian employee, including managers, knew little about a market economy,
western consulting firms and U.S.-Russian partnerships on academic and practitioner levels were
established to provide help to various aspects of business. Frey et al. (1999) found that over 20
foreign firms in Moscow offer training seminars and consultations, some Russian firms send
their top managers abroad, and many develop in-house training courses (e.g., English language,
computer skills, or management).Although today personnel development targets primarily senior
managers, training has shifted from “educational and orienting” to “professional, hard-
competency development”.

LESSON LEARN
By analyzing the Human Resource Management Practices in Russia we have learned that
Russian management style tends to be more directive and centralized and we can also assume
from this point that Russia is still more or less following the typical Soviet Union management
style.

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The Practices of Human Resources Management in Russia differs than that of the western style
of Human Resource Management. From the report we have identified that Russian employees
and managers have little knowledge about market economy due to the reason that they still
follow some of the traditional Soviet Union management style which is based on closed
economy where the government controls everything.

RECOMMENDATIONS
To further develop Russia’s Human Resource Management we can recommend the following:

Awareness of Soviet-Era Practices

It is crucial for successful business activities especially for U.S to know about the Human
Resource practices of Soviet Era. Coming to Russia, they try to introduce ‘new, innovative’
techniques and approaches is not recommended because Russian employees, especially at the
age of 40 and above, faces difficulty in adapting these ‘new innovative’ techniques and
approaches and so they feel uncomfortable. So, when talking about team-building activities,
western managers forget that three generations in the USSR grew up with brigades, and that
there are some established, well-proven instruments in existence for managing Russian groups.

A short ‘excursus into history’ will help western business people to understand how
HRM systems functioned in the Soviet era and so reduce risks of potential cultural
misunderstandings and conflicts between the two systems: market and planned economies.

Provide good working conditions

In Russia, this is indeed a crucial criterion for a job seeker. Overloaded offices, suboptimal room
temperatures, and obsolete sanitary facilities are still common for some companies. Specifically,

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in Moscow and St. Petersburg, transport accessibility and time spent commuting to the
workplace are also important factors. Long distances from home to the workplace are a huge
problem in big cities in Russia. If a job seeker has to spend about two hours commuting in only
one direction, it might be a strong stimulus to look for a new job ‘closer’ to home. So for any
foreign companies investing in Russia the recommendation will be to take these and also other
factors into consideration while recruiting employees in their business organizations.

Enhance professional and personnel development

It is found that some managers would even forgo a one-time bonus of 2,000 USD in order to
receive one week of training. Some foreign companies, however, underestimate the importance
to Russians of going abroad. For many, travelling abroad is more important than receiving
training. Moreover, HR professionals should be aware that many Russians grew up with frontal
teaching techniques and have different expectations from a trainer and a learning environment.
So providing training by arranging an official tour to other parts of the world will enhance their
professional and personal experience.

Using appropriate technique for open and accessible information dissemination

concerning the aims, goals, strategy and possible changes in an organization

Foreign enterprises should choose techniques that are more appropriate for their Russian
employees. Russian employees are usually happier to learn about possible changes by a simple
explanation – for example, by hearing it directly from their bosses during a meeting, or through
corporate newsletters or videotaped interviews rather than through an interactive flash-based
presentation with a strategy map.

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Provide good salaries and competitive social benefits

Good salaries and competitive social benefits are important to Russian employees, and firms
with noncompetitive salaries or benefits will have difficulty attracting, motivating, and retaining
employees.

CONCLUSION
Russia has experienced an uneasy state of continuous transition economic, social, political, and
commercial. Such change has brought excitement and opportunity, but also difficult, painful
upheaval. Scholars from many disciplines have taken advantage of the more open climate in
Russia to examine its current state, study its experiences and project its future.

Foreign companies working and/or planning to work in Russia should know that Russia is not a
terra nova. Russia is a country with a long history and many traditions that penetrate all fields,
including HR management. Personnel management in turn is affected by Soviet-era practices,

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which can sometimes remain unknown to those Russian HR managers without professional
experience in the Soviet Union or in modern large Russian corporations that retain elements of
Soviet corporate culture.

While considering how western HR practices could be transferred to Russian subsidiaries, one
should examine the possibility of updating Soviet HR practices instead of reinventing the wheel.
Moreover, it would be very useful to study some of the unwritten and/or unspoken rules that are
widely used in Russian personnel management in order to understand how to operate more
successfully.

REFERENCE
 http://www.ruscham.com/en/rossinfo/db/19.html

 Ardichvili, A. (2001). Leadership style and work-related values

of managers and employees of manufacturing enterprises in
post-communist countries. Human Resource Development
Quarterly, 12(4), 363-383.

 Fey, C. F., & Bjorkman, I. (2001). The effect of human resource

management practices on MNC subsidiary performance in
Russia. Journal of International Business Studies, 32(1), 59-76.

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 http//www.rus1.com.
 Fey, C. F. (1995). Success strategies for Russian-foreign joint
ventures. Business Horizons, 38(6), 49-55.
 Ardichvili, A., Cardozo, R. N., & Gasparishvili, A. (1998).
Leadership styles and management practices of Russian
entrepreneurs: Implications for transferability of Western HRD
interventions. Human Resource Development Quarterly, 9(2),
145-155.

 Gurkov, I, O. Zelenova, and Z. O. Saidov (forthcoming), ‘Human

resource management in Russia: An attempt of international
comparison’, International Journal of Human Resource
Management, forthcoming.
 Clarke, S, (1996), ‘Conflict and Change’, in Russian Industrial
Enterprise. UK, Cheltenham: Elgar.

 Gurkov, I, (2002а), ’Mapping HRM in Russia: The results of

repeated surveys of CEOs’, in R. Lang (ed), Personal
management im Transformationprozess. Munchen und Mering:
Rainer Hampp Verlag, pp, 63-70.

 Earle, J, S, and K, Z, Sabirianova (2002), ‘How Late to Pay?

Understanding Wage Arrears in Russia’, Journal of Labor
Economics, 20 (3), 661-707.

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