HRM in Russia over a century of storm and turmoil – a tale of unrealized dreams
Igor Gurkov
Evgeny Morgunov
Alexander Settles
Olga Zelenova
Introduction
The history of human resource management (HRM) in Russia is an integral part of the
general socio-economic development of the country. Russia is unique in its struggle to rise from a
semi-feudal empire to one of the world’s two superpowers, only to be followed by a slide into
deep economic depression. The communist experiment in Russia lasted for seventy years and
scarred three generations so, unlike people living in Central and Eastern Europe or China, few in
Russia prior to 1991 had ever lived under a free market economy.
This chapter provides context for understanding the current situation of HRM in Russia
through an historical review of relevant economic, social and political developments since the late
19th century. Our evaluation of Russian HRM is built on four interconnected metrics:
The level and change in working conditions and monetary rewards, social benefits, and
moral incentives.
The balance between positive and negative motivation tools at the workplace.
Adoption of innovations by employees at all levels of the enterprise ranging from shopfloor workers and farm laborers to top executives.
The resulting dynamics of labor productivity, in part derived from these three variables.
The paper is organized as follows. The first section presents the major stages of the social
history of Russia and briefly outlines the major HRM characteristics of each period. The following
sections deal with the distinctive features of the Russian HRM system in those particular historical
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periods. In these sections, we describe the essence of human resource management system and the
advancements made in knowledge and practices of human resource management made in that
period. Each historical section contains an analysis of the HRM system based on the matrix of four
mertics. The last section of the chapter covers our principle conclusions and the major lessons that
have been learned from the evolution of HRM practices in Russia.
The Major Periods of Modern Russian History
Modern Russian history can be divided into the following periods based on significant
political turning points – the period prior to 1861, 1861-1917, 1917-1929, 1930-1955, 1955-1991,
and 1992-present. The divisions between these historical eras are based on radical changes in the
political regime, changes in the fundamental basis of economic development, shifts in prevailing
political and economic ideology, and dramatic shifts in the methods of human resource
management. The advantage of examining HRM practices in Russia by socio-economic eras is
two-fold. First, the legacy of these eras still resonates in modern Russia and, secondly, the
variations from international practices can be traced to practices that evolved during these periods
separate from European and international trends.
In the first part of the 19th century, Russia was positional somewhere between the
conditions of the Austrian Empire and Brazil1. Russia’s defeat in the Crimean War (1853-1856)
against the economically advanced nations of Great Britain and France (allied with Turkey and
Kingdom of Piedmont) demonstrated the weakness of both the political system and economic
regime of the country. Out of this defeat, Emperor Alexander II significantly reformed Russian
society and abolished serfdom in 1861 – a pre-requisite for rapid industrialization. These reforms
did not solve, however, the problems of land ownership and an archaic political system that
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The abolition of serfdom was managed in the lagging parts of the Austrian Empire in 1848-1849, the emancipation
of slaves in Brazil occurred in 1881. The abolition of serfdom in Russia occurred 13 years later that in Austria and 20
years earlier that in Brazil.
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created serious obstacles for societal advancement and sowed the seeds for later revolution. The
military defeats of the First World War then provided the impetus for revolution.
The Communist Party seized power after a short period of liberal reforms carried out by
the Provisional Government of 1917. After gaining power the Communists implemented the
theoretically correct practices of Marxism through the nationalization of large, medium-scale and
small enterprises, the prohibition of wholesale and (later) retail trade, and created a moral
imperative of labor (including unpaid work). After two years of these policies, heavy industry
collapsed, agricultural production declined by one–half, and public discontent led to a mass
peasant revolt. In 1921, the Communist Party announced a temporary retreat from Marxist ideals,
introduced a tax on peasants of 10 percent of the crops, and allowed small-scale entrepreneurship.
However, the political monopoly of the Communist Party remained unchallenged. Party control
provided the basis for the early 1930s collectivization of agriculture, forced relocation of the
millions of persons to socialist construction works, and mass repression against critics of the
regime. In the late 1930s, a system of forced labor prevailed in the Soviet Union with millions of
Gulag prisoners working in the harshest regions of Siberia and Far East while former peasants
were forced to work in collective farms usually without any remuneration. Agricultural workers
were prohibited to move from the countryside. In 1939, industrial workers were legally deprived
of the right of voluntary leave from their factories and one day of unjustified absence was
punished by six months of prison. This total mobilization of all human resources helped to
overcome the terrible defeats of the Red Army in 1941-1942 and contributed to the victory by the
Soviet Union and its allies in the Second World War. However, the victory did not change the
system constructed to win the war; instead, it proved to be an effective method for continuing
economic growth while maintaining order through a system of internal terror. Only the death of
Joseph Stalin in 1953 put an end to the most violent excesses of the Communist regime.
The late Communist regime (1955-1991), and especially the period of 1970-1979, is still
cherished in the memories of older Russians as the “golden period” of socialism. Political
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repression was diminished to punishment of only a few open critics of the regime, while
guaranteed jobs and low production requirements in the majority of workplaces, solid social
benefits, and subsidized housing created an atmosphere of social peace and self-indulgence. This
atmosphere disappeared in early 1980s with the decline of economic growth, increasing shortages
of foodstuffs and consumer goods, the prevailing social boredom, and visible hypocrisy towards
official propaganda. To revitalize socialism Mikhail Gorbachev initiated a series of well-intended,
but internally contradictory political, economic, and social reforms. The Soviet system could have
lasted for many more years, but an unsuccessful coup in August 1991, – aimed to stop the
independence movement of the Baltic republics – created a political vacuum and led to an overall
disregard of the Communist ideology by the vast majority of the population. The Soviet Union and
the Communist system soon ceased to exist.
The post-Soviet period (1992-present) was formed by two largely different subperiods – Boris Yeltsin’s presidency (1992-1999) and Vladimir Putin’s political leadership (2000present). During Yeltsin’s era, Russia experienced a prolonged economic crisis of 1992-1996, a
government debt default in 1998, the virtual annihilation of several industries, and mass political
unrest that culminated in an attempted coup in October 1993. However, the political freedom
found during that period felt unlimited and the basic precepts of market institutions were
constructed. Putin’s reign started under the slogan of stability and prosperity, given the previous
decade of pillage and plunder. Rapid economic growth in the 2000-2007 period was tempered by
the growing problems of corruption, rising income inequality, and the new limitations introduced
concerning political freedoms. After the sharp economic downturn of 2008-2009, it has become
clear to policy makers and the general public that there exist limitations in the Putin’s regime’s
ability to implement effective solutions to the escalating economic and social problems. These
historical eras provide the foundation for HRM practices in modern Russia.
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Human resource management in the pre-Soviet period (1861-1917)
For a proper understanding of Russia’s human resource management system in pre-Soviet
times, we should note that the Russian economy consisted of three connected but largely different
sectors of (1) heavy industry, (2) small industry and trade and services, and (3) agriculture.
Industrial growth was spectacular in the 1890-1914 period. In 1890, there were 1.5 million
industrial workers in Russia and by 1914, the number of industrial workers had reached 4.2
million. The scale of factories in Russia was extremely large with the largest in Sormovo and St.
Petersburg. They employed more than 15,000 workers and the metals works in Southern Russia
employed 43,000 persons. This rapid industrialization caused many problems, such as the
recruitment of a workforce from the countryside that was uneducated, unqualified, and
undisciplined. The injury rate was extremely high – in metal foundries one in every two workers
was annually a victim of a work related injury.
The remuneration level for similar working positions in Russia was three times lower than
in England and five times lower than – in the US and this relationship remained stable throughout
the 1890-1914 period. The conditions of work gradually improved over the 1880-1914 period, but
were still well below Western standards. The first labor legislation appeared in the 1880s, the
“Laws on work of minors” (1882 and 1885) which prohibited children under 12 to work, and was
followed in 1892 by legislation which limited the length of the working day of children below age
14 to six hours. The “Law on the length and allocation of working time” of 1897 legally limited
the length of the work day for adults to 11.5 hours per day. However, this law was annulled in
1898. Only in the 1910s, after many strikes and labor unrest, was the average working day in large
factories limited to 9.5 hours. Because of these poor conditions, many factory workers viewed
their jobs as temporary and 60% of factory workers kept their families in villages and many still
owned plots of lands in their native villages.
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However, life in the countryside was even more difficult. While in heavy industry the
working conditions moved somewhat toward international standards, Russian agriculture
remained in near medieval conditions. Even after the abolition of serfdom in 1861, a local rural
community (mir, usually a village of 10 to 100 families), not individual peasant families, remained
the legal owner of the land. Moreover, members of the local community held unlimited liability
for taxes and other duties imposed on the whole community. The regular re-distribution of land
among the members of a community by the leaders of the local village further discouraged
peasants to improve their agricultural techniques and production. Noblemen rarely supervised
production on the land they owned, preferring instead to lease the land to villages and collecting a
portion of the produce. Only in Southern Russia did agrarian entrepreneurs organize large farms
that relied heavily on temporary workers, who were poorly paid and overworked during planting
and harvesting times. As a result, more than 60% of country families were officially considered in
1914 as “poor”, meaning that they hardly could secure the minimal nutrition level for subsistence.
Small enterprises and artisans also employed outdated systems of work and pay. Small
workshops numbered around 300,000 in the 1910s. In Russia the system of guilds never existed so
there existed neither the traditional nor modern system of contractual relations between owners of
workshops and their employees and the interaction between adult masters, younger journeymen,
and apprentices was unregulated by both law and tradition. The position of apprentices was
especially hard as a workshop owner attracted as many apprentices as he could and kept them in
dire conditions – usually poorly fed, living in substandard accommodations, and overworked both
in the workshop and household. In 1897, according to an observational study, the real workday of
apprentices in Moscow workshops lasted for 14 hours and in bakeries apprentices worked all day
with only short breaks (Expert commission, 1897, p. 84). Russian urban artisans, with the notable
exception of jewelers and fine tailors, were known for mediocre quality of production. In this
respect, countryside co-operatives (self-governed groups of skilled workers of traditional crafts)
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and roving “fraternities” of construction workers, carpenters and masons usually had a better
reputation of quality than private workshops.
Thus by 1914 the system of human resource management in Russia was largely different
from that in Western Europe. Despite of the end of serfdom and the rapid industrialization Russia
resembled Latin American countries in many aspects with semi-feudal relations in the agricultural
sector, the exploitation of workers in small enterprises, limited labor reform, and harsh working
conditions in large enterprises. Regarding our selected measures of the development of the
national HRM system – remuneration, positive and negative forms of motivation, receptivity to
innovations, and labor productivity – Russia lagged significantly behind from Western and Central
European countries.
After the Tsar’s overthrow, the Provisional Government was unable to supply effective
solutions to the fundamental social problems or to stabilize the deteriorating economic situation.
The long-demanded 8-hour workday was not established and the agrarian reform was postponed.
Meanwhile, in 1917 industrial production contracted by 35%, inflation reached 1500%, and the
disruption of the food supply in large cities worsened. This provided the Communist Party the
opportunity to overthrow the Provisional Government and opened the way to radical experiments
in societal transformations based on Marxist ideology. The system of HRM was to see a radical
transformation during the Soviet period.
Early Soviet period (1917-1929)
The Communist Party presented itself as the proponent and protector of the interests of
workers and poor peasants. Its first decrees of November 1917 responded to the aspirations of
both groups by seizing the land owned by large land owners and transferring it to the peasants; the
implementation of an 8 hour working day and the 48 hour working week; the end to fines in the
workplace; the prohibition of child labor; the limitation of dangerous work and night work by
women and young adults; and the establishment of paid sick leave. Significant attention was given
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to the working conditions of women and they received an eight week paid maternity leave2 and
were given necessary breaks during the working day to feed their infants. Labor inspections were
introduced to control the working conditions in large factories and in small workshops. The labor
code of 1918 contained many provisions that are still valid in Russia today:
Wage payments should be made every two weeks.
No wages may be set below the officially set minimum wage.
The day work shift was set at 8 hours and the night shift at 7 hours.
Annual paid vacations are provided.
A shortened work day for heavy labor is mandatory.
Free medical care and monetary allowance during sick leave are provided to all employees.
Unemployment allowance is set accordingly to the worker’s last salary.
Lunch breaks are mandatory.
The labor code contained many other provisions; for example, the prohibition of work
during public holidays. At the same time, work was declared an obligation of every adult.
However, the honeymoon in relations between workers and the Communist
authorities did not last for long. In this respect, an interesting example is presented by the shortlived system of industrial democracy. The Provisional government stipulated the creation of
factory committees as a temporary substitute for trade unions. After the Communist revolution,
factory committees rapidly established their complete control over the then legally private
enterprises. In addition to addressing payment and work conditions, they dealt with supply issues
and determined pricing and production mix. This was the first-ever Russian experience of
complete industrial democracy and de-facto employee ownership. Ironically, nationalization put
the end to this system as the centrally appointed commissars ousted elected heads of factory
committees and by the end of 1918 factory committees were merged with trade unions.
2
The maternity leave is still called in both the official and spoken Russian languages as “Decree’s holiday.”
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Rapid nationalization caused an equally rapid industrial collapse. In 1920 heavy industry in
practice ceased to operatewith output declining to 2.5% of the 1913 level. Millions of workers
returned to the countryside. As there were no goods to exchange for foodstuffs and retail trade was
also officially prohibited, peasants refused to feed the cities. The authorities responded by massive
forced requisitions. Peasants in turn decreased the size of cultivated land. Hunger and even
starvation in cities spread.
In February 1921, just before the annual planting campaign, the Communist Party
announced a “temporary retreat” where the future crop would be taxed at only a 20% rate, retail
trade would again be allowed, and small private workshops could be freely established. This
policy was called the “New Economic Policy” (NEP). In 1922 the monetary wage system replaced
the rationing system for workers of large and medium-size factories. The new labor code of 1922
included some new provisions, like the concept of establishing a collective work agreement and a
leave allowance. It also increased paid maternity leave to a maximum of 16 weeks and decreased
the working week to 42 hours. The labor code of 1922 was officially in force until 1971.
Human resource management practices in the 1922-1929 period reflected the conditions of
fragile recovery. While in the countryside the majority of peasants increased their land ownership
and considerably improved their living standards, the living standards in the cities were still far
below that of the pre-Soviet period. Finally, the food supply remained fragile and in 1927 the
rationing system for bread was re-introduced in major cities.
The introduction of a rationing system for bread in major cities put the end to attempts to
find “soft solutions” for societal transformation. In the 1920s Russian agriculture consisted of two
major types of producers of grain – individual farms and cooperatives. In 1925 there were 40
thousand cooperatives for supply of farm machinery and marketing of agricultural products, as
well as 15 thousand production cooperatives. The production enterprises took three forms:
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“partnerships for land cultivation” that collectively owned tractors and auxiliary
equipment;
“co-operatives” that brought together many families for collective agricultural work;
“communes” that were based on collective ownership of all production funds, including
equipment, buildings, and cattle.
Production cooperatives in agriculture were notable because they the forms that tried to
develop new forms of HRM management to solve all the three problems facing these enterprises:
to increase remuneration levels, strengthen receptivity to innovations, and increase labor
productivity. Initially the Communist Party expected that the “soft collectivization” of agriculture
would be the driving force for national development. Initial plans for soft industrialization
predicted that the rising purchasing power of the collectivized agricultural sector would create the
necessary demand for industrial production. However, the development of industry remained slow
and machinery and equipment were supplied to the countryside at prohibitively high prices.
Individual farms and cooperatives alike were reluctant to supply the necessary volume of grain to
cities. Thus the food crisis of the late 1920s began.
One of the major causes for the failure of soft industrialization is related to the crucial
problem of the Soviet system during the whole length of its existence. This is the complete lack of
internal stimuli for technical progress and labor productivity, as the competition between stateowned producers was nonexistent and enterprise rivalry did not exist.
The NEP, which consisted of a combination of state ownership of heavy industry with
restricted private ownership in small businesses and in agriculture, helped revive the economy, but
the standard of life in the Soviet Union in late 1920s was still below that in the least developed
European countries (e.g., Poland and Romania), while the antique equipment of the Red Army
permitted only minor success in military conflicts with regional Chinese warlords. This situation
did not match the ambitions of Communist leaders for world supremacy. Hence, a course toward
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the rapid creation of modern military industries was set. This required dramatic changes in the
economic and social structures of the Soviet Union.
The Period of Stalinism (1930-1953)
Joseph Stalin asserted his absolute personal power in 1930 and kept it almost unchallenged
until his death in 1953. Although it was very hard for the average Russian manager to imitate
some of his personal qualities, like superb craftiness, slyness, and exceptional ability for quick
absorption of new knowledge, other of Stalin’s qualities, such as cruelty, rudeness, intolerability to
opinion of subordinates, and envy towards talents and skills of colleagues, became the model for
Soviet managers’ behavior. In this respect the Russian army regiment did not differ much from the
factory shop floor or university department. The life of Russian managers, however, was not easy
in any aspect. Like their subordinates, they were accustomed to long workdays and nights, they
should be ready to execute an order without any hesitation, and they lived under the daily mortal
risk of being made responsible for any failure of a superior. The Communist party was infallible,
thus any failure was attributed to enemy agents who should be unmasked and punished. This led
to a widespread search for scapegoats to pin responsibility for failed initiatives.
A fundamental defect of the Soviet system of management was the process of passing
down the liability for failures to lower levels of the managerial hierarchy, while the authority to
make the decisions and to accumulate the necessary resources to implement the decisions was
concentrated at the top. This led to paralysis and lack of initiative by low - and mid - level
managers, as they would be punished for taking action. The safest practice, therefore was no
action. The purges of the 1930s annihilated entire cohorts and social strata and caused a reckless
waste of human resources during war and peace alike. The deprivation of all Soviet citizen of
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basic political and economic rights was the fundamental feature of the Soviet system during the
period of Stalinism.
The evolution of the human resource management system during the Stalinism period had
a strong, albeit inhuman, logic. Rapid industrialization had to be financed. These resources could
be obtained only from the agricultural sector. To make the “squeezing” of peasants easier,
individual farms were amalgamated into larger entities. Of course, wealthy peasants ardently
opposed this policy that deprived them of their property and possessions, so they needed to be
eliminated. Thus, nearly 10 million persons in the farming sector were either executed or sent to
Siberia. The newly created “kolkhozes” (collective farms) were squeezed by all means. The first
method was the forced purchase of agricultural output by the state at artificially low prices. By the
late 1930s the term “purchase” was replaced by “deliveries to the state granary”. The next method
used was overpricing the services of the machine-tractor stations (MTS). Kolkhozes did not
actually receive the long-promised tractors; they were forced to purchase services for machine
tillage and reaping from the MTS.
The collectivization of the Soviet village also became a major source of increased labor
force. Between one and two million peasants were conscripted annually and sent to heavy
construction projects during the 1930s and 1940s. In 1934 de-facto serfdom was reestablished as
peasants were not allowed to leave their villages except in cases of military conscription and
“organized recruitment.” While there were rules to 19th century serfdom with regard to how much
a serf had to work for his master (usually not more than three days a week), under the Soviet
system unpaid work in kolkhozes could take seven days a week. To secure basic subsistence
peasants were offered small plots of land but their production was heavily taxed.
Industrial work in the Stalinist period followed the same pattern of forced labor. In 1933,
the Ministry of Labor was liquidated and the Gulag system of centrally managed labor camps
rapidly evolved. In 1940 Soviet-style serfdom spread to the cities through a special decree
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prohibiting voluntary leave of workers and engineers from workplaces. A day of unjustified
absence was punished by six months of imprisonment.
The mobilization to resist the Nazi invasion embraced the whole Soviet economy. Labor
legislation was never legally amended but the working day was extended to 14 hours (12 hours for
minors) and all holidays were prohibited. In addition, employees could be transferred to other
factories in remote regions and for qualified workers and engineers the transfer of whole families
was mandated. Even in the post-world war II period the system of mobilization was maintained.
The newly created Ministry of Labor Reserves performed the task of distributing the labor force
among various sectors of the Soviet economy, thus deciding the fate of millions of Soviet workers.
The Soviet system was very effective in performing a few specific tasks, such as the rapid
construction of industrial factories, the building of large infrastructure projects, and radical
increases in the output of military production. However, the system was ill designed to promote
innovation and productivity growth.
During the 1930s and 1940s four types of HRM practices were adopted to spur innovation
and productivity. One of these, the “Stakhanov movement”, was launched in 1934. Named after a
worker Stakhanov, the movement was based on four consecutive steps. The first step was to
design a new production scheme that created the possibility of two-to-threefold increase of
productivity in the work task. The second step was to find an energetic and sympathetic worker
who would agree to serve as an example of ardent labor heroism. The third step was to certify the
reality of a new productivity record. For example, Stakhanov produced in a single shift 102 tons of
coal instead of the norm of 7 tons. This was attributed to his personal achievement despite the fact
that several auxiliary worked assisted him in the coal mine. The fourth and the final step was the
drastic revision of daily work quotas for the mass of workers to reflect the new level of attainable
productivity.
The Stakhanov’s movement was a top-down approach of improving productivity. In 1942,
it was replaced by a movement of “1000 percent men,” officially launched after a proposal by
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milling-machine operator Boshoi. Stakhanovites’ new production records were based on specially
designed schemes of intensification of work, while members of the 1000 percent men movement
made their own inventions in machinery and production processes, implemented such inventions,
and by there increased the productivity level by 1000 percent or more. This was indeed an attempt
to promote bottom-up innovations. However, that campaign included only certain classes of
workers and lasted only until mid-1940s.
The third 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. However, even in the Gulag such a person had some chance to use many of his
professional talents if he was lucky enough to be transferred from a “normal labor camp” to a
“sharaga” – the fourth Stalinist institution aimed to accelerate the flow of technical innovations
and productivity.
The Soviet “sharaga” is a special type of institution – a prison turned into a research or
engineering center. Imprisoned scientists and engineers were put in a special facility with
abundant food, comfortable dormitories, and a supply of fresh Soviet and imported technical
literature and then formed into research teams. An ambitious but realistic task was proposed for
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the team, such as the development of a new type of weapon, of finding an answer to a technical
problem. Effective teamwork was assured since in the case of success all the persons involved
were returned to their families and also received proper positions in conventional research
institutes; in the case of failure the whole team was sent back to Siberian mines. Envy towards
colleagues did not exist as the whole team shared the same destiny. Moreover, personal contact
with colleagues could be maintained around the clock and there were no problems of everyday life
that could draw the attention away from maximum research. Sharagas mushroomed 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 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.
Despite all of the terrible crimes of the Stalinist period, two real achievements must be
noted. The first was the creation of a modern industrial economy and the second was the
establishment of a quality educational system, including a dozen world-class technical
universities. These achievements helped transform the social structure of the once predominantly
agrarian Russia.
In the early 1950s the inadequacy of the Soviet system became obvious to everyone except
the ageing dictator Stalin. His death in 1953 put an immediate end to the policies of mass political
repression and universal fear. In just two years the Gulag system was mostly dismantled, prisoners
of war were returned to their home countries, and political prisoners were rehabilitated. Although
the most radical ideas of returning to the principles of the 1920s “new economic policy”, including
the disbandment of kolkhozes and the development of private enterprises in services, were
rejected, the course for “overcoming Stalin’s perversions of Socialism” was proclaimed.
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Assessing the period of mature Stalinism with our four metrics of the Russian HRM
system, we conclude that the system improved labor productivity in the industrial sector though
the productivity of agriculture remained low. The period did inject significant efforts to increase
the receptivity to innovations on the factory floor. However, the working and remuneration
conditions for all kind of employees remained harsh during the whole period. Only negative
motivation was utilized at first due to the extreme nature of the transformation of the economy and
later as a crutch to maintain the social order of the system. The Stalinist period not only led to the
clear rejection of the principles of initiative and equity in the work place but also led to the general
failure to develop management principles of leadership. The esprit de corps amongst Soviet labor
was nonexistent, except as a propaganda tool for the creation of labor heroes. The Stalinist human
resource management practice can be still witnessed in many Russian institutions today were
initiative is punished, remuneration is tied to the manager’s personal whims, employee assessment
is based on office politics, and punishment is utilized as the principle motivation al tool.
The late Soviet period (1955-1990)
During the late Soviet period the Communist party tried to simultaneously achieve four
major goals: (1) to keep its political monopoly unchallenged, (2) to preserve the fundamentals of
the Socialist system based on central planning and prohibition of private enterprises, (3) to achieve
and maintain military parity with the USA, and (4) to secure the popular support for the first three
goals by the improvement of working and living conditions of the Soviet people.
The improvement of living conditions in the late 1950-1960s was spectacular. First and
foremost, more than 25 million families radically improved their housing conditions by moving
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from dormitories to modern apartments. Second, the mass production of modern household
appliances, such as refrigerators, TV sets and furniture, was accomplished for the first time.
Ordinary citizens were allowed to purchase cars and the output of cars rose from 100 thousand in
1955 to 900 thousand by 1971. Third, new enterprises were created to increase the number and
affordability of household appliances in order to make the life of ordinary citizens more
comfortable. For example, thousands of shops with a “rent-an-appliance” program were opened.
These shops made it possible to rent for a reasonable price a piano, an electrical iron, a
refrigerator, or a pair of skis or a table set for a period from one day to one year. Pharmacies
offered to rent special equipment for home medical care like bedpans, crutches and other medical
equipment. In addition, thousands of public laundries and dry cleaners were established in the
1960s in large and medium sized cities.
An elaborate system aimed at promoting industrial innovations was also created. Inventors
received patent rights that allowed for royalty payments while reserving the use of the invention
for the state. Thus, the legal foundation for a remuneration system for inventions was established.
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 royalty payments for innovators were
generous, as the upper limit of remuneration for a single invention was set at the level of 100
monthly salaries for an engineer and there were no limits on the number of inventions co-authored
by a single person. Besides individual and team remuneration, considerable funds were allocated
to finance innovations at the factory level. Beginning in 1965, every factory was obliged to
transfer five percent of its net profit toward a special fund for “production development.”
The third change was related to attempts to overcome the legacy of the Stalinist leadership
style. Rudeness, intolerability of subordinates’ opinion, and envy toward colleagues were
regularly publicly condemned and feature films presented stories of how younger managers and
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workers successfully triumphed over petty tyrants in establishing a better social atmosphere on
factory floors. To maintain this transformation, some of the basics of industrial democracy were
reintroduced. Since 1958, a special body named the “permanent active production conference”
was created in all factories that had more than one hundred employees. These conferences were
meeting points to discuss the plans for reconstruction and ongoing measures to implement new
techniques. Plant directors, production superintendents, and shop managers were obliged regularly
to report at these conferences on the progress of particular projects and programs. In 1960, large
factories also established public bureaus of economic analysis. These were voluntary meetings of
engineers and economists aimed toward the rationalization of the production process, the search
for new highly skilled workers, and the training of new factory economists and accountants.
Workers and foremen also could compete for the formation of a “brigade of communist labor.”
The first brigade of communist labor was formed in 1958 and was designed to promote better
attitudes towards work, including continuous retraining, mastering new techniques and
professions, and intensive mentoring and coaching of managers and workers.
Most of these new types of industrial democracy were quickly deformed and degraded. For
example, the brigades of communist work by 1972 included more than 52% of all Soviet workers
but with no visible benefit for their working conditions. The main reason the failure of all forms of
industrial democracy was the fear of compromising the leading role of local Communist Party
committees. Instead, the emphasis was placed on extrinsic “material” motivation. In the mid1960s, large enterprises were allowed to transfer up to 20% of their net profit to a special fund
used to pay monthly, quarterly and annual bonuses to employees. Thus, in 1966-1969 take-home
pay of industrial workers increased by 43%. One outcome was that the increase in labor
productivity lagged behind the growth of wages. This was not necessarily bad as workers had been
poorly paid for decades. However, the payments from net profit raised the level of inequality in
wages between factories with different profit levels in the same industry. This led to increased
competition to create “profit” by squeezing revenue out of other enterprises within the same
18
industrial ministry. The system could not tolerate this situation and, in 1972, stricter rules on
bonus payments were imposed. As partial compensation, the gradual revision of tariffs (pay–rates)
established for piecework payment and hourly wage rates were implemented. During the 1970s a
wide range of tariff-qualification handbooks was developed. These handbooks contained detailed
descriptions of industry-wide and firm-specific job positions, including detailed qualification
requirements, criteria for performance assessments, and guidelines to local a particular job
position relative for a specific rank in the tariff grid.
In the 1970s Soviet agriculture finally converged with the industrial sector in terms of
working and payment conditions, as the new Labor Code of 1971 stipulated the uniform length of
a working week (41 hours) across all sectors of the national economy, the adoption of similar
wage systems in both agriculture and industry, and introduction uniform pension schemes in all
sectors of the economy.
By the mid-1970s, the late Soviet system of human resource management had crystallized.
It can be described by the following basic features:
The maintenance of full employment, which was achieved by continuous creation of jobs
in excess of production demands, primarily at industrial enterprises. Low wage differentiation as
the ratio of the absolute minimum (unskilled worker) to the absolute maximum (minister) wage
level was kept at seven to one.
The predominance of regulated wages and salaries as the major component of take-home
pay. Various bonuses, quarterly and annual, made up a moderate share (up to 20 percent) of the
total amount of workers’ financial compensation.
A large number of non-monetary benefits and incentives. These included both giving
employees an opportunity to use free of charge or at a nominal cost vacation hostels, Young
Pioneer camps, industry-sponsored hospitals and other facilities of the “social infrastructure”, and
the use of various and sometimes fairly effective forms of psychological incentives, including
industry-wide and government awards for special labor achievements.
19
This late-Soviet legacy continues to have a significant impact on the wage and “social
packet” expected by private sector and government workers even today.
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. The personnel department dealt with routine administrative
functions of legal paperwork in hiring, firing and performance assessment. The local trade union
was responsible for social life, including holiday camps, kindergartens, sport and social events,
and the most important issue of all – the allocation of housing among employees. The salary
department was responsible for salary administration. Finally a special unit under the direct
supervision of the Chief Engineer dealt with issues of job design and work safety.
The system worked initially smoothly in that wage rates were revised regularly and
employees received regular increases in take-home pay. From 1979, however, a series of negative
macroeconomic factors3 led to a period of austerity. In the 1980-1985 period wages were frozen,
especially for industrial engineers and shop-floor managers. This led to rising social apathy toward
work and management, the slowdown in innovations, and the overall stagnation in labor
productivity. This was the socio-economic background for Gorbachev’s reforms. The reforms in
foreign and internal policies, during the 1986-1990 period, known as perestroika and glasnost,
camouflaged the fundamental changes in HRM practices during this period. These changes were
related with two initially independent, but in fact highly interrelated, laws: the “Law on
Cooperatives” of 1986 and the “Law on Enterprises” of 1987. The law of cooperatives allowed the
formation of cooperatives in both service and industrial sectors. There were three types of
3
The extremely hard winter 1978/1979, enormous spending on new strategic weaponry, additional expenses to assist
Vietnam in its border conflict with China (the first war between socialist countries), and the invasion of Afghanistan.
20
cooperatives. Some cooperatives made possible the legal existence of previously illegal private
workshops. The second type of cooperative was active in previously illegal private wholesale
trade. The third type of cooperative was legally separated entities of state-owned enterprises that
used the same workforce and helped to “milk” state enterprises through overpriced subcontracting
of particular production and services to divert cash flows into the pockets of those managers who
controlled these cooperatives. This law immediately removed all previously imposed regulations
on the wage levels for workers, engineers and managers alike. In 1990 there were 135 thousand
cooperatives in the Russian Federation and they produced 4.6 percent of GDP, including 10
percent of all subcontracting work in the construction sector.
The Law on Enterprises stipulated that general directors of enterprises should not be
appointed but, rather, elected by the general assembly of the enterprise’s employees. Using the
cash flow from their cooperatives activities, many ambitious general directors bribed their
employees’ leaders and easily won these elections. This made possible the so-called “spontaneous
privatization” in the form of seizing the assets of industrial enterprises. The unlimited rise of
wages coupled with frozen prices for goods and services caused a sharp shortage of even basic
foodstuffs. In September 1990 Gorbachev refused to accept a set of radical economic reforms
contained in the “500 day program” of his economic advisor Grigory Yavlinsky and he rapidly
lost popularity. The growing political vacuum led to an attempted coup and later to the end of the
Soviet Union.
Besides cooperatives, another form of enterprise was created known as the “leased
enterprise”. These firms, started in 1989, consisted of large state-owned enterprises leased from
the state by their work collectives. The expectation was that leaseholders would purchase these
holdings from the state. Therefore leased enterprises demonstrated an effective level of
production, were keen on the absorption of innovations (see Siguinevich, Gurkov, 1990). Leased
enterprises proved to be the most effective sector of the Russian economy and by September 1991
employed 6.6% of the total workforce but accounted for 10.6% of the total industrial production.
21
In the service sector, the influence of leased enterprises was even more spectacular as, by
September 1991, they accounted for almost 27% of transportation services provided by buses and
trucks, 27% of retail trade, 25% of catering, and 18% of construction projects. However, the
process of mass privatization of 1992-1994 period ended this form of enterprise.
The late Soviet period demonstrates the limitations for creation of an effective HRM
system in the economy preoccupied with production of weapon and ammunition, where services
were called as a “non-productive sector”. Public euphoria of the mid 1950s after the end of
political repressions and mass release of (survived) political prisoners, “Communist brigades”
movement aimed towards job enrichment in the late 1950s, generous incentives for industrial
innovators implemented in early 1960s and, finally, legally stipulated in 1965-1967 retaining of
20% of enterprises’ net profit for bonus payment – taken together all these measures could create
near-perfect framework for HRM. However, all monetary incentives became useless as these
higher wages merely lead to greater shortage of consumer goods4. Again, elements of industrial
democracy, related with job enrichment, endangered the monopoly position of the Communist
Party. The suppression of enterprise reform in early 1970s was done by rapid development of nonmonetary incentives for employees. The rapid development of remuneration in cooperatives and
leased enterprises caused again the large deficit of consumer goods in 1990-1991. This time the
Soviet government was unable to provide the solution as the Soviet Union was in the process of
collapse.
The current state of HRM in Russia
The major socio-economic changes of the 1990s rewrote the system and practices of HRM
in Russia, at least at a formal level. A vast mosaic can be seen in the evolution of HRM ideology,
4
The prices for consumer goods were stable, and the most attention was devoted to monetary incentives for
employees in military complex and other “heavy industries”.
22
legislation, systems and practices during this period that was an integral part of the larger societal
transformation.
The collapse of the Soviet Union happened suddenly, thus creating both an institutional
and an ideological vacuum. Gaidar’s economic reforms of 1992, based in a great part on
improvisation, were directed toward:
Ending the system of central planning, as it was considered the major impediment to the
market economy.
Rapid development of private enterprise as an institution and making it the leader in both
industrial production and provision of services.
Bringing down the “iron fence” that for sixty years separated physically, economically and
mentally the Soviet Union from the rest of the world.
The first task was the easiest one. The collapse of the Soviet Union weakened or destroyed
many of the institutions of the failed state, including the Central Planning Committee (Gosplan)
and the “all-union” industrial ministries. Thus, in practice no one authority really supervised state
enterprises during this period and they became totally free from state orders, and long-term plans,
and detailed reports on production and wages. Thus, enterprises had to learn the rudiments of
marketing, financial management and, in the case of export firms, how to engage in international
trade. This learning process was done by trial and error. In 1992-1995, the relationship between
enterprises was conducted in largest part by barter trade, hence industrial production contracted by
a third. The contraction of industrial output was accompanied by a two-digit inflation rate.
The destruction of the institutions related to central planning introduced significant
changes in HRM at the enterprise level. First, the centrally planned and controlled wage systems
collapsed. Piecework rates and hourly wage rates were never properly indexed for inflation so the
real wage declined substantially during the 1990s. The share of regulated wages as part of takehome pay declined to between 1% and 20% for various types of positions. Enterprises still needed
23
to attract workers and without a compulsory work regime these enterprises created various
monthly “supplements” and quarterly and annual “bonuses” for employees to maintain a living
wage in take-home pay. There were no clear rules for such additional payments, in most of the
cases they were done at the complete discretion of managers. The result has been the introduction
of a level of extreme flexibility and variation of wages during 1990s onwards. For example, in
January 1992 the average real wage decreased by 30%, in October 1994 by 25%, and in AugustSeptember 1998 again by 30%. At the beginning of 1999 the average real wage was 70% below
the 1991 level, while GDP contracted by 30% (Yasin et al., 2011). Besides the low wage level,
actually getting wages paid was very slow and difficult. Supply interruptions and delivery delays
and subsequent late payment by customers caused large and prolonged wage arrears as employers
were only willing to pay out wages to employees after other claimants were paid, such as
suppliers, owners, government officials, and managers. In some cases, employees were not paid
for several months, often they received payment in the form goods either produced or obtained by
their enterprises through barter transactions (see Earle and Sabiryanova, 2002).
However, most of employees preferred to remain at their posts even with these miserable
payment conditions as the loss of employment signified almost an economic death sentence. The
Soviet social security system was not designed to deal with mass unemployment. Once
established, unemployment benefits were low and difficult to get. During the 1990-2000s the
number of officially registered unemployed persons never surpassed 3.6 million, while the number
of unemployed by the ILO’s (International Labor Organization) definition stood one time at 13.8
million (18% of the total labor force). In 2009 the number of officially registered unemployed
persons was five times less than the number of unemployed persons estimated utilizing the ILO
definition. In addition, only 80% of officially registered unemployed persons received
unemployment benefits. A social safety net system of food and monetary benefits for poor
families has not yet been implemented by the Russian government.
24
Reaching the retirement age in Russia and stopping work often puts one into extreme
poverty. In late Soviet times the size of the average pension was 60-65% of the average salary. In
1994 the ratio was 42% and it steadily decreased to 27% in 1994-2008. This has led older
employees to keep their jobs till the very end of their ability to work.
The destruction of the central planning also had a very serious impact on the
procedures and inner workings of HRM systems in major enterprises. First, the system of HRM
administration was dramatically simplified. Work planning and wage departments disappeared and
while trade unions somehow survived in the1990s they were unable to protect the employees
against the sharp decline in payment conditions. Unions faced the threat of mass lay-offs and
lockouts which paralyzed the practice of strikes and the trade unions quickly lost their influence
and membership during the 1990s. In addition, since enterprises were keen to get rid of expensive
social infrastructure, such as rest-camps, kindergarten other social services inherited from their
Soviet enterprises, as quickly as possible, this left unions out in the cold as there were no “perks”
to be distributed by trade union committees.
Therefore, the destruction of central planning caused a deep structural and
managerial crisis. Enterprises adapted to the government vacuum and to market conditions by
shifting the cost of transition to employees through declining and irregular payment the wages.
This had a profound impact on the share of wages in GDP. Even in 2009 the level of GDP in
Russia at purchasing parity prices (PPP) stood around 32% of the US level, while the average
wage (again at PPP) was merely 17% of the US level. Workers were receiving an ever-shrinking
share of the product produced by their labor. The remaining is appropriated by employers.
The second goal of Gaidar’s reform was the rapid creation of private enterprise.
The first phase was the very unrestricted entrepreneurship of the 1992-1994 period. To start a new
business only courage and minimal capital were needed as there were neither established practices
for registration of new businesses or requirements for financial reporting of business activities.
Hundred of thousands of new businesses were established in the 1992-1994 period. Many of those
25
early businesses still play a major role in the Russian economy, as all currently active large private
conglomerates were established during 1992 and 1993. Another form of new private enterprise
came from process of accelerated privatization. In 1994, one-half of Russian enterprises were
privatized, mostly by transferring the title of ownership to their employees. However, employees
quickly sold their shares either to company general directors or to recently created financial
companies and investment banks that were first started in 1995 for the acquisition of industrial
assets.
The establishment of private enterprise had a large impact on both HRM practices
and systems. We may distinguish two major issues. First is the completed transformation of
personnel administration into human resource management. In the Soviet system, when most of
the profit was taken by the state, general directors of the enterprises were interested not in profits
but in the wage level of their employees and total number of employees. A higher wage level in
his/her enterprise was an indicator of success and helped the general director in gaining
recognition and funding from the government. Also the total number of employees of an enterprise
indicated the relative place the general director had in an industrial (ministerial) hierarchy. Within
the system of private enterprises, once elected general directors secured the controlling stake in
their enterprises they regarded wages as a direct deduction from profits that otherwise could be
paid as dividends to themselves and associates. The same views were also expressed by
investment banks and financial institutions that were able through the privatization process to gain
control over a large number of industrial enterprises.
The second HRM issue related to the creation of the private enterprise system was a
generation clash in the workplace and society. New private enterprises were created by very young
people, such as young university graduates with some English language skills, who started banks
and financial institutions while their even younger colleagues without language skills started trade
companies. This younger generation in their early twenties became the managers for much older
men and women and often treated them with juvenile cruelty and a disdain for their “Soviet” era
26
practices. In the new HRM system, discrimination against women with children who could apply
for a leave for a child’s illness or against older employees who could apply for extended sick leave
became a norm in newly established private enterprises and also in the privatized enterprises.
Firms rapidly adopted policies and practices designed to reduce the possibility of employees
realizing social benefits or exercising their rights as employees. HRM departments were designed
not to serve the employee or to cultivate human resources but as means to reduce labor costs.
In addition, older and younger bosses alike were keen to show their social
separation from lower-levels employees and managers. If in Soviet times the payment level of a
general director could not exceed the remuneration of an unskilled worker by 10 times and the
remuneration of skilled employee by 2-3 times, in the mid-1990s often the average wage level of a
CEO (without payments from profit, stock option plans etc.) exceeded the remuneration level of a
skilled employee by 100 times. The creation of a “VIP” class was a key social development of the
1990s and it effectively replaced the Communist Party hierarchy (nomenklatura).
Thus, the old social contract that included a level of mutual respect, manager’s
credibility and the social patronage was broken. Thus the old slogan of Soviet workers towards
their employers, “they pretend to pay us and we pretend to work” is replaced to “they are unable
stop our weight reduction diet and we are unable to stop their gorging.” Behavioral costs of this
system appeared quickly. Our survey of 700 Russian CEOs indicated that the majority of them
indicated two major deficiencies of their direct subordinates: a “lack of initiative” and “lack of
responsibility” (Gurkov, Maital, 2001).
The third element of Gaidar’s economic reform that played an important role in the
changes in HRM the demolition of the “iron fence”. This reform was realized in three ways. First,
even before the collapse of the Soviet Union, the cross-border movement of people began.
Initially, in 1989-1991, this took the form of mass emigration to Israel, Germany and the United
States. In 1992-1994 several million ethnic Russians returned to Russia from the newly
independent states of the former Soviet Union. Since 1995, a new flow of migrants from the
27
former Soviet states (especially from the Central Asia) followed. The flow of migrants from
Central Asia increased in 2000s.
Besides the movement inside the former Soviet Union, the movement of
Westerners into Russia also began in 1990s and continued in the 2000s. By 1997 almost 100,000
Americans and Western Europeans worked in Russia. Around one-half of them worked in Russian
subsidiaries of multinational companies. The other half were independent business people
attracted by the favorable entrepreneurial atmosphere, new market opportunities, and less
developed competencies of local competitors in modern marketing and financial management
practices. Most of these Western pioneers left Russia in the second half of 1998 after the
government default. However, in 2000-2007 a new flow of expatriates appeared as experienced
managers from the west were invited to take top managerial positions in locally owned Russian
companies. In the mid 2000s it became fashion able among large Russian industrialists and
financial tycoons to have as chief financial officer, chief of marketing, or chief of operations a
person who previously served in a high-ranked position in a major multinational company. Again,
a financial crisis, this time in 2008, put an end to this fashion as it became an unaffordable luxury
for most Russian companies.
Expatriates in executive positions in Russian companies were expected to bring
technical expertise in all managerial areas (marketing, finances, operations, legal advice) except
one – human resource management. None of the expatriate top managers were hired to head the
human resource management function as it was considered to require not only mastery of the
Russian language but also deep understanding of the subtle written and especially unwritten norms
that govern the behavior of Russian employees.
The massive migration of workers from Central Asia, as well as internal migration
from the Southern and predominantly Muslim regions of Russia, caused a new HRM
phenomenon. This was undisguised racism and national discrimination. This is not so much the
discrimination at the workplace, as the persons with “inconvenient appearance” simply are not
28
hired by many employers. It is not uncommon to see now even in Moscow job advertisements
like: “A male of 20-25 is requested to work in a showroom. Slavic appearance is a must.”
The second element in the demolition of the “iron fence” was the appearance of
cross-border capital flows. Since the 1990s American, Western European, Japanese and Korean
companies started to invest in Russian industrial assets and also established networks to supply
and market imported goods. Until 1992 only joint ventures were allowed; since 1992 the
acquisition of Russian companies as well as green-field investments have been allowed. As a
result, there are no Russian-owned companies in the tobacco industry and only one medium-size
Russian-owned company in production of fruit juice. Major multinationals (MNCs) dominate
other sectors of food industry and consumer goods. For example, Auchan and IKEA play an
important role in retailing and the “Big Four” accounting firms dominate auditing services to
multinationals. At the same time, as early as 2005 Russian companies started significant
acquisition efforts in the United States and in the European Union, mostly by focused acquisitions
of troubled companies5.
Even in 2011, i.e. twenty years after coming to Russia, foreign multinationals prefer to
have expatriates in charge of their Russian operations6 with locals as managers at the lower levels.
At the beginning, the foreign multinational company (especially from Japan and Korea)
demonstrated a high propensity to transfer to Russian their home country HRM systems.
However, they quickly discovered that most of their HRM practices specific (like cross-functional
career schemes, 360 degree performance appraisal, etc.) do not work well in the Russian
environment. Thus, two significant differences between HRM systems of Russian companies and
MNC subsidiaries have developed:
The MNC subsidiaries have greater formalization of HRM practices, performance
standards, and procedures for performance assessment. Only 40 percent of Russian-owned
5
The pioneering acquisition was done by LUKOIL – the major privately-owned Russian oil company, that acquired
Getty oil and manages a gasoline station under LUKOIL logo one mile from the White House in Washington D.C.
6
Among Russian operations of 40 major MNCs 35 were headed by expatriates.
29
companies have detailed job descriptions and formalized performance assessment procedures but
almost 100% of Russian subsidiaries of MNCs have detailed job descriptions for employees of all
levels, including senior managers, well-elaborated employee manuals, and detailed procedures of
performance assessments. The job contracts in Russian subsidiaries of foreign MNCs usually have
much more detailed contract clauses and compliance is closely supervised.
MNC affiliates also have greater emphasis on training and development. For a decade
Russian subsidiaries of MNCs were the major customers of local training companies; they also
sent employees to business schools to learn or upgrade practical skills.
For these reasons, shop-floor employees, especially older workers and middle managers,
usually value jobs in foreign-owned companies. Ambitious younger Russian managers, however,
consider the jobs in a Russian subsidiary of an MNC as too structured, dull, and lacking quick
career prospects. Thus, in many cases after a couple of years of “polishing” in MNCs the more
ambitious and money-hungry younger managers leave to find positions in Russian-owned
companies.
The third element affecting HRM from bringing down the “iron fence” was the
ideological openness to Western ideas and practices. The first Western-oriented textbook on
human resource management was written in 1996 by a fresh graduate of an American MBA
program who worked at that time as HRM head at Otis Elevator Russia (Shekshnia, 1996). Many
other books, including the translations of major American textbooks, followed. However, such
books contained only general definitions and simple descriptions of basic HRM tools. There have
been no translations of detailed human resource management manuals (like AMACOM
handbooks) on job design, remuneration schemes for various levels of employees, performance
assessment, and strategic human resource planning. No original Russian books have appeared on
these topics either. Thus, in-depth knowledge on designing Western-oriented HRM systems is
largely limited to a few consulting companies and technical experts. As a result, the practice of
HRM in foreign countries is still not really known in Russia.
30
The Gaidar economic reforms achieved their initial goals and by the end of 1990s
capitalism was established in Russia. Some of the consequences were:
the guaranteed wage level of the majority of employees provided only a basic subsistence
and an attempt by an employee to defend his rights may lead to retaliation and withdrawal of all
“supplements”;
the economy was ruled by a several dozen oligarchs;
massive unemployment with minimal unemployment protection became the norm;
there were many economically depressed regions; more accurately, there were a few
growth regions (Moscow and oil-producing provinces) and the government had neither the will
nor means to help revive the lagging regions;
the development of a large informal sector that employed by various estimates between 5
and 10% of the total labor force embraced migrant workers (including migrants from depressed
regions), who worked semi-legally or illegally for extremely low salaries paid at the complete
discretion of the employers;
a deep chasm exists between top executives and employees at the middle and bottom
levels;
most of the remaining trade-unions became “tamed” and under control of the federal
government.
We should conclude that HRM system effectiveness also deteriorated in the 1990s as the
trend in pay and working conditions was predominantly negative, mostly negative incentives were
used, the receptivity to innovation remained low, and the trend in labor productivity was also
negative. However, this system also had one important strength; it was completely free of
hypocrisy. There was no need to simulate care for employees, no one demanded to eliminate
31
workspaces with unhealthy conditions, and no one asked for reports on corporate social
responsibility.
The new political regime, established by Putin in 2000, has not changed the basic
features of this HRM system, such as a low wage portion of take-home pay, the rising inequality
of pay between hierarchical levels, and miniscule pensions. However, it has added some important
elements of hypocrisy. The new regime wanted to be portrayed as popular, so unpopular measures
or bad events were camouflaged. For example, in 2002, the new Labor code replaced the Labor
code of 1971. The new Labor code declared the primacy of law in labor relations. Thus, all clauses
in individual labor contracts – even if voluntarily signed by an employee – that lowers the
conditions of employment contained in existing legislation are illegal. This also means, however,
that clauses with positive change also cannot be enforced either. The rights of trade unions have
also been seriously limited. For example, the approval of a trade union for mass lay-offs is no
longer required, trade-union activists may be easily fired, and the employer is not obliged to
provide the necessary facilities for the trade union’s daily activities. A special chapter in the labor
code was devoted to contracts of executives, thus enabling owners to exercise stricter control of
top managers and more easily dismiss employees. An employee may be fired after a single serious
violation of his/her job duties (previously it was required a series of violations), or if an employee
refuses to continue work after the change of ownership.
The fourfold devaluation of the Russian currency in August, 1998, created a strong
impetus for import substitution, given that as imported goods represented in 1997 52% of the total
volume of consumer goods. Coupled with favorable prices for oil, gas and metals (a major
proportion of Russian exports), these conditions created the environment for accelerated growth.
Russian GDP returned to the level of 1989 by 2007 with a significant shift towards non-military
goods and services, while the average salary has approached the level of 1989. Howerer, during
the financial crisis of 2008 the hypocrisies of the regime became more visible. For example, the
government tried by all means to prevent massive lay-offs and to keep the number of officially
32
reported unemployed low. As a result, in 2009, when several industries contracted by 30 and 40
percent, there were neither massive lay-offs nor wage arrears. Instead, 2.5 million workers took
“voluntary holidays without pay7” for several months. Moreover, when the Russian State Statistics
Committee (Goskomstat) started to measure the number of employees who worked part-time by
agreement between the employee and the employer, it discovered an additional 600,000 people
who were working a shortened week. The massaging of the numbers allowed the government to
report that during the crisis the payment for the working hour remained almost stable, while the
real annual wages contracted in 2009 by 30%.
In addition, the data on average wages do not reflect the real situation as the median and
mode wages are far below the mean. According to official statistics, no more than 30 percent of
employed persons were making a wage above the average which, in 2009, was 15,000-18,000
rubles ($500-600) a month; the most numerous group, 30 percent of employees, had an income of
7,400 to 13,800 rubles a month ($250-450), while 10 percent of those employed had a wage below
$170 a month. We should note that all these figures reflect only “official wages,” while the
salaries for migrant workers remain at a level of US$50-100 per month.
The volatility of wages and benefits, the increasing inequality at the workplace, and the
hidden unemployment are only one part of the transformations of the 1990-2010s. A new
employment structure was also created. In the late Soviet times the distribution of jobs in the
national economy was 50-30-10-10 (50% worked in industry, 30% in services, 10% in agriculture
and 10% were occupied by the government services, including the Army and security services); by
2010 the proportion changed to 30-50-10-10 with services becoming the dominate industry for
jobs. The service industry has also attracted a younger workforce.
7
This form of “permitted absenteeism” was introduced in 1960s to help the employees to cope with some unexpected
events in their lives like sudden death of parents or close relatives etc. The employee must demand in a written form
the permission for absence for a specified period of time, and the employer should express his/her agreement.
However, the legislation does not limit the period of the demanded absence. During “voluntary holiday without pay”
an employee is exempt to all social benefits, including sick allowance. He/she is also not considered as an
unemployed person, so he/she cannot apply for unemployment benefits, additional training, etc.
33
New services, such as wholesale, retail, and financial services are the sectors
predominantly occupied by younger people, as these industries did not exist during Soviet times.
However, such sectors cannot absorb all young workers, who on average have 14.5 years of
education as nearly 70% of the Russian persons aged 22-30 have received a university degree. As
the result, the extensive “over-skilling” (or, more clearly, “over-educated” with multiple degrees)
in the workforce is observed during the last decade. Moreover, younger people try to avoid jobs in
processing industries and other types of industrial employment. In a survey we conducted of HRM
heads of industrial companies done in the second half of 2010, 79% of respondents indicated
“ageing of the workforce” and lack of “fresh blood” as the major problems in the HRM sphere.
In sum, assessing the development of HRM systems and practices in Russia in
1990-2010 results in low scores on all our metrics:
The level and trend in working conditions and compensation (monetary rewards, social
benefits, and especially moral incentives) remained low (negative).
The relation between positive and negative motivation tools utilized by management was
unbalanced and mostly negative motivation methods prevailed.
The receptivity to innovations by employees of all level (from shop-floor workers and farm
laborers to top executives) remained extremely low.
The resulting dynamics of labor productivity was negative.
In addition, the post-industrial structure of the economy does not correspond to either the
existing structure of education and training or the aspirations of the younger generation of
Russians.
Conclusions and lessons learned
Our analysis of the development of the Russian HRM system is based on the difficult
history faced by employees over the past 150 years. In 2011 Russia remains behind the less
34
developed parts of the former Austrian Empire, such as Slovakia and Croatia, but well ahead of
countries such as Brazil. Even after a century of rapid industrialization and extensive investments
in technical education, Russian workers continue to lag in productivity and income relative to
workers in OECD countries. While Russia was initially able to industrialize through brut force, it
has failed in recent years to converge in terms of worker productivity and HRM practices with
industrialized states.
The central issue is why all attempts, including both positive and negative, have failed to
make Russia a better country to work and live. While much of Russian history is tied to the high
level of cruelty meted out by those in power to those who are powerless, hope is provided by three
types of HRM systems that in the past have been effective in the context of Russian conditions.
The first type is the voluntary cooperative organizations in Russian agriculture, including the cooperative form that existed in 1921-1928. These enterprises had the potential to move HRM
practices in Russian agriculture ahead of international standards and create the conditions for even
larger societal changes. The second missed opportunity is related to a possible integration of three
historical institutions –
the “brigades of communist work” that stipulated new forms of non-monetary incentives
toward higher productivity;
the practices of mandatory profit-sharing;
the sophisticated system for promotion of industrial inventions and process innovations,
All these forms coexisted in 1965-1971, but the potential value-added of their combination
was not used. The third missed opportunity is related with abruptly finished development of leased
enterprises in 1989-1991.
In the decade after 2000, Russia had a fourth opportunity to reform HRM. This was
to use the period of economic growth to improve employment protection, have proper registration
of unemployed persons, introduce strengthened unemployment benefits, and expend training and
development systems. The introduction of an effective minimum wage policy to abolish poorly
35
paid jobs, creation of incentives for better job design, investment in improved managerial methods
to raise productivity, assessment systems, improved, and improved justice at the workplace could
also have been accomplished. Unfortunately, these measures were not implemented and the
window of opportunity ended with the deep financial crisis of August 2008.
In the last case, it seems that, in general, Russian enterprises and Russian
government policies have been unable to make these changes during a period of stability and rapid
economic growth. Workers are still discouraged by arbitrary and subjective assessment, trade
unions are ineffective, innovation unsupported, and real wages strongly vary with the fluctuations
of the current business conditions. In international comparison it will be more appropriate to
compare Russian HRM system not to German or US systems, but the HRM system in Tunisia or
Bulgaria (see Gurkov et al,, forthcoming).
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,
scapegoating, 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. The primary role of those who manage
and work in personnel offices of private and public sector employers is to verify that an employee
is technically qualified by diploma for a classified job, while insuring that technical mechanisms
for employment are completed. HRM is not seen as a resource to the enterprise, it is merely a
technical and administrative function. The personnel office is seen as a control function and is not
utilized to develop the workforce.
Our historical review also indicates several challenges to mainstream HRM theory and
research, particularly as done in the USA and other western countries. The first challenge is to
make greater use of generation and cohort analysis in HRM studies. While in marketing
generational analysis is widely used to describe lifestyles, consumer habits and purchasing
preferences, there is still a visible lack of such analysis in HRM to find differences across cohorts
36
in leadership styles, work attitudes, and preferred motivation motives. Russian history clearly
indicates that major societal changes are associated with particular generations, or, rather, age
cohorts. For example, the extremely rapid and positive development in the post-Stalin period was
based on the efforts, motives and aspiration of the cohort of persons born in 1928-1935 (the cohort
of 1918-1925 was almost totally lost during the Second World War). These persons were behind
the communist brigades of the late 1950s, became industrial inventors in 1960-1970s, and their
“swan-song” of leased enterprises of the late 1980s was abruptly smashed away by the “eager-tobe-billionaires” born in 1960-19658. The same may be true for German or Brazilian “economic
miracles,” the post-war development of Japan, and the current development situation in China.
Another challenge to mainstream HRM research is the visible necessity to create and
validate complex but “easy-to-compute” metrics of HRM system efficiency. Such metrics are of
extreme necessity in international HRM studies, as this research fails to take into account either
the subtle differences in HRM administration or extremely broad parameters of national culture.
Finally, researchers of HRM systems should take into account a broader range of
comparisons. This will require combining scientists with country expertise in various
combinations. For example, the joint work of Russian HRM researchers with Brazilian or Mexican
ones may provide extremely interesting results in finding similarities and differences in solving
HRM problems under different political and social regimes. In general, we still believe that the
Russian experience may create valuable points of references for other countries.
8
The average age of a Russian US$ billionaire is 49 years.
37
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