B.Com(Hons.

) Semester-III Commerce

Human Resource Management

Core Course-V
Unit (I-V)

SCHOOL OF OPEN LEARNING

University of Delhi

Department of Commerce
 CONTENT
Unit I
Lesson 1 Conceptual Framework of HRM
Lesson 2 Organisation and Policies of Human Resource
Lesson 3 Human Resource Planning
Lesson 4 Recruitment, Selection & Job Analysis
Unit II
Lesson 5 Placement Induction
Lesson 6 Training and Development
Unit III
Lesson 7 Performance Appraisal
Lesson 8 Potential Appraisal & Employee Counselling
Lesson 9 Job Changes – Transfer and Promotions
Unit IV
Lesson 10 Compensation Administration
Lesson 11 Incentive Compensation
Lesson 12 Job Evaluation
Unit V
Lesson 13 Employee’s Health and Safety
Lesson 14 Employee Welfare and Redressal of Grievances
Lesson 15 Social Security
Lesson 16 Emerging Horizons in Human Resource Management
Lesson 17 Human Resource Management in a Changing Environment

Edited by
K.B.Gupta

SCHOOL OF OPEN LEARNING

University of Delhi
5, Cavalry Lane, Delhi-110007
 Unit I

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 Organizations are made up of people and function through people. Without people
organizations cannot exist. The resources of men, money, materials and machinery are collected,
coordinated and utilized through people. It is people who build factories, structure organizations
and manage them successfully.
The rapid growth of globalization has increased the number and significance ofMNC's which
in tum increased the mobility of people. Working for MNC's is a chalJenging task. HRM is a
study about people in organization - how they are hired, trained, compensated, motivated and
maintained.
1.3 Concept & Evolution of Human Resource Development
Human Resource Development (HRD) is the framework for helping employees to
develop their personal and organizational skills, knowledge, and abilities. Human Resource
Development includes such opportunities as employee training, employee career development,
performance management and development, coaching, mentoring, succession planning, key
employee identification, tuition assistance, and organization development. The focus of all
aspects of Human Resource Development is on developing the most superior workforce so that
the organization and individual employees can accomplish their work goals in service to
customers. Human Resource Development can be formal such as in classroom training, a college
course, or an organizational planned change effort. Human Resource Development can be
informal as in employee coaching by a manager. Human Resource Management is the process
of acquiring, training, appraising, and compensating employees, and of attending to their labor
relations, health and safety, and fairness concerns.
The evolution ofHRM can be traced back to the HR movement in the ancient period. For
example: the minimum wage rate and incentive wage plans were included in the Babylonian
code of Hammurabi around 1800 B.C. The Chinese, as early as 1650 B.C. had originated the
principle of division of labour and they understood labour turnover even in 400 B.C. Kautilya, in
India(in his book Arthasi1stra) made references to various concepts like job analysis, selection
procedures, executive development, incentive system and performance appraisal. However, in
the modern age, i.e. up to 1930s, it was referred to as personnel management and the focus was
on the employer- employee relations. Studies on HR were init!ally guided by Taylor's scientific
management principles. He pointed out that just as there was a best machine for a job, so there
were best ways for people to do their jobs. Later on Hawthrome studies to the behavioural school
based on the theories of Abraham Maslow, Herzberg, and Douglas Mcgregor gave this concept
a re..;ognition.
The early roots of HRM in India could be traced back to the period after 1930. The Royal
commission on labour in 1931 suggested the appointment of labour in 1931 suggested the
appointment oflabour officer to protect workers' interests and act as a spokesperson of labour.
After Independence, The Factories Act 1948, made it obligatory for factories employing 500 or
more workers. In view of legai compulsions and the enumeration of duties the entire approach of
organizations towards their personnel was to comply with the laws and keep the welfare officers
busy with routine functions.
During the l 960s the scope of personnel function has expanded a bit, covering labour
welfare, participative management, industrial harmony etc. In this period, the human relations
movement of the west had also had its impact on Indian organizations. The legalistic
preoccupations slowly gave way to hannonious industrial relations and good HR practices. In
1960s and 70s the HR professionals focused more on developmental aspects of human resources.
The emphasis was on striking a harmoni-0us balance between employee demands and

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organizational requirements. HRD has come to occupy a center stage and a focal point of
discussion in semincµ-s, conferences and academic meets.
During the 1990s, organizational restructuring and cost cutting efforts have started in a
big way., thanks to the pressure of Ii�p-alization, privatization and globalization(LPG) forcing
companies to focus attention on empldyee capabilities product/service quality, speedy response,
customer satisfaction etc. Changing demographics and increasing shortages of workers with the
requisite knowledge, skills and ability have grown in importance. The issue of workforce
diversity has assumed greater importance in view of the cultural, religious social , regional
background of the workers , especially in global sized companies such as Reliance, Ranbaxy,
Asian Paints,Tisco etc.
The following table capture the picture more accurately:
TABLE 1.1
HR Function: Changing Scenario

Period Emphasis Status Roles

1920-30 Welfare Management Clerical • Welfare

Paternalistic practices Administrator
• Policeman

1940-60 Expanding the role to Administration • Appraiser

cover Labour, Welfare, •
Industrial Relations and Advisor
Personnel.Administration • Mediator
• Legal Advisor
,.
• Fire fightening

1970-80 Efficiency, effectiveness Developmental • Change Agent

dimensions added •
emphasis on human values,
;
Integrator
aspirations, dignity, • Trainer
usefulness • Educator

1990s- Incremental productivity Proactive, e Developer

onwards gains through human assets growth oriented
• Counsellor
• Coach
• Mentor
• Problem solver

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 Various developments in the 21 st century heralded the arrival of the knowledge and IT
era. During the initial phases, IT was perceived as an all pervasive phenomenon and attempts
were made to tune all organizational processes to this development. However, the experience of
a large number of organizations both at the global and the national level has led to the realization
that IT has to play only a supportive role in achieving organizational objectives and for this
purpose an organization has to focus on its three core areas, i.e., people , processes, and
performance.

1.4 Nature of HRM

HRI\1 is a process of bringing people and organizations together so that the goals of each
are met. It tries to secure the best from people by winning their wholehearted cooperation. It has
following features:
1. Pervasive Force: I-lRl\1 is pervasive in nature. It is present in all enterprises. It permeates
all levels of rnanagement in an organization.
2. Action Oriented: HRM focuses attention on action, rather than on record keeping,
\vritten procedures or rules. The problems of employees at work are solved through
rational policies.
3. Individually as wen as Group Oriented: HRM tries to help employees develop their
potential fully. It encourages them to give their best. It motivates employees through a
systematic process of recruitment, selection, training, and development coupled with fair
wage policies. HRM is all about people at work, both as individually and groups. It tries
to put people on assigned jobs in order to produce good results.
4. Future Oriented: Effective HIUv1 helps an organization meet its goals in the future by
providing competent and well-motivated employees.
5. Development Oriented: HRM intends to develop the full potential of employees. The
reward structure is tuned to the needs of employees. Training is offered to sharpen and
improve their skills. Employees are rotated on various jobs so that they gain experience
and exposure. Every attempt . is made to use their talents fully in the service of
organizational goals.
6. Continuous Function: According to Terry, HRM is not a one shot. deal. It cannot be
practiced only one hour each day or one day a week. It requires a constant alertness and
awareness of human relations and their importance in everyday operations.
7. Auxiliary Servict:S: HR departments exist to assist and advise the line or operating
managers to do their personal work more effectively. HR manager is a specialist advisor.
8. Comprehensive Function: HRM is, to. some extent, concerned with any
organizational decision which has an impact on the workforce or the potential workforce.
The te1m 'workforce' signifies people working at various levels, including workers,
supervisors, middle and top managers. Itis concerned with managing people at work.
9. Inter-disciplinary Function: HRM is a multi-disciplinary activity, utilizing knowledge
and inputs drawn from psychology, sociology, anthropology, economics etc. To unravel
the mystery surrounding the human brain, managers, need to understand and appreciate
the contributions of all such '.soft' diciplines.

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 1.5 Objectives of HRM
The main objectives of HRM are as follows:
• To help the organization to reach its goals: HR department, like other departments in
an organization, exists to achieve the goals of the organization first and if it does not meet
this purpose, HR department will wither and die.
• To employ the skills and abilities of the workforce efficiently: Tbe primary purpose of
HRM is to make people's strengths productive and to benefit customers, stockholders and
employees.
• To provide the organization with well trained and well motivated employees: HRM
requires that employees be motivated to exert their maximum efforts, that their
performance be evaluated properly for results and that they be remunerated on the basis
of their contribution to the organization.
• To increase to the fullest the employee's job satisfaction and self - actualization: It
tries to 'prompt and stimulate every employee to realize his potentiai. T9 this end suitable
programmes have to be designed aimed at improving the quality of work lite.
• To communicate HR policies to all employees: It is the responsibility of HR1'-v1 to
communicate in the fullest possible sense; tapping ideas, opinions and feelings of
customers; non- customers, regulators and other external public as well as understanding
the views of internal human resource.
• To develop and maintain a quality of work life: It makes employment in the
organization a desirable, personal and social, situation. Without improvement in
quality of work life, it is difficult to improve organizational performance.
• To be ethically and sodally responsive to the needs of society: HRM must ensure that
the organizations manage human resource in an ethical and sociai!y responsible manner
through ensuring compliance with iegal and ethical standards.
1.6 Importance of HRM
An organization's success increasingly depends on the knowledge, skills and abilities of
employees, particularly as they help establish a set of core competencies that distinguish an
organization from its competitors. HRM helps· an organization and its people to realize their
respective goals thus:
1. At the enterprise level:
• Good human resource practices can help in attracting and retaining the best people in the
organization. Planning alerts the company to the types of people it will neecl · in the short,
medium and long run.
• It helps in training people for challenging roles, developing right attitudes towards the job
and the company, promoting team spirit among employees and developing loyalty and
eommitment through appropriate reward schemes.
2. At the individual level:
• It promotes team work and team spirit among employees.
• It offers excellent growth opportunities to people who have the potential to rise.
• It allows people to work with diligence and commitment.

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 3. At the Society Level: Sound human resource management has a great significance for the
society. It helps to enhance the dignity of labour in the following ways:
e Providing suitable employment that provides social and psychological satisfaction to
people.
• Maintaining a balance between the jobs available and the jobseekers in terms of numbers,
qualifications, needs and aptitudes.
e Eliminating waste of human resources through conservation of physical and mental
health.
• Scarce talents are put to best use. Companies that pay and treat people well always race
ahead of others and deliver excellent results.
4. At the national level:
Effective use of human resources helps in exploitation of natural, physi�al and financial
resources in a better way. People with right skills, proper attitudes and appropriate values
help the nation to get ahead and compete with the best in the world leading to better standard
of living and better employment.

1.7 Functions of Human Resource Management

Human resource management may broadly be classified into two categories, viz. ,
(i) Managerial Functions (ii) Operating Functions
(i) Managerial Functions: Managing people is the essence of being a manager. Like other
managers, a human resource manager performs the function of planning, organizing,
directing and controlling.
1. Planning: Forecasting implies scientific anticipation of the future environment. Human
resource management involves forecasting needs for human resources, predicting trends in
labour market, wages, union demand, etc. and their impact on the organization. In the area of
HRM, planning involves deciding human resource goals, formulating human resource
policies and programmes, preparing the human resource budg�t, etc.
2. Organising: In order k> implement the plans, a sound organization structure is required.
Organizing is the process of allocating tasks among the members of the group, establishing
.. authority-responsibility relationships among them and integrating their activities towards the
common objectives. In this way a -strncture of relationships among jobs , personnel and
physical factors is developed.
3. Directing: Directing is the process of motivating, activating, leading and supervising people.
It involves getting others to act after all preparations have been made. A manager can tap the .
maximum potential of employees through proper direction. Directing also helps in building
sound individual and human relations in the organization.
4. Controlling: It implies checking, verifying and regulating to ensure that everything occurs in
conformity with the plans adopted and the instructions issued. Controlling the management
of human resourc�s involves auditing training programmes, analyzing labour turnover
records, directing morale surveys, conducting separation interviews and such other means.
(ii) Operative Functions: The operative or service functions of human resource management
are the tasks which are entrnsted to the human resource department. These functions are

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 concerned with specific activities of procuring, developing, compensating and maintaining an
efficient work force.
1. Procurement Function: It is concerned with securing and employing the right kind and
proper number of people required to accomplish the organizational objectives. It consists of
the following activities:
(a) Job Analysis: It is concerned with securing and employing the right kind and proper number
of people required to accomplish the organizational objectives.
(b) Human Resource Planning: It is the process of estimating tlie present and future manpower
requirements of the organization, preparing inventory of present manpower and formulating
action programmes to bridge the gaps in manpower.
(c) �ruitment: It is the process of searching for required human resource and stimulating
them to apply for jobs in the organization . A proper balance should be maintained between
the internal and external sources of recruitment.
(d) Selection: It implies judging the suitability of different candidates for jobs in the
organization and choosing the most appropriate people.
(e) Placement: It means assigning suitable jobs to the selected candidates so as to match
employee qualifications with job requirements.
(i) Induction or orientation: It involves familiarizing the new employees w;th the company, the
work environment and the existing employees so that the new people feel at home and can
start work confidently.
2. Development Function: HRM is the process of improving the knowledge , skills, aptitudes
and values of employees so that they can perform the pres,,;:nt and future jobs more
effectively. This function comprises the following activities:
(a) Performance and Potential Appraisal: It implier. gystcmatk evaluation of employees with
respect to their performance on the job and their pok:nti�l for development
(b) Training: It is the process by which employees learn knowledge, skills and attitudes to.
further organizational and personal goals.
(c) Executive Development: It is the process of developing managerial talent through
appropriate programmes.
(d) Career Planning and Development: It involves planning the career of employees and
implementing career plans so as to fulfill the career aspirations of people.
3. Compensation Function: It refers to providing equitable and fair remuneration to employees
for their contribution to the attainment of organizational objectives. It consists of following
activities:
(a) Job Evaluation: It is the process of determining the relative worth of a job.
(b) Wage and Salary Administration: It implies developing and operating a suitable wage and
salary programme. Surveys are conducted to determine wage and salary structure for various
jobs in the organization.
( c) Bonus: It involves payment of bonus under the payment of Bonus Act, 1965 as well as non­
statutory bonus and other incentives.
4. Integration Function: It is the process of reconciling the goals of the organization with those
of its members. Integration involves motivating employees through various financial and

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 non-financial incentives, providing job satisfaction, handling employee grievances through
formal grievances etc.
5. Maintenance Function: It is concerned with protecting and promoting the physical and
mental health of employees. For this purpose, several types of fringe benefits such as
housing, medical aid, educational facilities, conveyance facilities, etc.are provided to the
employees.
l.8 HRM and Personnel Management
A debate about the differences, if any, between HRM and personnel management ,vent on for
some time. It has died down recently, especially as the term HRM and HR are now in general use
both in thei1: own right and as synonyms for personnel management. However the similarities
and differences between HRM and personnel management are summarized in table 1.2.

TABLE 1.2

Similarities and differences between HRM and Personnel Management

Similarities Differences

1. Personnel niarn:i.gement strategies, like i. HRM places more emphasis on

HRM strategies, flow from the business strategic fit a;Jd integration.
strategy.
2. HRM is based on a management and
2.Personnel management, like HRM, business oriented philosophy.
recognizes that line managers are
n.�sponsible for managing people. The 3. HRM attaches more importance to the
personne, function provides the necessary managemrnt of culture and the
advice and support services to enable achievement of commitment.
managers to carry out their
responsibilities.
4. HRM places greater emphasis on the
role of line managers as the implementers
3.The values of personnel management of HR policies.
and at least the 'soft' version of HRM are
identical with regard to 'respect for the
individual', and developing people to 5. HR.M is a holistic approach concerned
achieve their maximum level of with the total interests of tht: business- ihe
competence both for their own interests of the members of the
satisfaction and to facilitate the organization are recognized but
achievement of organizational objectives. subordinated to those of the enterptise.
I
4. Both personnel management and HRiv1 6. .HR specialists :ms expected to be
recognize that one of their most essential business partners rather than persounel
functions is that of matching people to administrators. j
ever changing organizational

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 requirements - placing and developing 7. HRM treats employees as assets not
the right people in and for the right jobs. costs.

5. The same range of selection,

competence analysis, performance
management and reward management
techniques are used both in HRM and
personnel management.

6.Personnel management, like the 'soft'

version of HRM, attaches importance to
the processes of communication and
participation within an employee relation
system.
_______________
.__ _,_________________________ ___,

The differences between personnel management and human resource management appear to be
substantial but they can be seen as a matter of emphasis and approach

rather than one of the substances. Hendry and Pettigrew (1990) put it, HRM can he perceived as
a' perspecfi,{e on personnel management and not personnel management itself'.

1.9 Impediments to the Progress. of HRl\1.

The main factors which have hindered the development and growth HRM in India are given
below:
• The legal status of HR officers requires them tn in the areas of welfare, day
to day HR administration and industrial relations. Such HR officers cannot properly
perform the HR function as it is a staff function as well as line responsibility.
• The attitude of workers and line executives are not favorable towards HR officers. They
view HR officers as staff executives who prevent the line managers from doing their jobs.
• Due to plethora of labour laws and excessive legalistic approach to labour problems. HR
officers have to spend a major portion of their time in attending to disputes and
grievances.
• India's traditions bound family management and authoritarian culture stresses profit
maximization . Human resources are viewed as a cost rather than an asset.
• The educational and research institutions have failed to develop professional attitudes and
values required in the changing environment. Moreover HR function has failed to attract
the most talented young persons, as they are given comparatively low pay scales, and low
stati.1s in the organizational hierarchy.
1.10 Measures to Speed-up Growth
The following steps may be taken to develop HR management in India:

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 ► Institutions such as National Institute of Personnel management, Kolkata, Xavier Labour
Relations Institute , Jamshedpur, various universities etc. should develop the right values
and attitudes for the growth of HR management.
► Organization structure should be so designed as to promote interdependence and
..
mutually betiween line�(nd staff.
► Top management should place the HR department at par with. the other departments and
assign the same status to HR managers as other departmental heads.
► The legal and welfare role of HR manager should be adequately supplemented by human
relations and managerial roles.
► Candidates selected for HR jobs should be provided formal training in reputed
institutions.
► HR managers should enlarge their perception about their roles.
1.11 Summary
People have always been central to organizations but their strategic importance is increasing in
today's knowledge-based industries. When properly motivated, even ordinary people can deliver
extraordinary results. HR can be source of competitive advantage, when the talents of people
working in the company are valuable, rare, difficult to imitate and well organized to deliver
efficient and effective results. HRl'v1 aims at achieving organizational goals meet the expectations
of employees, improve the quality of working life and manage human resources in an ethical and
social responsible manner.
1.12 Discussion Questions
1. Why is a competitive advantage based on heavy investment in human resources more
sustainable than investment in other types of assets?
2. Do pressures on cost containment work against effective management of people? Why or Why
not?
3. How do you think the internet will change the way in which HR processes, such a5 hiring,
compensating, evaluating and benefits are performed?
1.13 Further Readings
Armstrong Michael , A handbook of Human Resource A1anagement Practice 10th edition, Kogan
Page.
Rao V S P , Human Resource Management Text and Cases, 2nd edition, Excel Books
Gupta C.B., Human Resource Management , Sultan Chand & Sons.

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 LESSON2
ORGANISATION AND POLICIES OF HUMAN RESOWCE
Dr. Pooja Goel
Shaheed Bhagat Singh College
University ofDelhi
Objectives
After going through this unit you should be able to:
• Understand the o�ganization structure of Human Resource.
• Define the role and status of Human Resource manager.
• Analyze the concept and nature of Human Resource policies.
• Formulation of Human Resource policies.
Structure
2.1 Organisation structure of the Human Resource Department
2.2 Role of HR Manager
2.3 Competencies (Qualities) of Human Resource Manager
2.4 Status of Human Resource Manager
2.5 Human Resource Policies
2.6 Types of Personnel Policies
2.7 Advantage of Personnel Policies
2.8 Obstacles in Administrating Personnel Policies
2.9 Coverage of Personnel Policies
2.10 Formulation of Personnel Policies
2.11 Personnel Strategies
2.12 Persont)el Procedures
2.13 Indian Perspective on Human Resource Policy
2.14 Summary
2.15 Test Questions·
2.16 Further Readings

.i2.1 Organisation Strudure of the Human Resource Department

The internal organization structure of the HRM department varies widely depending upon
the nature and size of enterprise, its management philosophy and its external
environment. In a small firm, there may be an employment section within the production
department. In a medium sized firm, HRM department may consist of human resource
manager, human resource officers and a few assistants. But in large company, HRM
department may consist of several functionaries such as employee welfare, compensation
manager, HRD manager, employment manager etc.

HR Department in Line Organisation: In line organizations, authority flows in straight

line from top to the bottom of the organization. Every superior has direct command over
his immediate subordinate. Every employee is accountable to one superior, i.e. there is
unity of command. The authority relationships are clear and there is strict discipline. But
there is lack of specialization and flexibility.

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HR Department in Functional Organisation: In functional structure, al�g;tivities in
the company are grouped according to certain functions like production,' marketing,
finance and human resource. Each function is put under the charge of a functional
specialist. Each functional head performs a specialized function for the entire ·company.
Every functional head has functional authority over other departments and every
employee reports to several functional heads. Functional organization provides
advantages of specialization. But in the absence of unity of command, coordination and
control are hampered.

HR Department in Line and Staff Organisation: Line and staff structure was evolved
to combine the advantages of both line organization and functional organization. Under
it, staff positions are attached to line executives. Human resource department provides
advice and assistance on human resource matters to all departments without undermining
unity of command. Line and staff organization is more suitable for large organizations.
Line executives can avail of the expert advice and help of staff. But there i;;an exist
conflicts_between line managers and staff experts.

HR Department in Divisionalised Organisation: In a divisional organization structure,

human resource staff attached to divisional officers. The human resource officer at
divisional level is responsible to the local division manager. He is subordinate to the
human resource manager at the head office. In case of rift between human resource
officer and divisional manager, the problem can be solved at the head office. The main
advantage of divisionalisation is that the performance of various divisions can be
compared. But it results in duplication of staff and facilities.

HR Department in Matrix Organisation Structure: In a matrix organization structure,

every employee has two superiors. One chain of command is functional head and other is
the project head. A human resource officer, for instance, is accountable to the human
resource manager and to the project manager. In large organizations, employees from .
various functional departments are from time to time assigned to one or more projects.
On completion of the project, these employees revert back to their respective departments
until the next assignment to a project. The main advantage of a matrix structure is that
better balance between cost and performance can be maintained. But matrix structure
violates the unity of command principle.. Employees have to report to two bosses­
functional head and project manager. Matrix structure is suitable when organizational
tasks are uncertain, complex and highly interdependent.

2.2 Role of HR Manager

Human Resource Managers, nowadays, wear many hats. They perform mainly three
different types of roles, while meeting the requirement of employees and customers,
namely administrator, operational and· strategic.

(A) Administrative Roles

Policy Maker: The HR manager helps· management in the formation of policies
governing talent acquisition and retention, wage and �alary administration, welfare

12
 activities, personnel records, working conditions, etc. He also helps in interpreting
personnel policies in an appropriate manner.
Administrative Expert: The administrative role ofan HR manager is heavily oriented to
processing and record keeping. Maintaining employee files, and HR -related databases,
processing employee benefit claims, answering queries regarding leave, etc. are examples
ofthe_Jldministrative nature of HR management.
Advisor: It is said that personnel management is not a line responsibility but a staff
function. The personnel manager performs his functions by advising, suggesting,
counseling and helping the line managers in discharging their responsibilities relating to
grievance redressal, conflict resolution , employee selection and training.
Housekeeper: The administrative roles of a personnel manager in managing the show
include recruiting, pre-employment testing, reference checking, employee surveys,
timekeeping, wage and salary administration etc.
Counsellor: The HR manager discusses various problems of the employees relating to
work, career, their supervisors, colleagues, health, family, financial, social etc. and
advice them Jn;minimizing and overcoming problems, if any.
, Welfare Officer: Personnel manager is expected to be the welfare officer of the
company. As a welfare officer he provides and maintains canteens, hospitals, creches,
educational institutes, clubs, libraries, cooperative credit societies and consumer stores.
Under the Factories Act, welfare officers are expected to take care of safety, health and
welfare of employees.
Legal Consultant: HR manager plays a role of grievance handling, setting of disputes,
handling disciplinary cases, enabling the process of joint consultation, industrial
tribunals, civil courts and the like.
(B) Operational Roles
Recruiter: · "Winning the war for talent" has become an important job of HR managers
in recent times in view of the growing competition for people possessing requisite
knowledge, skills and experience. HR managers have to use their experience to good
effect while laying down lucrative career paths to new recruits without increasing
financial burden to the company.
Trainer Developer, Motivator: Apart from talent acquisition, talent retention is also
important. To this end, HR managers have to find skill deficiencies from time to time,
offer meaningful training oppoi:tunities, etc.
Linking Pin: The HR manager is often deputed to act as a linking pin between various
divisions of an organization. The whole exercise is meant to develop rapport with
divisional heads, using PR and communication skills of HR executives to the maximum
possible extent.
Mediator: The personnel• manager acts as a mediator in case of friction between two
employees, groups of employees, superiors and subordinates and employees and
management with the sole objective of maintaining industrial harmony.
( C) Strategic Roles
Building Core Competency: HR Managers have a great role in developing core·
competency by the firms. A core competence is a unique strength of an organization
which may not be shared by qJ.!Jers. This may 'be in the form of human resources, .
marketing capability, or technological capability. If the business is organized on the basis
of core competency, it is likely to generate competitive advantage.

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Providing Purposeful Direction: The personnel manager must be able to lead people
and the organization towards the desired direction involving people right from the
beginning. One ofthe most important tasks ofa professional manager is to ensure that the
mission of an organization has been thtemalized by each individual working in the
organization. Mission of an org�nization states the very purpose and justification of its
existence.

Creating Competitive Advantage: In t8day's globalized market place, maintaining a

competitive advantage is the foremost goal of any business organization. There are two
important ways in which a business can achieve a competitive advantage. The first is cost
leadership which means the firm aims fo become the low-cost leader in the industry. The
second competitive strategy is differentiation under which the firm seeks.to be unique in_
the industry in terms ofdimensicpi that are widely valued by the customers. Putting these
strategies into effect carries a heavy premium on having a highly committed and
competent workforce. Such a workforce would enable the organization to compete on the
basis of market responsiveness, product and service quality, differentiated products and
technological innovation.
Facilitation of Change: The HR manager will be required to act as change agents
through greater involvement in environmental scanning and development planning. HR
Q1anagers will have to devote more time to promote changes than to maintain the status
quo.

2.3 Competencies (Qualities) of Human Resource Manager

The job of HR manager is quite complex and challenging. In order to be successful,

several qualities are required in an HR manager. Some ofthese qualities are given below:
1. Educational Qualifications: A HR manager should possess the following
qualifications:
(a) Degree ofrecognized university.
(b) Postgraduate degree/diploma in sociology or social work or human resource
management/ industrial relations/labour welfare/labour law or M.B.A. with
specialization in HRM.
(c ) Degree in law will be an additional/desirable Qualification.
(2) Personal Attributes: Like any other manager, the HR manager requires several
personal qualities. Some ofthese given below:
(a) Intellige'1ce: This implies the ability to understand, depth of perception etc.
(b) Communicative Ability: Command over language, ability to express correctly,
listening skill, ability to explain etc.
(c ) Distinctiveness: It means analytical ability, sound judgment, foresight etc.
(d) Leadership Skill: These include physical fitness, moral courage, ability to
inspire confidence and to win/cooperation, organizational ability, unbiased
/

attitude etc.
(e) Executing Skills: These refer to ability to implement policies and programmes
speedily and accurately.
3. Training and Experience: Training in industrial psychology, labour legislation, and
industrial relations is very useful for a human resource manager.

14
 4. Professional Attitu"(:fos: HRM is emerging as a profession. A professio11al approach to
the management of human resources is required in the global environment. HRM
requires an interdisciplinary approach, knowledge of various disciplines like
sociology, psychology, management, engineering, and law is re-quired to develop and
use such an approach.

2.4 Status of Human Resource Manager

In early days of industrialization, HR manager was considered a second class officer in

his organization. But today human resource manager is treated as a philosopher and
specialized practitioner. A brief description of the evolving status of human resource
manager is given below:
1. The Policeman: Management believed that workers disEke work and avoid
responsibility. Therefore, they need to be directed, controlled and coerced. The
human resource manager was used as a watchdog to enforce prescribed regulations.
2. The Law Man: With the establishment of Welfare State, laws and regulations were
enacted to protect and promote the interests of employees. In legal battle with
workers, HR manager become an employer's advocate. He is required to issue charge
sheets and hold inquires against workers.
3. The Liaison Man: With the passage of time trade unions became powerful.
Employers required someone to deal and negotiate with the union. The human
resource manager was asked to take over the job.
4. The Catering Man: Some enlightened employers began to provide welfare facilities
like canteen, creche, etc. to workers in addition to their legal obligations. The HR
manager began to administer these services.
5. The Welfare Man: Today, HR manager is considered an expert in human relations.
He is expected to improve productivity by fulfilling the economic, social and
· psychological needs and aspirations of employees.

2.5 Human Resource Policies

A policy is a predetermined course of action established course of action established to
guide the performance of work towards accepted objectives. In other words we can say
that policies are related to the organization's overall purpose and its objectives in the
various areas with which its operations are concerned. HR policies are developed by the
top management to assist the managers at various levels to deal with the people at work.
Some examples of personnel policies are given below:
• The employees will not accept any gift from any supplier except for token gifts of
purely nominal or advertising value.
• Each employee will proceed on atleast one week vacation each year.
Personnel policies cover the principles and rules of conduct governing the dealings of the
organization with its employees, and set the tone for the administration of personnel
programmes in a manner conducive to the attainment of the objectives of the orginisation.
The above discussion reveals the following characteristics of human resource policies:
L Human·· resource policies are based upon or derived from the human resource
objectives of the organization.

15
 II. Human resource policies are general statements of broad understanding. Being
guides to think.in� in decision- making, they always provide a room for discretion.
III. Human resource pdi, ies reflt>ct the recognized intentions of top management
with regard to the human resources of the organization. They contain the
principles of conduct which are to govern the organisation's dealings with
employees.
IV. HR policies are standing plans. They can be used again and again as standing
answers to problems of a recurring nature.
V. Responsibility for formulating human resource policies lies with the human
resource department and the top management. Human resource policies are
formulated by the human resource department in consultation with the line
managers.

2.6 Types of Personnel Policies

Various types of personal policies are stated below:

Originated policies: These are established by top management deliberately so as to
guide executive linking at various levels.
Appealed policies: These are formulated to meet the requirements of certain peculiar
situations which have not been covered by the earlier policies.
Imposed policies: These are formed under pressure from external agencies such as
government, trade associations and unions.
General policies: They reflect the basic philosophy and priorities of the top management
in formulating the broad plan for mapping out the organization's growth chart.
Specific policies: These policies cover specific issues such as hiring, rewarding and
bargaining.
Written/Implied policies: Implied policies are inferred from the behaviour of members
. such as dress code, gentle tone while talking to customers etc.

2. 7 Advantage of Personnel Policies

Policies, as useful instructional devices, offer many advantages to the personnel working
at various levels. These are:
► Delegation: They help managers operating at different levels to act with
confidence without the need for consulting superiors every time.
► Uniformity: They increase the chances of different peu_µ1c \'.lt different levels of
organization making similar choices, when independently facing similar situation.
► Better control: These policies allow members to work towards achievement of
the objectives of the organization without friction, paving the way for better
control.
► Standard of efficiency: Policies can also serve as standard in the execution of
work. They enable the management to see if they have been translated into action
by various groups in the organization.
► Confidence: Policies make the employees aware of where they stand in the .
organization and create confidence in them while confronting routine and
recurring problems.

16
 ► Speedy decision: Policies can speed up decision making by providing a blanket
framework within which personnel decision can be made.

2.8 Obstacles in Administrating Personnel Policies

The factors which obstruct the implementation ofpersonnel policies are:
• Many times managers are reluctant to follow policy guidelines, for they restrict
the scope ofmanagerial work and curtail executive freedom.
• Often conflicts erupt between implied and expressed policy statements especially
on employment matters.·
• Personnel policies demand constant revision, modification and restructuring.
However they are characterized by considerable inertia. In the absence of review
and appraisal, it would be difficult to break the cycle and effect a desirable policy
change.
• Personnel policies are not easy to communicate. From the time policies are
·initiated to the time they are used, there is always the danger of failing into
'generalities and pleasantries'.
• In most of the Indian industries, human resources information system has not
been fully developed. In the absence of reliable data, it is not possible to develop
effective human resource plans.
• Manpower planning is a time consuming and expensive exercise.

2.9 Coverage of Personnel Policies

The coverage ofpersonnel policies has been classified on the basis of functions ofHRM.
(a) Social responsibility
• Equity: Treating employees fairly and justly by adopting an even-handed
approach. •
• Consideration: Considering individual circumstances when decisions affect the
employee's prospects, seniority or self-respect.·
• Quality of work life: Increase the interest in the job and organfzation by reducing
monotony, increasing variety ofresponsibilities, avoiding stress and strain.

(b)Employment policies: Provision of equal employment opportunities involves­

selecting the candidates based on job requirements and encouraging them to put in
their 100%.
(c) Promotion policies: Promotion policies should reconcile the demands of employees
for growth and the organization's demands for fresh and much more promising talent.
(d) Development policies: Policies should cover the kind of employees to be trained,
time span of training programmes, techniques, rewarding and awarding syst�m,
qualifications and experience of the trainer, encouraging the employees for ·self­
advancement, etc.
(e) Relations policies: Relations policies cover different aspects of human relations like:
policies regarding motivation, morale, communication, leadership styles, grievances
procedure, disciplinary procedure, employee counseling etc.

2.10 Formulation of Personnel Policies

Policy formulation and implementation involves the following steps:

17
Identifying the needs: Initially · important areas of personnel management must have a
policy formulation which is clearly spelt out. Additional policy guidelines can come at
any stage depending on the recurrence of a ticklish issue at various levels.
Collecting Data: Once priority areas are listed, steps should be taken to collect facts
before formulating a policy. Various sources could be tapped for this purpose such as
past practice, company's records, survey of industry practice, organizational culture etc.
Specifying alternatives: Policy alternatives should emerge clearly after collecting
relevant data from various sources. These have to be evaluated carefully in terms of their
contribution to organizational objectives.
Communicating the policy: To gain approval at various levels, the formulated policy
should be communicated through out the organization. Policy manual, in-house journal
and discussions with people at various levels may be used to reach out to employees
quickly.
Evaluating the policy: Personnel policies, to be effective, must be reviewed, evaluated
and controlled regularly against certain established standards. Evaluation helps in
determining changes in existing policies. All the policies should be reviewed annually
and some policies should be reviewed at specific times.

2.11 Personnel Strategies

The term 'strategy' has been adapted from war and is being increasingly used in business
to reflect broad objectives and policies of enterprises. Strategies are plans made in the
light of the plans of the competitors because a modern business institution operates in a
competitive environment. ·They are a useful framework for guiding enterprise thinking
:and action. The purpose of strategies is to determine and communicate, through a system
of major objectives and policies, a picture of what kind of enterprises is envisioned. The
difference between policy and strategies is given below:
TABLE2.1
Policy vs Strategies

Policy Strategies
1. A policy is a guide to thinking and 1. A strategy provides the direction m
action of those who make decision. which physical, technological and human
resources of the organization shall be
deployed.
2. A pplicy is made to guide taking actions 2. A strategy is made by ton .i1anagement
under situations which arise repeatedly. whenever there is a rn.::;d to give sharp
focus to an objective.
3. It is type of standing plan to be used time 3. It is a single use plan. After its
and again. implementation, it is not used again.
4. The situations to be faced by a policy are 4. A strategy is drawn up to deal with
comparatively known. unknown environment in the future.
5. It need not originate because of 5. It is made to fight competition in the
competition in the market. market. The existing moves and expected
moves of the competitors are always
considered.

18
 2.12 Personnel P rocedures

A procedure is a systematic way of handling regular events. A procedure is a series of

related tasks that make up the chronological sequence and the established way of
performing the work to be accomplished. For instance, there may be different procedures
"in an enterprise for processing an order, shipping the goods, handling claims, collection
of payment and so on. Procedures are operational guides to actions as they routinise the
way certain recurring jobs are to be performed. There are some differences between
policies and procedures are as follows:
Table 2.2
PI'
o ICY VS Procedures
Policy Procedure
1. A policy is a guide to thinking and 1. A procedure is a guide to action. It
decision-making. contains steps to be taken in a
chronological order.
2. It is derived from objectives of the 2. It is laid down to implement some
enterprise. policy.
3. It is flexible. It leaves some scope for 3. it is more or less rigid. It gives no
manager's discretion. discretion to the person concerned with its
implementation.
4. It is expressed in the form of a general 4. It is expressed in more specific terms.
statement.

2.13 India-n Perspective on Human Resource Policy

In India, there are varied formal and informal human resource policies. Formally, the
human resource policy seeks to create and evolve conditions which would lead to
employee satisfaction, motivation and development as individuals. It ..also aims at
recognizing the men and women working in an organization not as management and
labour but as human beings engaged in a common endeavor who are entitled to mutual
faith and respect. High productivity is viewed as an outcome and not the aim of human
resource policy. It has been suggested that a purposefui policy should not be merely
progressive and enlightened but also effective and successful in operation.

Government tried to make improvements for Human Resource in India through_ various
industrial policies. Government fully protects the interests of labour, enhance their
welfare and equip them in all respects to deal with the inevitability of technological
change. Government believes that no small section of society can corner the gains of
growth, leaving workers to bear its pains. Labour will be made an equal partner in
progress and prosperity. Workers' participation in management will be promoted.
Workers cooperatives will be encouraged to participate in packages designed to tum
around sick companies. Intensive training, skill development and up-gradation
programmes will be launched. Now the Government is taking different initiatives to
protect the interests of the human resource. Different acts such as workmen's
compensation act, welfare act etc. are the examples of such initiatives.

19
2.14 Summary

The internal organization of a human resource development varies depending on the

nature, size and philosophy of an organization. A successful human resource manager
requires educational, personal and professional qualifications. The status of human
resource manager has changed over the years from that of a policeman to that of
productivity man. Human resource policy refers to policies concerning human resource
matters. These policies are general and long lasting, reflectirig the objectives and
intentions of the organization. A good human resource policy should be clear, objective
oriented, long lasting, flexible, written; consistent, just and fair, and reasonable.

2.15 Test Questions

QI. "Human resource management is a staff function but a line responsibility."

Comment.
Q2. "A human resource manager is change agent in the organization." Elucidate.
Q3. What are various steps in policy administration and formulation?
·Q4. How do human resource policies help in management of human resource?

2.16 Further Readings

Armstrong Michael , A handbook of Human Resource Management Practice 10th edition,

Kogan Page.
Rao V S P , Human Resource Management Text and Cases, 2nd edition, Excel Books
Gupta C.B., Human Resource Management , Sultan Chand & Sons.
Dwivedi R.S., Managing Human Resources, Galgotia Publishing Company.

20
 LESSON 3
HUMAN RESOURCE PLANNING
Dr. Pooja Goel
Shaheed Bhagat Singh College
University ofDelhi
Objectives
• After going through this unit you should be able to:
• Understand the concept and objectives of human .resource planning
• Describe the process of human resource planning
• Analyse the problems in human resource planning
Structure
3.1 Concept of Human Resource Planning
3.2 Objectives of Human Resource Planning
3.3 Need and Importance of Human Resource Planning
3.4 Reasons for Focus on Human Resource Planning
3.5 Process of Human Resource Planning
3.6 Aspects of Manpower Planning·
3.7 Levels of Human Resource Planning
3.8 Problems in Human Resource Planning
3.9 duidelines for Effective Human Resource Planning
3.10 Summary
3.11 Test Questions
3.1� Further Readings

The success of an organization depends largely on the quantity and quality of its human
resources. No organization can be successful in the long run without having the right
number and the right kind of people doing the right jobs at the right time. Procurement of
the right kind and right number of personnel is the first operative function of human .
resource management. Before selecting the right man for the right job, it becomes
necessary to determine the quality and quantity of people required in an organization.
This is the function of human resource planning or manpower planning. HRM begins
with manpower planning.

3.1 Concept of Human Resource Planning

Human resource is an important corporate asset and the overall performance of

companies depends upon the way it is put to use. In order to realize company objectives,
it is essential to have a human resource plan. Human resource planning is essentially the
process of getting the right number of qualified people into the· right job at the right time
so that an organization can meet its objectives. It is a system of matching the supply of
people with openings the organization expects over a given time frame.
Human resource planning (HRP) is a forward looking function. It tries to assess
human resource requirements in advance keeping the production schedules, market
fluctuations, demand forecasts, etc., in the background. The human resource plan is
subject to revision, of course, and is tuned to the requirements of an organization from
time to time. It is an integral part of the overall corporate plan and reflects the broad

21
thinking of management about manpower needs within the organization. Based on above
discussion following characteristics of human resource planning:
1. Human resource planning like all planning is forward looking or future oriented.
It involves forecasts of the manpower needs in a future time period so that
adequate and timely provision may be made to meet the needs.
2. Human resource planning is an on-going or continuous process because the
demand for and the supply of human resource undergo frequent changes. It is not
static but subject to review and revision in accordance with the needs of the
organization and the changing environment.
3. Human resource planning is an integral part of corporate planning. Without a
corporate plan, there can be no manpower plan. Whether or not the manpower
plans meet the organization requirements and are in tune with the reality depends
on how clearly the goals are defined.
4. The basic purpose of human resource planning is to make optimum utilization of
an organisation's current and future human resources. In order to maximize the
return on investment in human resources, it is necessary to relate future human
resources to future needs of the organization.
5. Human resource planning is a systems approach to human resources. In it, the
information about the demand and supply of human resources constitutes the
. input. Comparison and evaluation of demand and supply so as to identify the gap
between the two is the transformation process. The outputs of human resource
planning are the strategy and programme formulated to bridge the gap.
6. Human resource plans can be long-term or short -term. Long -range plans are
prepared for a period of five years or more on the basis of trends in the economy,
labour market and production. These reflect management thinking on the
organization structure, business environment and human resource policies. Short­
term manpower plans cover time periods ranging from one year to less than five
years. These are concerned with filling existing jobs. Long-range and short range
plans are complementary to each other.
7. Human resource planning has both quantitative and qualitative aspects. The
former implies the right number of employees while the later means the right
talent required in the organization.
8. Human resource planning is the primary responsibility of management so as to
ensure effective utilization of the organisation's human resources.
9. Manpower planning involves study of the manpower environment which
influences the demand for manpower and its supply. It also involves study of
manpower utilization.
I 0. Human resource planning is a two-phased process involving calculation about the
demand for and supply of human resources, so as to secure equilibrium between
the two. Human resource planning is based on the recognition that manpower is
an asset which grows or appreciates over time. But development of manpower is a
time consuming process.

3.2 Objectives of Human Resource Planning

The main objectives of human resource planning are as follows:

22
 1. To ensure optimum use of existing human resource.
2. To forecast future requirements for human resources.
3. To provide control measures to ensure that necessary human resource are
available as and when required.
4. To link human resource planning with organizational planning.
5. To assess the surplus and shortage of human resource.
6. To anticipate the impact of technology on jobs and human resources.
7. To determine levels of recruitment and training.
8. To estimate the cost of human resources and housing needs of employees.
9. To facilitate productivity bargaining.
10. To provide a basis for management development programmes.

3.3 Need and Importance of Human Resource Planning

Effective human resource planning offers the following benefits:

I. To carry on its work and achieve its objectives, every organization requires
employees with adequate knowledge, experience and aptitudes. Human resource
planning is helpful in selection and training activities. It ensures that adequate
number of persons ate selected and trained well in advance to fill future job
vacancies in the organization. Human resource planning provides the required
number and quality of human resources at all times.
II. Human resource planning identifies gaps in existing manpower in terms of their
quantity and talent. Suitable training and other steps can be taken in time to fill
these gaps. Existing manpower can be developed to fill future vacancies.
III. There is need to replace employees who retire, die, resign and become
incapacitated due to injury. Provision for replacement of personnel can be made
through human resource planning.
IV. Human resource planning facilitates the expansion and diversification of an
organization. In the absence of human resource plans, the required human
resources will not be available to execute expansion and diversification plans at
the right time.
V. Human resource planning creates awareness about the effective utilization of
human resources throughout the organization. It helps to reduce wastage of
manpower. It also helps in judging the effectiveness of human resource policies
and programmes of management.
VI. Human resource planning is helpful in effective utilization of technological
progress. To meet the challenge of new technology existing employees need to be
retrained and new employees may be recruited.
VII. With the help of human resource planning, areas of surplus manpower can be
anticipated and timely action can be taken.
VIII. Human resource planning is useful in anticipating the cost of human resources
which facilitate the budgeting process. It also helps in controlling human resource
costs through effective utilization. Through proper manpower planning,
management can avoid both shortage and surplus of manpower and thereby
control labour costs.

23
 IX. Human resource planning facilitates career succession planning in the.
organization. It provides enough lead time for internal succession of employees to
higher positions through promotions.
X. Human resource planning helps in planning for physical facilitates like canteen,
staff quarters, dispensary and school for the staff and their children.
XI. At the national level, Human resource planning facilitates educational reforms,
geographical mobility of talent and employment generation.
3.4 Reasons for Focus on Human Resource Planning
In recent years, focus on Human resource planning has increased due to the following
reasons:
Employment Situation: On the one hand, the number of educated unemployed is
increasing. On the other hand, there is acute shortage for a variety of skills. This situation
requires more effective recruitment and retraining of people. Under-developed countries
find that shortage of talented and skilled manpower is a major obstacle to their industrial
progress and they have to impo1t certain skills.
Technological Changes: The widespread and rapid changes in production technology,
marketing methods and management techniques are having profound effects on the
contents and contexts of jobs. These changes create problems concerning redundancies,
retraining and redeployment of personnel. Systematic Human resource planning can help
to solve these problems.
Organisational Change: Size of firms is increasing. The environment of business has
become turbulent. Rapid changes in environment require changes in organization
structure and activities which affect requirements for human resources. New Human
resource strategies are needed to meet these new requirements.
Demographic Changes: The profile of the work force in terms of age, sex, education,
technical skills and social background is changing. Such changes have significant
implications for Human resource planning.
Shortage of Skills: Organisations have become increasingly complex and require a
wide-range of specialized skills. These skills are scarce and prob_lems arise when
employees with these skills leave an organization.
Legislative Controls: Law with regard to working conditions, working hours, weaker
sections, women and child labour, casual and contract labour etc. does not permit
management to hire and fire at free will. Therefore, managers, must look ahead and
forsee manpower problems with the help of systematic human resource planning.
Pressure Groups: Trade unions, politicians and displaced persons create pressures on
management for internal recruitment, promotions, preference to sons of the soil/displaced
persons/ employees' children etc.
Lead Time: Longer lead time is required for selection and training of employees to
handle new jobs and technology successfully. This requires long-term human resource
planning.
Hiring Costs: Recruitment and training costs are increasing. Increase in hiring costs
encourages upgrading from within the organization, and planned retention through
manpower planning.

24
 3.5 Process of Human Resource Planning

The major stages involved in human resource planning are given below:
1. Analysing Organisational Plans: First of all, the objectives and strategic plans of the
company are analysed. Plans concerning technology, production, marketing, finance,
expansion and diversification give an idea about the volume of future work activity. Each
plans can further be analysed into sub-plans and detailed programmes. It is also necessary
to decide the time horizon for which human resource plans are to be prepared. The future
organization structure and job design should be made clear and changes in the
organization structure should be examined so as to anticipate its manpower requirements.
2. Forecasting Demand for Human Resources: On the basis of corporate and
functional plans, and future activity levels, the future needs for human resources in the
organization are anticipated. The number of people and the skills levels needed in future
depend on the production and sales budgets in a manufacturing enterprise. But the human
resource requirements for a given level of operations vary depending upon the production
technology, process, make or buy decisions, job contents, behaviour patterns and control
systems. It is necessary to make projections for new positions to be created and the
vacancies arising in current manpower. Job analysis and forecasts of future activity levels
help in human resource forecasting.
Techniques employed in manpower forecasting are as follows:
(a) Managerial Judgement: Under this method, experienced managers estimate the
manpower requirements for their respective departments on the basis of their knowledge
of expected future workload and employee efficiency. These departmental estimates are
then aggregated and approved by top management.
(b) Work-study Method: In this method, time and motion study are used to analyse arid
measure the work being done. With the help of such studies, standard time required per
unit of work is decided. The following example illustrates this method:
Example:
Planned output for next years 50,000 units
Standard hours per unit 2
Planned hours required 50,000 X 2 = 1,00,000
Productive hours per worker in the year 2,000
Number of workers required l,00,000/2,000 = 50
If the span of control is ten, five(50/10) supervisor will be required to supervise the work.
Work study method is more appropriate for repetitive and manual jobs when it is possible
to measure work and set standards. Job method should not change frequently.
(c) Ratio- Trend Analysis: Under this method, ratios(e.g. total output/ number of
workers, total sales volume/ number of sales person) are calculated on the basis of past
data. Future ratios are calculated on the basis of time series analysis/ extrapolation, after
making allowances for expected changes in organization, methods and jobs.
Extrapolation or projections is mathematical extensions of past data into a future time
period. On the basis of established ratios, the demand for human resources is estimated.
The following example illustrates this method:
Example:
Production level in 2004-05 50,000 units
No. of workers in 2004-05 50

25
Ratio 5: 50,000 or 1: 1,000
No. of supervisors in 2004-05 5
Ratio 5: 50 or 1: 10
Estimated production in 2005-06 60,000 units
No. of workers required in 2005-06 60,000 X 1/1,000 = 60
No. of supervisors required in 2005-06 60 X 1/10 = 6

(d) Mathematical Models: A mathematical model expresses the relationship between

independent variables ( e.g. investment, production, sales etc.) and dependent variable (
e.g. no. of employees required). Various factors influencing manpower needs are
expressed in the form of a formula. Several types of models, e.g. regression, optimization
models, probabilistic _models can be used. These are complex and appropriate only for
large organizations.
3. Forecasting Supply of Human Resources: Every organization has two sources of
supply of human resources- internal and external. Internally, human resources can be
obtained for certain posts through promotions and transfers. Policies relating to these
aspects need to be reviewed regularly to judge their impact on the internal supply of
human resources. In order to judge the inside supply of human resources in future, human
resources inventory or human resource audit is necessary. The components of current or
present human resources are as follows :-
(a) Head counts, i.e., total number of people employed, department wise, skill wise,
designations wise, payroll wise, sex wise, etc.
(b) Job family inventory, i.e., number of employees in each job, e.g, clerks, typists,
cashiers etc.
(c ) Age inventory, i.e. , agewise classification of employees.
(d) Skill inventory containing data about the education, skills, experience, past
performance, work preference and potential/fitness for promotion.
Manpower inventory helps in determining and evaluating the quantity and quality of the
internal human resources. It reveals what exists in stock of manpower and what can be
expected in future. It also indicates the possible shortfalls in comparison with expansion
requirements and the future organization structure. Detailed biodata of every employee
provides the foundation for a programme of individual development. Some organization
maintains a Manning Table which is a jobwise list of employees. Other organizations use
Manpower Replacement charts which show the present performance of each employee
together with the promotion potential of possible replacements.
Expected loss of Manpower: Once the present human resources are assessed the changes
likely to occur therein can be estimated. Potential losses of human resource can arise in
the form of . resignations, discharges/dismissals, deaths, retrenchments/lay off,
terminations, promotions, demotions, transfers, ill health, injury, absenteeism,
deputations out, consultancy out. Similarly, additions to human resources may occur in
the form of new recruits, promotions, demotions, transfers, deputations in , consultancy
in, acquisition of new skills through training, etc. The effect of potential loss and
additions can be calculated, on the basis of experience as follows:

Future internal supply of human resources = Present Inventory of human resources

+ Potential additions - Potential losses

26
 Thus future manpower needs of an organization depend on the number of employees
required due to loss of current manpower and additional staff needed due to anticipated
expansion of the organization. After estimating the future internal supply of human
resources, the external sources of supply are analysed. Internal factors affecting
manpower supply from outside include training facilities, salary levels, company image,
growth prospects, interpersonal relations, job challenge, etc. External factors consists of
working population, unemployment level, education and training · institutions, housing
and transport facilities, social security measures, technology etc.
4. Estimating Manpower Gaps: Net human resource requirements or manpower gaps
can 'be identified by comparing demand forecasts and supply forecasts. Such comparison
will reveal either deficit or surplus of human resources in future. Deficits suggest the
number of persons to be recruited from outside whereas surplus implies redundants to be
redeployed or terminated. Similar, gaps may occur in terms of knowledge, skills and
aptitudes. Employees estimated to be deficient can be trained whereas employees with
higher skills may be given more-enriched jobs.
5. Action Planning: Once the manpower gaps are identified, plans are prepared to bridge
these gaps. Plans to meet the surplus manpower may be redeployed in other
departments/units and retrenchment in consultation with the trade unions. People may be
persuaded, to quit voluntarily through golden handshake. Deficit can be met through
recruitment, selection, transfer, promotion and training plans. Realistic plans for the
procurement and development of manpower should be made after considering the macro
and micro environment which affect the manpower objectives of the organization.
In case the future supply of human resources from all external sources is estimated to fall
short of requirements, the human resource planner should recommend modification of
organization plans. For instance, the organizational plan of a bank, might be, to
computerise all the offices of the bank by 2005. When the estimates show that the future
supply of computer specialists will fall short of the requirements, the bank may have to
extend the period of computerization by one or two years.
6. Monitoring and Control: Once the action plans are implemented, the human resource
structure and system need to be reviewed and regulated. Zero-base budgeting may be
used to encourage managers to justify their action plans. An organization operating on a
five year planning cycle may record human resource levels in such a way that it is easy to
monitor progress and hold managers responsible.
Monitoring and control phase involves allocation and utilization of human resources over
time. Review of manpower plans and programmes help to reveal deficiencies. Manpower
inventory should be updated periodically. Necessary modifications in manpower plans
should be made in light of changing environment and needs of an organization. An
appraisal· of the existing manpower plans serves as a guide in the future manpower
planning.
The following steps may be taken to monitor and control human resource plans:
a) An addition to the manpower must be considered at the top level of management.
b) A properly designated system of reporting changes in the manpower should be
employed.
c) Human resource budgets based on manpower plans may be used to keep
manpower with in properly defined limits.

27
 d) Keeping a close watch on overtime worked and casual labour employed.
e) Auditing the utilization of manpower.
f) Measuring the efficiency of manpower.
g) Finding out the level of morale and job satisfaction through surveys and
correcting the deficiency.
h) Arranging exist interviews for better retaining of manpower.
i) Finding out break-even point or pay-pack perfod for new employees.
3.6 Aspects of Manpower Planning
Manpower planning has two aspects - quantitative and qualitative discussed below: (A)
Quantitative Aspect: Quantitative aspect is concerned with determining the number of
employees required in a future period of time. Work load analysis and work force
analysis are helpful in estimating the quantity of manpower.
Work load Analysis: Under this analysis, the total workload of each department is
estimated on the basis of sales forecasts, work schedules, growth rates, expansion plans,
etc. As far as possible, the workload of each department should be estimated in tangible
units, so that it can be translated into manpower. On the basis of past experience and
work measurement, the total workload is converted into manpower required. Work study
technique is used to estimate how long a time an operation would take and the manpower
required per unit of output.
(b) Work Force Analysis: All the existing workers are not likely to be available for
work throughout the year, due to absenteeism and turnover. It is, therefore, necessary to
make a provision for loss of current manpower due to these factors. On the basis of past
experience, the factory may estimate that on an average, 5 percent of the staff will remain
absent and another 5 percent is likely to be lost due to resignations, retirements, deaths,
tenninations, etc. In order to estimate accurately the loss of current manpower, analysis
of the present work force is made. Such analysis will involve a detailed study of the past
behavior, performance and retirement date of each and every employee. This analysis is
called workforce analysis.
(B) Qualitative Aspect - Skills Analysis: The quality of manpower required varies from
job to job. Therefore, the quality of employees required for a job can be determined only
after determining the job requirements. To know the requirements of a particular job, a
job analysis is made. Job analysis is the process of analyzing a job so as to collect all
pertinent facts about the job in terms of duties and responsibilities involved in it and the
qualification needed for successful performance of the job. ,.
With the help of information obtained through job analysis, two statements, namely job
description and job specification are prepared. Job description contains details about the
�ontents of a job specification or man specification reveals the physical, educational and
other qualifications and experience required in an individual to perform the job
satisfact9.rily.

3.7 Levels of Human Resource Planning

Human resource plans may be prepared at the following levels:
National Level: The Central Government plans for human resources at the national level.
It forecasts the demand for and supply of human resources for the country as a whole.
National level plan covers factors like population projections, economic development

28
 programme, educational facilities, occupational distribution of population etc. The
Government uses population policy, family planning, education policy etc. to create a
match between the demand and supply of human resources.
Sectoral Level: Central and State Governments formulate human resource plans for
particular sectors, e.g. agricultural sector, industrial sector, tertiary sector �tc. Projections
are based on Government policy, projected output/operations etc.
Industry Level: Human resource plans for specific industries like textiles, cement, iron
and steel, petrochemicals, computers etc. are prepared on . the basis of projected
· operations/ output of the particular industry.
Unit Level: Human resource requirements of a particular enterprise are forecast at this
level. These may be estimated department wise, job category wise, etc. The process of
human resource planning should begin at the plan/branch level so as to reap the benefits
of thinking of operating personnel who are in direct touch with day-to-day problems.
3.8 Problems Human Resource Planning
The main problems in the process of human resource planning are as follows:
Inaccuracy: Human resource planning involves forecasting the demand for and supply of
human resources. Therefore, it cannot be a cent percent accurate process. Longer the time
horizon, greater is the possibility of inaccuracy. Inaccuracy increases when departmental
forecasts are merely aggregated without critical review.
Employees Resistance: Employees and trade unions feel that due to widespread
unemployment, people will be available for jobs as and when required. Moreover, they
feel that human resource planning increases their workload and regulates them through
productivity bargaining. Employers may also resist human resource planning feeling that
it increases the cost of manpower.
Uncertainties: Labour absenteeism, labour turnover, seasonal employment,
technological changes and market fluctuations are the uncertainties which serve as
constraints to human resource planning. It is risky to depend upon general estimates of
manpower in the face of rapid changes in environment.
Inefficient Information System: In most of the Indian Industries, human resource
information system has not been fully developed. In the absence of reliable data, it is not
possible to develop effective human resource plans.
Lack of Top Management Support: In the absence of support and commitment from
the top, human resource experts find it difficult to obtain vital inputs. Sometimes, the
process is started with great funfare, but is not sustained due to lack of patience.
Successful human resource planning flourishes slowly and gradtrally. In some cases,
sophisticated technologies are forcefully introduced just because competitors have
adopted them. These may not yield fruits unless matched with the needs and environl)]ent
of the particular enterprise. :.;�
Time and Expense: Manpower planning is a time-consuming and expensive. A good
deal of time and cost are involved in data collection and forecasting.
Unbalanced Focus: In some companies, human resource planning is used as a number's
game. There is too much focus on the quantitative aspect to ensure the flow of people in
and out of the organization. Such an exclusive focus overtakes the more important
dimensions, i.e. the quality of human rtesources. Carrer planning and development, skill
levels, morale etc. are likely to suffer due to such unbalanced approach to human
resource planning.

29
3.9 Guidelines for Effective Human Resource Planning
Some of the steps that may be taken to improve the effectiveness of human resource
planning are as follows:
T ailormade: Human resource plans should be balanced with the corporate plans of the
enterprise. The methods and techniques used should fit the objectives, strategies and
environment of the particular organization.
Appropriate time Horizon: The period of a human resource plan should be appropriate
to the needs and circumstances of the specific enterprise. The size and structure of the
enterprise as well as the changing aspirations of the people should be taken into
consideration.
Adequate Organisation: Human resource planning function should be properly
organized. A separate cell, section or committee may be constituted within the human
resource department to provide adequate focus, and to coordinate the planning efforts at
various levels.
T op Management Support: Before starting the human resource planning process, the
support and commitment of top management should be ensured. Moreover, the exercise
should be carried out within the limits of a budget. There is no use formulating plans
which cannot be implemented due to financial constraints.
Par ticipation: To be successful, human resource planning requires active participation
and coordinated efforts on the part of operating executives. Such participation will help to
improve understanding of the process and thereby reduce resistance.
Information System: An adequate database should be developed for human resources to
facilitate human resource planning.
Balanced Focus: The quantity and quality of human resources should be stressed in a
balanced manner. The emphasis should be filling future vacancies with right people
rather than merely matching existing people with existing jobs. Upward mobility of
existing staff needs to be considered carefully. Labour turnover should be considered
according to length of service rather than merely on aggregate basis.
3.10 Summary
Human resource planning is the process of determining the number and kind of human
resources required in an organization for a specific time period in future. Human resource
planning serves as a guide to the management of human resources. In recent years,
interest in human resource planning has increased due to shortage of certain skills,
technological changes, organizational changes, lead time etc. The main steps in human
resource planning include analysis of organizational plans, demand forecasting, supply
forecasting, identifying manpower gaps, and action planning. Human resource plans can
be formulated at national, sectoral, industry and unit levels. Employee resistance,
uncertainties, inefficient information system, lack of top management support, etc. are the
main problems in human resource planning. Tailormade approach, appropriate time
horizon, adequate organizational base, top management support, employee participation,
sound information system and balanced focus are the main guidelines for making human
resource planning effective.
3.11 Test Questions
Q 1. What do you understand by human resource planning? Describe its characteristics.

30
· Q2. Account for the increasing interest in human resource planning in recent years.
Q3. Discuss the problems in human resource planning? How can these problems be
overcome.
3.12 Further Readings
Chhadha, T.N., "Human Resource Management", Dhanpat Rai & Co., Delhi, 2004.
Gupta, C.B., "Human Resource Management", Sultan Chand & Co., Delhi. 2002.
Dwivedi, R.S., "Personnel Management", Oxford & LB.H., New Delhi, 2001.
Singh, B.P., "Personnel Management & Industrial Relations", Dhanpat Rai & Co.,Delhi,
2003.

Job Analysis
Job analysis is a formal and detailed study of jobs. It refers to a scientific and systematic
analysis ofa job in order to obtain all pertinent facts about the job. Job analysis has been
defined as "the process of determining by ,observation and study the tasks, which
comprise the job, the methods and equipment used, and the skills and attitude required for
successful performance of the job. It is a part of overall work plannin,; called 'work
design'. As jobs are always subject to change, a job analysis may become obsolete within
a short period oftime. Job analysis provides the following information about a job:
e Identity of the job in terms ofits title and code number.
@ The operations and tasks involved in the job including their timing, significance,
complexity and sequence.
• Location, physical setting, hazards and discomforts, supervision given and
received and other: significant characteristics ofthe job.
• Duties involved in the job along with 'the frequency ofoccurrence ofeach duty.
• Materials, methods and equi'pmen1 use_d in performing the,job.
• How the job is performed, i.e. the nature of operations like cl�aring, lifting,
handling, drilling, feeding, driving, guiding, assembling etc.
@ Relationship ofthe job with other jobs in the organization.
• Human resource attributes required for performing the job, e.g. physical strength,
education, mental skills, attitudes, training etc.

31
 Objectives of Job Analysis

The main objectives of job analysis are as follows:

Job Redesign: A job may be analyzed to simplify the process and methods involved in it.
Such work simplification helps to improve productivity.
Work Standards: In order to establish job and time standards, a job has to be analysed
in detail. A systematic study of the job reveals the time that should be taken in
performing the total task. Once the time requirements become known, standards relating
to daily performance can be established.
Miscellaneous: Job analysis provides support to other human resource a ctivities such as
recruitment, selection, training, performance appraisal, job evaluation, safety etc.

Significance (Benefits) of Job Analysis

Job analysis is an important component of human resource management system. It

provides important information which aids in redesigning jobs and organization structure,
planning staffing procedures, designing training and appraisal programmes. The uses of
job analysis are as follows:
Human resource planning: Job analysis represents the qualitative aspects of human
resource requirements since it determines the demands of a job in terms of
responsibilities and duties and then translates these demands in terms of skills, qualities
and other human attributes. It helps in determining the number and kinds of jobs and
qualifications needed to fill these jobs. It is job analysis which reveals what an average
person can do on a job in a day. It facilitates the division of work into different jobs
which is an essential element of effective manpower planning.
Recruitment, Selection and Placement: To make employment programme successful, it
is necessary to have clear statements of jobs to be performed and of the skills and
knowledge that must be possessed by the employees who will fill these jobs. The
1nformation regarding these two is procured from job description and job specifications
· respectively. These help in matching as closely as possible the job requirements with
workers' aptitudes, abilities and interests to facilitate the execution of employment
programme.
Placement: A clear understanding of job requirements helps in matching these with the
abilities, interests and aptitudes of people. Each job can be assigned to the person who is
best suited for it. Similarly, the orientation programme can be geared towards helping the
employee learn the activities, and understand duties that are required to perform a given
job mor� effectively.
Training and Development: Training and development programmes are administered to
help the employees to gain the skills and knowledge to perform the tasks assigned to
them e 1iciently. This purpose can be achieved conveniently if the employees fully
understand the job description and job specification, and are thus familiar with what they
are exrected to perform. The same job information is also useful to those who administer
training and development programmes.

32
 Job Evaluation: Job evaluation aims at determining the relative worth of various jobs.
The worth of a job would in turn help in determining the base compensation of the job.
Job evaluation ensures internal pay equity of one job to another. To calculate the worth of
a job, info1mation concerning the job is provided by the job description.
Performance Appraisal: Performance of the employees can be appraised objectively if
clear-cut standards of performance for every job are established. Job analysis data can be
adapted to establish clear-cut standards of performance for every job. In evaluating the
performance of an employee, the supervisor can compare the actual contribution of each
man with the set standards.
Employee Counseling: Job analysis provides information about career choices and
personnel limitations. Such information is helpful in vocational guidance and counseling.
Employees who are unable to cope with the hazards and demands of given jobs may be
advised to opt for subsidiary jobs which are less demanding.
Job Design: Job analysis information helps in designing or redesigning of jobs by
industrial engineers through time and motion study, work specification, work
improvement and work measurement.
· Organizational Design: Job analysis information is useful in classifying jobs creating
interrelationship among them. Responsibility commensurate with authority and
accountability for various jobs can be specified so as to minimize duplications or
overlapping. In order to improve organizational efficiency, sound decisions concerning
hierarchical positions and functional differentiation can be taken on the basis of
information obtained through job analysis.
Safety and Health: The process of job analysis provides an opportunity to uncover and
identify hazardous conditions and unhealthy environmental factors like heat, noise,
fumes, dust, etc. Corrective measures can be taken to minimize the chance of various
risks, ensure safety to workers, and avoid unhealthy conditions as far as possible.

The Process of Job Analysis

The main steps involved in job analysis are as follows:

1. Organisational Analysis: First of all an overall view of various jobs in the
organization is obtained. This is required to judge the linkages between jobs and the
organizational goals, interrelationships among jobs, and the contribution of various
jobs to efficiency and effectiveness of the organization. For this purpose, background
information is collected in the form of organization charts, class specifications, work
flow charts, etc. Organisation Charts show the relation of the job with other jobs in
the organization. Class specifications describe the general requirements of the job
• family. Work flow charts indicate the flow of activities involved in a job.
2. Organising Job Analysis Programme: It is necessary to plan and organize the
·programme of job analysis. The company must cjecide who will be in charge of the
programme and must assign responsibilities. A budget and a time schedule should be
developed.
3. Deciding the Uses of Job Analysis Information: It has been stated above that
information generated by job analysis can be utilized for practically all functions of
human resource management. Nevertheless, it is described to focus on a few priority
areas in which the job analysis' information is to be used. These areas can be decided

33
 on the basis of the need, priorities and constraints of the particular organization. How
the job information will be used and for what purpose will determine the extent to
which jobs are to be analysed.
4. Selecting Representative Jobs for Analysis: It would be highly time consuming and
costly to analyse all the jobs. It is, therefore, desirable to select a representative
sample of jobs for the purpose of detailed analysis. Priorities of various jobs needing
'· analysis can also be determined.
5. Understand Job Design: The job analyst should obtain information concerning the
current design of the representative job. For this purpose, current job description and
job specification, procedure man�al, system flow charts, etc. can be studied.
6. Collection of Data: In this step, data on the characteristics of the job, and
qualifications and behaviour required to do the job effectively is collected. Data may
be collected from the employees, who actually perform the job, or from their
supervisors or from outsiders called trade job analysts appointed to watch employees
performing the job. Several techniques are available for job analysis. Care should be
taken to use only those techniques which are acceptable and reliable in the given
situation.
7. Developing a Job Description: The information collected in the previous step is used
in preparing a job description. This is a written statement that de.scribes in brief the
, tasks, duties and responsibilities which needs to be discharged for effective job
performance.
8. Preparing a job specification: The last step in job analysis is to prepare a job
specification or employee specification. This is a written statement which specifies
the personal attributes in terms of education, training, experience and aptitude
required to perform the job.

Techniques. of Job Analysi•s

A variety of sources and methods are used t� collect data relating to a job. The main
methods are given below:
1. Job Performance: Under this method, the job analyst actually performs the job under
study to obtain a first hand experience of the actual tasks, physical and social
demands and the environment of the job. This method can be used only for jobs
where skill requirements are low and can, therefore, be learnt quickly and easily. This
is a time-consuming method and is not appropriate· for jobs requiring extensive
training.
7. Personal Observation: In this method, analyst directly observes the worker or a group
engaged in doing the job. The tasks performed, the pace at which activities are carried
out, the working conditions, the hazardous involved, etc. are observed during a
COJ:Jlplete work cycle. The information thus obtained is recorded in a standard format.
This method is appropriate for jobs which involve manual/physical, standardized and
short job cycle activities. Draftsman, mechanic, weaver are examples of such jobs.
There are, however, many aspects of a job involving mental process and unforeseen
circumstances which cannot be directly observed. Observation method can be
effective only when the job analyst is skilled enough to know what to observe and
how to anaiyse what is observed.

34
 3. Interview: The analyst personally interviews the employee, his supervisor and other
concerned persons and records answers to relevant questions. A standard format is
used to record the data so that the data collected from different employees can be
compared to identify the common and critical aspects of the job. The interviewer uses
standardized interview schedule and asks job related questions in the interview.
Interview is widely used method particularly for jobs wherein direct observation or
actual performance is not feasible. Interview is however, a time consuming and costly
method. Another problem with this method is that inaccurate information may be
collected. The following guidelines will help the analyst to make interview effective:
I. Prepare for the interview- notify all interviewers in advance of the purpose of the
study, send the material (task list, task inventory, question list, etc.) to them and
fix proper time for the interview.
II. Introduce yourself so that the worker knows who you are and why you are there.
III. Show a sincere interest in the worker and the job that is analysed. Allay the
employee's fears that the information collected from him will be used to increase
tasks, lower the position and reduce the salary.
IV. Do not try to tell the employee how to do the job.
V. Try to talk to the employee and the supervisor in their own language.
VI. Do not confuse the work with the worker. Focus on the contents of the job not on
the job cycle.
VII. Do complete job study within the objectives of the programme.
VIII. Verify the job information obtained. Remove inconsistencies and contradictions
in the information collected.
4. Questionnaire: In this method, properly drafted questionnaires are sent out to
jobholders. After completion these are returned to supervisors. As the data is often
incoherent and disorganized, it is discussed with the jobholders. After due
corrections, the same is submitted to the job analyst. Structured questionnaires on
different aspects of a job, e.g. manual and mental processes, coordinating and
negotiating behaviour, etc. are developed. Each task is described in terms of
characteristics such as frequency, significance difficulty and relationship to overall
performance. The jobholders give their ratings of these dimensions. The ratings thus
obtained are analysed and a profile of actual job is developed. Comprehensive
Occupational Data Analysis Programme (CODAP), Position Analysis Questionnaire
(PACS), Functional Job Analysis (FJA) and Job Analysis Information Format (JAIF)
are examples of standard questionnaires used for job analysis. The questfonnaire
method provides comprehensive information about a job. It also enables the analysts
to cover a large number of jobholders in the shortest possible time. But it is time­
consuming and costly to develop standardized questionnaires. Direct rapport between
the analyst and respondents is not possible.
5. Critical Incidents: In this method, jobholders are asked to describe incidents
concerning the job on the basis of their past experience. Jhe incidents so collected are
analysed and classified according to the job areas they describe. A fairly clear picture
of actual job requirements can be obtained by distinguishing between effective and
ineffective behaviQ_urs of workers on the job. However, this method is titrte

35
 consuming. The analyst requires a high degree of skill to analyse the content of
description given by workers.
6. Log Records: In this method, a diary or logbook is given to each jobholder. The
jobholder daily records the duties performed making the time at which each task is
started and finished. The record so maintained provides information about the job.
This method is time consuming. Moreover, it prov_ides incomplete data because
information concerning working conditions, equipment used ijnd supervisory
relationship is not available from the logbook. This method is useful for jobs that are
difficult to observe, e.g. engineers, scientists, research men, senior managers, etc.
Job Description
The data collected through job analysis provides the basis for preparing job descriptions
and job specifications. Job description is a functional description of what the job entails.
It is descriptive in nature and defines the purpose and scope of a job. Job description is a
written record of the appropriate and authorized contents of a job. It is a factuai and
organized statement describing the job in terms of its title, location, duties,
responsibilities, working conditions, hazards and relationship with other jobs. It tells us
what is to be done, how it is to be done and why. The main object of a job description rs
to differentiate it from other jobs and to set out its outer limits. Job description is an
important document as it helps to identify the job and gives a clear idea of what the job
is.
Contents of Job Description
A job description contains the following information:
1. Job Identification: Job title, code number of the job, department or division where the
job is located. This part of job description helps to identify and designate the job. It
also reveals the relationship of the job with other jobs.
2. Job Summary: It describes the content of a job in terms of the activities or tasks
performed.
3. Job Duties and Responsibilities: It is the heart of job description. It describes the
duties performed along with frequency of each major duty. Responsibilities
concerning custody of money, supervision and training of staff, etc. are also described
in this part.
4. Work Conditions: The physical environment of the job is described in terms of heat,
light, noise level, dust and fumes, etc. Nature of risk and their possibility of
occurrence are also given.
5. Social Environment: Size of work group and inter-personal interactions required to
perform the job are given. Training and development facilities may also be
mentioned.
Machines, Tools and Equipment: The names of major machines, equipments and
materials used in the job are described.

36
 6. Supervision: The extent of supervision given or received is stated in terms of number
of persons to be supervised along with their job titles. Designations of immediate
superiors and subordinates may also be given.
7. Relation to Other Jobs: The jobs immediately below and above are mentioned. It
provides an idea of vertical work flow and channels of promotion. It also indicates to
whom the jobholders will report and who will report to him.

Uses of Job Description

Job description is helpful in the following areas of human resource management:

I. Job grading and classification
II. Placement of new employees on a job.
III. Orientation of new employees towards basic duties and responsibilities.
IV. Promotion and transfers.
V. Defining and outlining the_ career plans.
VI. Redressal of grievances relating to duties and responsibilities.
VII. Investigating accidents.
VIII. Locating faulty work procedures and duplication of papers.
IX. Work measurement and work improvement.
X. Defining the limits of authority.
XI. Organisational changes and development.
XII. Framing questions to be asked in the selection interview.

Job Specification

A job specification is a document which states the minimum acceptable human qualities
necessary to perform a job properly. It sets forth requirements sought in the person who is
· to be selected to perform a particular job. Job specifications translate the job descriptions
into human qualifications, and sometimes level of performance required for successful
performance of the job. Specifications are often appended to the job descriptions. They
are intended to serve as a guide in hiring and to be used in job evaluation. In hiring, they
are presumed to be a partial guide to the characteristics sought in the application blank,
tests, interviews, and checking of references.
Because of admitted impossibility of presenting a completely objective and accurate
standard of personnel some firms have discarded the idea of preparing job
specifications. Instead they prefer to deliver the description to the employment
interviewers as they are sure of the accuracy of that information. But this does not mean
that job specification has been eliminated or discarded. Instead of having one standard of
personnel for the job, there may be as many as readers of the job descriptions.

· Job Specification vs. Job Description

In contrast of job description, job specification is a measuring rod of personnel and it
combines qualities required for acceptable performance of a particular job like formal
education, experience, psychological attitude, physical measurement, etc. The qualities as
assessed and recorded on job specification document involve an element of subjectivity.

37
The proper assessment of these qualities depends upon the value judgments of a number
of people such as job analysis, job-holder and his supervisor.
If kept separate from job description, the job specification includes two sections­
job identification and human requirements. The exact list of human requirements will
vary from company to company and according to the uses to which job specifications is
to be put. Such attributes as education and e:icperience are always indicated. As far as
possible, the specifications written for each element of the job should be quantified.

Summary

Placement is the process of putting an employee on a specific job so as to match

employee skills with the requirements of the job. Induction is the process of familiarizing
new employees with the organization and the job. Induction helps to further the interests
of both the organization and the new employee. A formal induction programme provides
all the necessary information to the new employee. Job analysis is a formal and scientific
study undertaken to find out the detailed contents of a job and the human qualities
required to perform it successfully. Job description consists of the title, duties and
responsibilities, working conditions, social environment, machines and tools used and
supervision involved in a job. Job specification is a list of qualities in terms of education,
training, experience, personality and aptitudes required for a job.

Test Questions

QI .Discuss the importance of proper induction of newly recruited employees, with

particular reference to India.
Q2. Distinguish between placement and Induction.
Q3. What do you understand by job analysis? How will you analyse a job?
Q4. What is job description? Describe its contents and utility.

Further Readings

Robert L. Mathis and John H. Jackson, "Human Resource Management", Thomson

Learning.
Storey, "Human Resurce Management", Thomson Learning, 2001.
Singh, A.K., and B.R Duggal,., "Human Resources Management", Sunrise Publication,
New Delhi, 2003.
Saiyalaim, M.S., "Human Resource Management", Tata McGraw-Hill, New Delhi, 1999.

38
 Unit II

39
 IV. Recruitment is a positive function as it seeks to develop a pool of eligible persons
from which most suitable ones can be selected.
V. Recruitment is a pervasive function as all organizations engage in recruiting
activity.
VI. Recruitment is a two way process. It takes a recruiter and a recruitee.
VII. Recruitment is a complex job because too many factors affect it, such as image of
the organization, nature of jobs offered, organizational policies, working
conditions, labour laws, past recruitment record, Government policies etc.

4.2 Sources of Recruitment

The sources of recruitment may be broadly divided into two categories: internal sources
and external sources.
Internal Sources: Internal sources consist of following:
(a) Present Employees: Permanent, temporary and casual employees already on the pay
of the organization are a good source. Vacancies may be filled up from such
employees through promotions, transfers, upgrading and even demotion which are
explained below:
(i) Transfer: A transfer is a change in job assignment It may involve a promotion or
demotion or no change at all in status and responsibility. A transfer does not imply
any ascending or descending change in status or responsibility. Transfer can be
because of various reasons such as changes in production, replacement of an
employee working on the same job for a iong time, to increase the versatility of
employees, to correct the wrong placements, punishment for in disciplinary action of
employees. Table below shows the benefits and problems associated with transfers.
TABLE4.1
Benefits & Problems Associated with Transfer
Benefit Problems
• Improve employee skills G Inconvenient to employees who
• Reduce monotony, boredom otherwise do no want to move
• Remedy faulty placement decisions 411 Employees may or may not fit in
• Stabilize changing work m;w location
requirements in different • Shifting of experienced hands may
departments affect productivity
• Improve employee satisfaction and olll Discriminatory transfers may affect
morale employee moraie.
• Improve employee-employer
relationship

i ' '

(ii) Promotion: Promotion refers to upward movement of an employee from current job
to another that is higher in pay, responsibility and/ or organizational leveL Promotion
brings\ enhanced status, better pay, increased responsibilities and better working
conditio.ns to the promotee. There can be "dry promotion" where a person is moved to
a higher level job without increase in pay. Organisations adopt different bases of
promotion depending upon their nature, size, management, etc. The well-established
bases of promotion are seniority and merit.

40
(iii)Demotion: Demotion is the downward movement of an employee in the
organizational hierarchy with lower status and pay. It is a downgrading process where
the employee suffers considerable emotional and financial loss in the form of lower
rank, power and status, lower pay and poor working conditions.
(b) Job posting: Job posting is another way of hiring people from within. In this method,
the organization publicizes job openings on bulletin boards, electronic media and
similar outlets. Hindustan lever introduced its version of open job posting in early
2002 and over 40 positions have since been filled through the pr_ocess.
(c) employee referrals: Employee referral means using personal contacts to locate job
opportunities. It is a recommendation from ·a current employee regarding a job
applicant. The logic behind employee referral is that "it takes one to know one". This
has become a popular way of recruiting people in the highly competitive Information
Technology industry.
Merits of internal sources of recruitment
Economical: The cost of recruiting internal candidates is minimal. No expenses are
incurred on adve1tisement.
Sui table: The organization can pick the right candidates having the requisite skills. The
candidates can choose a right vacancy where their talents can be fully utilized.
Reliable: The organization has knowledge about the suitability of a candidate for a
position. 'Known devils are better than unknown angels.'
Satisfying: A policy of preferring people from within offers regular promotional avenues
for employees. It motivates them to work hard and earn promotions.
Demerits of internal sources of recruitment
Limited Choi ce: The organization is forced to select candidates from a limited pool. It
may have to sacrifice quality and settle for less qualified candidates.
Inbreeding: It discourages entry of talented· people, available outside an organization.
Existing employees may fail to behave in innovative ways and inject necessary
dynamism to enterprise activity.
Inefficiency: Promotions based on length of s,ervice rather than merit, may prove to be a
blessing for inefficient candidates. They do not ,work hard and proye their worth.
Bone of Contention: Recruitment from within- may lead to infighting a]J1ong employees
aspiring fqr limited, higher-level positions in an organization. As years roll by, the race
for premium positions may end up on a bitter note.
External Sources: Every organization has to -fap external sources for various positions.
The following external sources of recruitment are commonly used by the big enterprises:.
Direct Recruitment: An important source of recruitment is direct recruitment by placing
a notice on the notice board of the enterprise· specifying the details of the jobs available.
It is also �own as recruitment at factory gate. This method of recruitment is very cheap
as it does not involve any cost of advertising vacancies. It is suitable for filling casual
vacancies when there is greater rush of work or when a number of permanent workers are
absent..

41
 Casual Callers or Unsolicited Applications: The organizations which are regarded as
good employers draw a steady stream of unsolicited 'applications in their offices. This
serves as a valuabie source of manpower. If adequate attention is paid to maintain
pending applications folders for various jobs, the personnel department may find the
unsolicited applications useful in filling the vacancies whenever they arise. The merit of
this source of recruitment is that is avoids the costs of recruiting workforce from other
sources.
Media Advertisement: Advertisement in newspapers or trade and professional journal is
generally used when qualified and experienced personnel are not available from other
sources. Most of the senior positions in industri' as well as commerce are filled by th�s
method. The advantage of advertising is that more information about the organization,
job description and job specification can be given in advertisement to allow self­
screening by the prospective candidates. Its disadvantage is that it may bring in a flood of
response, and many times from quite unsuitable candidates.
Employment Agencies: Employment exchanges mn by the Government are regarded as
a good source of recruitment for unskilled, semi skilled and skilled operative jobs. In
some cases, compulsory notification of vacancies to the employment exchange is
required by law. The employment exchanges bring the job givers in contact with the job
seekers. Employment exchanges and selected private agencies provide a nation wide
service in attempting to match personnel demand and supply.
Management Consultants or Head Hunters: Management consultancy firms help the
· organizations to recruit technical, professional and managerial personnel. They specialize
in middle level anl top level executive placements. They maintain data bank of persons
with different qualifications and skills and even advertise the jobs on behalf of their
clients to recruit right type of personnel. For example some head hunters are A.F.
Ferguson and Co., ABC Consultants, Mantee Consultants etc.
Educational Institutions or Campui Recruitment: Jobs in commetce and industry
have become technical and complex to the point where college degrees or dip 1 0mas are
widely required. Consequently, big organizations maintain a close liaison with the
universities, vocational institutions and management institutes for recruitment to various
jobs. Recruitment from educational institutions is a well established practice of thousands
of business and other organizations. It is also known ·as campus recruitment.
Organizations which seek applicants for continuing apprenticeship programme usually
recruit from technical institutions or polytechnics offering vocational courses.
Recommendations and Referrals: Applicants introduce(by friends and relatives may
prove to be a good source of recruitment. In fact, many employers prefer to take such
persons because something about their background is known. When a present empIJyee
or a business friend recommends some one for a job, a type of preliminary screening is
done and the person is placed on a job.
Labour Contractors: Labour contractors are an important source of recruitment in some
industries like construction industry in India. Workers are recruited through labour
contractors who are themselves employees of the organization. The disadvantage of this
system is that if the contractor leaves the organization, all the workers employed through

42
him will also leave. Recruitment through labour contractor has been banned for the public
sector uints.
Telecasting: The practice of telecasting of vacant posts over T.V. is gaining importance
uiese days. Special programmes like 'job watch', 'Youth Pulse', 'Employment News'
etc. over the T. V. have become quite popular in recruitment for various types of jobs. The
detailed requirements of the job and the qualities required to do it are publicized along
with the profile of the organization where vacancy exists.
Merits of external sources
Qualified Person nel: By using external sources of recruitment, the management can
make qualified and trained people to apply for vacant jobs in the organization.
Wider Choice: When vacancies are advertised widely, a large number of applicants from
outside the organization apply. The management has a wider choice while selecting the
people for employment. -,
Fresh Talent: The insiders may have limited talents. External sources facilitate infusion
of fresh blood with new ideas into the enterprise. This will improve the overall working
of the enterprise.
Competitive Spirit: If a company can tap external sources, the existing staff will have to
compete with the outsiders. They will work harder to show better performance.
Demerits of external sources
Dissatisfaction among existing staff: External recruitment may lead to dissatisfaction
and frustration among existing employees. They may feel that their chances of promotion
are reduced.
Lengthy process: Recruitment from outside takes a long time. The business has to notify
the vacancies and wait for applications to initiate the selection process.
Costly process: It is very costly to re.emit staff from external sources. A iot of money has
to be spent on advertisement and processing of applications.
Uncertain response: The candidates from outside may not be suitable for the enterprise.
There is no guarantee that the enterprise will be able to attract right kind of people from
external sources.

43
4.3 Comparison of Internal and External Recruitment

TABLE4.2
Companson of Internal and External Recruitment
Internal Sources External Sources
1. Internal recruitment is a quick process. It 1. External recruitment 1s a lengthy
involves search of candidates from within process. It involves finding candidates
the organization. from outside the organization.
2. This process 1s cheaper. It does not 2. This process is costly as vacancies have
involve any cost of contracting the external to be notified in newspapers etc.
sources.
3. The existing staff members are 3. The workers feel dissatisfied if external
motivated to improve their performance. sources are used.
4. Choice of candidates is limited. The 4. The business can hope for talented
scope of fresh talent is diminished. candidates from outside. This means
infusion of new blood and new ideas into
the enterprise.
5. Internal sources help in saving time of 5. External sources of recruitment are time-
officials responsible for recruitment. consuming.

4.4 Recent Trends in Recruitment

Outsourcing: Under this arrangement, a company may draw the required personnel from
the outsourcing firms or agencies on commission basis rather than offering them
employment. This is also called leasing of human resources. The outsourcing firms
develop their human resource pools by employing people for them and rnake a'1ailable
the personnel to various companies as per their needs. The outsourcing firms get payment
for their services to their clients and give salary directly to the· personnel. The persmmel
deputed by the outsourcing agencies with the clients are not the employees of the clients.
They continue to be on the payroll of their employees, i.e. the outsourcing agencies. The
advantages of getting human resources through the outsourcing agencies are as follows:
• The companies need not to plan for human resources much in advance. They can
get human resources on lease basis from an outsourcing agency.
• The companies are free from industrial relations problems as human resources
taken on lease are not their employees.
• The companies can dispense with this category of employees immediately after
the work is ove�.
Poaching or Raiding: Poaching means employing a competent and experienced person
already working with another reputed company which might be a rival in the industry. A
company can attract talent from another firm by offering attractive pay packages and
other terms and conditions. For instance, several executives of HMT left to join Titan
watches and several pilots of Indian Airlines left to join private air taxi operators. Raiding

44
 is an unethical pr'actice m1d has become the challenge for the human res�)Urce managers
of modem organizations as it will weaken the competitive strength of the firrr1.
Website or e-Recruitment: Many big organizations use internet as a source of
recruitment. They advertise the job vacancies through the world wide web(WWW). The
job seekers send their applications or Curriculum Vitae, i.e. CV, through e-mail using the
internet. Alternatively, job seekers place their CVs in the world wide web/ internet, which
can be drawn by the prospective employers depending upon their requirements. The
advantages of net recruitment are as follows:
e Low cost of recruitment per candidate.
111 Reduction in time for recruitment.
$ Recruitment of right types of people.
Iii Efficiency in the process of recruitment.
�
4.5 Recruitment Practices in India
Industries in India depend on the following sources of recruitment:
I. Internal sources
11. Public employment exchanges
Ill. Campus recruitment
IV. Executive search engines
V. Labour Contractors
VI. Employee Referrals
In public sector enterprises, a special proportion of vacancies are reserved for scheduled
castes, schedule tribes, physical handicapped, ex-servicemen, other bacb:vard classes, etc.
Some organizations give preference to local people i.e. sons of the soil. The recruitment
programme should be evaluated periodically. The criteria for evaluation may consist of
· cost per applicant/hiring ratio, performance appraisal, tenure of stay, etc. The
organization should first find out how the applicant was attracted towards the job. The
next step is to fo:1d out whether a particular method consistently attracts better applicants.
On the basis of information collected through evaluation, necessary improvements should
be made in the recruitment programme. In a recent survey carried out by a leading search
firm, Executive Access, recruiting companies demanded the following skills of the B­
school graduates, in the following order of importance:
: Ability to work in a team
$ Analytical and problem solving skill
@ Communication and other soft skills
Ell Creativity and resourcefuiness
e Leadership potential
• General Managerial skilis
@ Entrepreneurial skills
4oti Selection
Selection is the process of choosing the most suitable persons out of all the applicants. In
this process, relevant information about applicants is collected through a series of steps so
as to evaluate their suitability for the job tC? be filled. Selection is a process of matching
the qualification of applicants with the job requirements. lt is a process of weeding out
unsuitable candldates and finally identify the most suitable candidate. Selection divides

45
all the applicants into two categories (a) suitable, and (b) unsuitable. Selection may be
described as a process of rejection because generally more candidates are turned away
than are hired. The purpose of selection is to pick up the most suitable candidates who
would best meet the requirements of the job and the organization. To meet this goal, the
company obtains and assesses information about the applicants in terms of age,
qualifications, skills, experience, etc. The needs of the job are matched with the profile of
candidates. Any mismatch in this regard can cost an organization a great deal in terms of
money, time and trouble, especially, by way of training and operating costs. Effective
selection therefore demands constant monitoring of the 'fit' between the person and the
job.

4.7 Distinctive Features of Recruitment and Selection

Basis Recruitment Selection

1. Meaning It is the process of
searching candidates for
vacant jobs and making
them apply for the same.
2. Nature It is a positive process.
3.Aim Its aim is to attract more
and more candidates for
vacant jobs.
4.Procedure The firm notifies the
vacancies through various
· sources and distributes
application forms to
candidates.
5. Contract of service . No contractual relation is
cr(!ated. Recruitment
implies communication of
vacancies only.
It is the process of selection
of right types of candidates
and offering them jobs.
It is a negative process.
Its aim 1s to reject
unsuitable candidates and
pick up the most suitable
people for the vacant jobs.
The firm asks the
candidates to pass through a
number of stages such as
filling of forms,
employment tests,
interview, medical exam.,
etc.
Selection follows
recruitment and it leads to a
contract of service between
the employer and the
employee.

Both recruitment and selection are the two phases of the employment process.
Recruitment being the first phase envisages taking decisions on the choice of tapping the
sources of labour supply. Selection is the second phase which involves giving various
types of tests to the candidates and interviewing them in order to select the suitable
candidates only.

4.8 Selection Procedure

Selection is usually a series of hurdles or steps. Each one must be successfully cleared
before the applicant proceeds to the next. The time and emphasis placed on each step will

46
of course vary from one organization to another and indeed, from job to job within the
same organization. For ·example, some organizations may give importance to testing,
while others may emphasis interviews and reference checks. Following are the important
steps in selection process of a typical organization:
(A) Reception: A company is known by the people it employs. In order to attract people
with talent, skills and experience, a company has to create a favorable impression on
the applicants right from the stage of reception. Whoever meets the applicant initially
should be tactful and able to extend help in\a friendly and courteous way. If no jobs
are available at that point of time, the applicant may be asked to contact the HR
department after a suitable period of time has elapsed.
(B) Screening Interview: A preliminary interview is generally planned by large
organizations to cut the costs of selection by allowing only eligible candidates to go
through the further stages in selection. A jun'ior executive from the HR Department
may elicit responses from applicants on important items determining the suitability of
an applicant for a job such as age, education, experience, pay expectations, aptitude,
location choice etc. This 'courtesy interview' as it is often called, helps the
department screen out obvious misfits.
(C)Application Blank: Application blank or form is one of the most common methods
used to collect information on various aspects of the applicants' academic, social,
demographic, work-related background and references. It is a brief history sheet of an
employee's background, usually containing the things like personal data, marital data,
physical data, educational data, employment data, extra curricular activities data and
references.
(D) Weighted· Application Blanks: To make the application form more job-related,
some organizations assign numeric values or weights to responses provided by
applicants. Generally, the items that have a strong relationship to job performance are
given high scores. For example, for a medical representative's position, items such as
previous selling experience, marital status, age, commission earned on sales
previously, etc. may be given high scores when compared to other items such as
religion, sex, language, place of birth etc. The total score of each applicant is obtained
by summing the weights of the individual item responses. The resulting scores are
then used in selection decision.
(E) Selection Testing: Another important decision in the selection process involves
applicant testing and the kinds of tests to use. A test is a standardized, objective
measure of a person's behaviour, performance or attitude. It is objective in that it tries
to measure individual differences in a scientific way, giving very little room for
individual bias and interpretation. Some of the commonly used employment tests may
be stated thus:
Intelligence tests: These are mental ability tests. They measure the incumbent's learning
ability and also the ability to understand instructions and make judgments. The basic
objective of intelligence tests is to pick up employees who are alert and quick at learning
things so that they can be offered adequate training to improve their skills for the benefit
of the organization. Intelligence tests do not measure any single trait, but rather several
abilities such as memory, vocabulary, verbal fluency, numeric ability, perception, spatial

47
 visualization, etc. Stanford- Binet test, Binet-Simon test, The Wechsler Adult Intelligence
Scale are examples of standard intelligence tests.
Aptitude tests: Aptitude tests measure an individual's potential to learn certain skills­
clerical, mechanical, mathematical, etc. These tests indicate whether or not an individual
has the ability to learn a given job quickly and efficiently. In order to recruit efficient
office staff, aptitude tests are necessary. Clerical tests, for example, may measure the
incumbent's ability to take notes, perceive things correctly and quickly locate things,
ensure proper movement of files, etc.
Personality tests: Of all the tests required for selection, personality tests have generated
lot of heat and controversy. Personality tests are used to measure basic aspects of an
applicant's personality such as motivation, emotional balance, self confidence,
interpersonal behavior, introversion, etc. The most frequently used tests are the
Minnesota Multipliasic Personality Inventory (MMPL), the California Psychological
Inventory, the Manifest Anxiety Scale, Edwards Personal Performance Schedule, etc.
Achievement tests: These are designed to measure what the applicant can do on the job
currently, i.e. whether the testee actually knows what he or she claims to know. A typing
test shows typing proficiency, a shorthand test measures the testee's ability to take
dictation and transcribe, etc. Such proficiency tests are also known as work sampling
tests. These tests are of two types; Motor, involving physical manipulation of things (e.g.
trade tests for carpenters, plumbers, electricians) or Verbal, involving problem situations
that are primarily language- oriented or people -oriented (e.g. situational tests for
supervisory jobs).
Simulation tests: Simulation exercise is a test which duplicates many of the activities
and problems an employee faces while at work. Such exercises are commonly used for
hiring managers at various levels in an organization. To assess the potential of a
candidate for managerial positions, assessment centers are commonly used.
Assessment center: An assessment centre is an extended work sample. It uses
procedures that incorporate group and individual exercises. These exercises are designed
to simulate the type of work which the candidate will be expected to do. Initially, small
batches of applicants come to the assessment center. Their performance in the situational
exercises is observed and evaluated by a team of 6 to 8 trained assessors. The assessors'
judgments on each exercise are complied and combined to have a summary rating for
each candidate being assessed.
(F) Selection Interview: Interview is the oral examination of candidates for
employment. This is the most essential step in the selection process. In this step, the
interviewer tries to obtain and synthesize information about the abilities of the
interviewee and the requirements of the job. Interview gives the recruiter an
opportunity to:
• Size up the interviewee's agreeableness;
• Ask questions that are not covered in tests;
• Obtain as much pertinent.information as possible;
• Assess subjective aspects of the candidate- facial expressions, appearance,
nervousness and so forth;

48
 • Make judgments on interviewee's enthusiasm and intelligence;
• Give facts to the candidate regarding the company, its policies, programmes, etc.
and promote goodwill towards the company.
Types of Interviews: Several types of interviews are commonly used depending on the
nature and the importance of the position to be filled within an organization.
The non- directive interview: In a non-directive interview the recruiter asks questions as
they come to mind. There is no specific format to be followed. The question can take any
direction. The interviewer asks broad, open ended questions such as 'tell me more about
what you did on your last job' - and allows the applicant to talk freely with a minimum
of interruption. Difficulties with a non-directive interview include keeping it job related
and obtaining comparable data on various applicants.
The directive or structured interview: In this kind of interview, the recruiter uses a
predetermined set of questions that are clearly job related. Since every applicant is asked
the same basic questions, comparison among applicants can be made more easily.
Structured questions improve the reliability of the interview process, eliminate biases and
errors and may even enhance the ability of a company to withstand legal challenge. On
the negative side, the whole process is somewhat mechanical, restricts the freedom of
interviewers and may even conv�y disinterest to applicants who are used to more flexible
interviews.
Informal interview: Such interview may take place anywhere. It is not planned and is
used when the staff is required urgently. A friend or relative of the employer may take a
candidate to the house of employer or manager who asks a few questions like name, birth
place, education, experience etc.
Formal interview: This type of interview is preplanned and is held in a formal
atmosphere. All the formalities and procedures, e.g. the venue, the time, the panel of
interviewers, and the ql.)estions to be asked are decided in advance.
The situational interview: One vari?-tion of the structured interview is known as
situational interview. In this approach, the applicant is confronted with a· hypothetical
incident and asked how he or she would respond to it. The applicant's response is then
evaluated relative to pre-established benchmark standards.
The behavioral interview: The behavioral interview focuses on actual work incidents in
the _applicant's past. The applicant is supposed to reveal what he or she did in a given
situation, for example, how he disciplined an employee who was smoking inside the
factory premises.
Stress interview: In stress interview, the interviewer attempts to find how applicants
would respond to aggressive, embarrassing, rude and insulting questions. The whole
exercise is meant to see whether the applicant can cope with highly stress-producing,
anxious and demanding situations while at work, in a calm and composed manner. Such
an approach may backfire also, because the typical applicant is already somewhat
anxious in any interview.
Panel interview: In a typical panel interview, the applicant meets with three to five
interviewers who take turns asking questions. After the interview, the interviewers pool

49
 their observations to arrive at a consensus about the suitability of the applicant. The panel
members can ask new and incisive questions based on their expertise and experience and
elicit deeper and more meaningful responses from candidates. Such an interview could
also limit the impact of the personal biases of any individual inte_rviewer. On the negative
side, as an applicant, a panel interview may make you feel more-stressed than usual.
Group interview: In this interview, groups rather than individuals are interviewed.
Generally a topic for discussion is given to the group. The candidates in the group are
carefully observed as to who will lead the discussion, how well they will participate in
the discussion, how each will make his presentation and how well they will react to each
other's views.
Depth interview: It is a semi- structured approach wherein details concerning one key
area are sought. It is designed to intensively examine the candidate's proficiency in his
area of special interest. The purpose is to get a true picture of the candidate through deep
probing into his mind.
Steps in interview process: An effective interview i�volves the following sequence of
steps:
1. Preparation for the interview: Advance preparation is essential for a successful
interview. It will enable the interviewer to cover all important aspects and to
remember the necessary points. The following arrangements should be made before
the interview begins:
• Determining the objectives of the interview
• Choosing the appropriate type of interview to be used.
• Acquainting oneself about the candidate
• Determining the type of information to be obtained.
• Selecting the right interviewers.
• Selecting the candidates to be interviewed by checking and comparing their
applications and test scores.
• Finalizing the interview assessment forms.
2. The physical setting: The place of interview should be both private and comfortable.
It should be neat and clean, well lighted and ventilated. It should be free from noise
and interruptions. Adequate furniture and proper seating arrangements are necessary.
The interview should staii at the fixed time and the candidates should not be required
to wait unnecessarily.
3. Conducting the interview: This step is very important in the interview process. The
activities involves in it are as follows:
(a) Establishing rapport with the candidate and gaining his confidence. Exchange of
pleasantries a smile, offering seat to the candidate, etc. will help to break the ice.
These will also help to put the candidate physical and mentally at ease.
(b) Getting complete and accurate information- For this purpose, the interviewer
should ask open-ended question, use the language which is clear to the candidate,
listen attentively and patiently.

50
 (c) Recording the observations and impressions- The:interviewer should write down
in brief his observations and impressions of the candidate on the interview
assessment forms. Such notes will indicate to the candidate the interviewer's
interest and thereby encourage him to talk freely.
4. Closing the interview: The close of the interview is as significant as its beginning.
The interview is a tiring situation for the candidate. Therefore, it should end with a
happy note without any awkward or embarrassing situation. Before closing the
interview, the candidate should be asked whether he wants to make any comment. In
order to close the interview, the interviewer may show some sign at an appropriate
time.
5. Evaluation of results: After interview is over, the interviewer should evaluate the
candidate's suitability for the job. The evaluation is based on the observations,
impressions and information collected during the interview. But weightage should be
given to the information collected through application form, tests and other steps. The
evaluation may be done either by assigning grades ranging from A to E or by
allocating marks.
Limitations/ Mistakes of foterview: Interview is a widely used method of employee
selection. But it suffers from several pitfalls, some of which are given below:
Personal bias: Interviewers like other people have personal biases. Their likes and
dislikes about hairstyle, dress, fluency of speech etc. affect their judgement.
Halo effect: Under this type of error, a single prominent characteristic of the candidate
affects the judgement of the interviewer on all other traits. For example, an interviewer
may conclude that a poorly groomed candidate is stupid or alternatively, he may overrate
the candidate's qualification just because of his pleasing personality.
Constant error: Such error arises because the interview of previous candidate unduly
influence the interviewer in favour or against the candidate, For example, a qualified
candidate may be underrated just because the previous candidate was very brilliant.
Projection: Error of projection arises when an interviewer expects his own knowledge,
skills and values in a candidate. Therefore, he is likely to select candidates who resemble
him in terms of appearance, manners, background, voice, etc.
Stereotyping: This error arises when the interviewer believes some association between
a particular type of personality and a particular trait, commercial origin or cultural
background. For example, an interviewer may be of the opinion that candidates from
areas have less hygienic habits.
Guidelines for effective interviewing: Interviews can be made more effective by
observing the following guidelines:
1. An interview should have a definite time schedule with ample time for its conduct, i.e.
it should not be hurried.
2. A personal approach should be adopted. The interviewer should develop a friendly and
cordial relationship with the candidate. Rapport may be created by pleasantly greeting
the candidate and showing active interest.

51
 3. Interview should have an element of privacy.
4. The interview should be based on a checklist of what to look for in a candidate.
5. Competent, trained and experienced persons should be chosen as interviewers.
6. Proper method of interview should be employed_.
7. A specific set of guidelines should be given to the interviewers.
8. There should be proper coordination between the initial and succeeding interviews.
9. The interviewers should listen carefully to what the applicant says and the information
collected should be recorded carefully.
10. The interviewer should try to minimize his personal bias or prejudice.
(G) Medical Examination: Certain jobs require physical qualities like clear vision, acute
hearing, unusually high stamina, tolerance of arduous working conditions, etc.
Medical examination reveals whether or not a candidate possesses these qualities.
Medical examination can give the following information:
• Whether the applicant is medically suitable for the specific job or not;
• Whether the applicant has health problems or psychological attitudes likely to
interfere with work efficiency or future attendance;
• Whether the applicant suffers from bad health which should be corrected before
he can work satisfactorily;
• Whether the applicant's physical measurements are in accordance with job
requirements or not.
(F) Reference Checks: Once the interview and medical examination of the candidate is
over, the personnel department will engage in checking references. Candidates are
required to give the names of two or three references in their application forms. These
references may be from individuals who are familiar with the candidate's academic
achievements, or from applicant's pervious employer, who is well-versed with the
applicant's job performance, and sometimes from co-workers. In case the reference
check is from the previous employer, information in the following areas may be
oqtained. They are: job title, job description, peri9d of employment, pay and
allo"Yances, gross emoluments, benefits provided, rate of absence, willingness of the
previous employer to employ the candidates again, etc.

4.9 Summary

Recruitment is the process of searching for prospective employees and encouraging them
to apply for jobs in the organization. Recruitment can be made from internal and external
sources. Selection is a negative process of choosing the most appropriate persons from
the available candidates. Selection is usually a series of hurdles or steps. Each one must
be successfully cleared before the applicant proceeds to the next. The intervievv is an
important source of information about job applicants. Several types of interviews are
used, depending on the nature and importance of the position to be filled within an
organization.

52
4.10 Test Questions

Q 1. What are the various sources of recruitment? How can an organization evaluate the
worth of these sources?
Q2. "Interviews suffer from limitation". Describe these limitations. How can interviews
be made more effective?
Q3. Distinguish between
• Recruitment and Selection
• Internal source of recruitment and external source of recruitment

4.11 Further Readings

Decenzo, D.A.-and S.P. Robbins, "Personnel/Human Resource Management",.

Prentice Hall of India, New Delhi, 2003.
Dessler," Human Resource Jvfanagement ", Prentice Hall of India, Nev1 Delhi.
French, W., "the Personnel management Process", Haughten Miffin, Boston.
Ivanecevich, John M., "Human Resource kfanagement ", McGraw Hill.
Wreather and Davis, "Human Resource 1vfanagement", Prentice Hall, New Jersey.

53
 LESSON 5
PLACEMENT, INDUCTION
Dr. Pooja Goel
Shaheed Bhagat Singh College
University ofDelhi
Objectives

After going through this unit you should be able to:

411 Define placement" and orientation

411 Understand induction tri.ining in India

411 Discuss the nature of job analysis

• · Describe the methods by which job analysis typically is completed

• Distinguish between job description and job specification

Structure

5.1 Concept of Placement

5.2 Concept of Induction

5.3 Purpose of Induction

5.4 Contents of Induction Programme

5.5 Benefits of a Formal Induction Programme

5.6 Problem Areas in Induction

5.7 How to Make Induction Effective

5.8 Induction in Indian Industry

54
Once an employee has b�en selected, he should be placed on a suitabie job. Putting the
right man at the right job i::; as important as hiring the right person. After putting the
selected candidates on proper jobs, it is necessary to make them familiar with the job, the
company and the other employees so that they feel at home and can concentrate on their
work.
5.1 Concept of Placement
Placement, in simple words, means sending the newly employed person to some
department for work. Placement should be based on the qualifications and qualities of the
person selected. It should match with the staff requirements of different departments. It is
the duty of the personnel department to send the new employee to the department and job
for which he is better suited. In addition, he should be introduced properly to the head of
that department. The placement arrangement should be ready before the joining date of
the newly selected person. The placement in the initial period may be temporary as
changes are likely after the completion of training. The employee may be later transferred
to the job where he can do better justice. If a candidate adjusts himself to the job and
continuous to perform as per expectation, it might mean that the candidate is properly
placed.
5.2 Concept of Induction
Induction or orientation is an important part of the process of socialization of a new
organizational member or employee. It covers the activities involved in introducing a
new employee to the organization and his work unit. Edwin B. Flippo has defined
induction as the welcoming process to make the new employee feel at home and generate
in him a feeling of belongingness to the organization. It is concerned with the problem of
introducing or orienting a new employee to his work-group, supervisor and the
organization. It is the beginning of the fusion process which helps integration between the
organization goals and the personal goals of the new employee. After selecting suitable
personnel, the organization must communicate to the new employees its philosophy,
policies and customs and practices. Planned induction welcomes the new employee,
creates a favorable attitude, reduces labour turnover and increases commitment and
productivity. Further, the employee feels at home right from the beginning. When a new
employee reports for work, he must be helped to get acquainted and adjusted with the
work environment and the fellow employees. It is better to give him a friP-r1dly welcome
when he joins the organization, get him introduced to the 0r.¥,-::.�;?1tioi1 and help him to
get a general idea about the rules and regulations, working conditions etc. of the
organization.
5.3 Purpose of Induction
An induction or introduction programme should try to achieve the following objectives:
I. To provide information about the organization- its structure, products, rules and
regulations, etc. to the new employees.
II. To build up the new employee's confidence in the organization and in himself so
that he may become an efficient employee.
III. To promote a feeling of belongingness and loyalty to the organization among
new-comers.

55
 IV. To ensure that the new employee may not form false impression regarding the
new place of work because first impression is the last impression.
V. To give the new entrant the information he needs such as location of k,..;ker room,
cafeteria and other facilities, time to break off, leave rules etc.
VI. To foster a close relationship between the new workers and the old workers and
supervisors.
VII. To create a sense of security for the worker in his job by impressing the idea that
fairness to the worker is the inherent policy in the organization.
VIII. To avoid cost of replacing workers who separate during the early impressionable
period because of lack of accurate information or incorrect impression about the
organization.
5.4 Contents of Induction Programme
The range of information that may be covered under orientation training is as follows:
A brief description of the early history and growth of the organizati0n and its future
potentialities. This can be made more interesting when the company's history is built
around personalities than around events.
An overview of the products and services offered by the company to meet consumer
needs. Use of sales literature, exhibits and films can also help.
I. Brief description of the organization structure, relation of new employee's
department with other departments and so on.
II. Location and layout of the company's plants, stores, departments, canteen etc.
III. Policies of the company regarding compensation, training, promotion, retirement,
insurance, etc.
IV. Statement of available programmes and activities carried out by workers, such as
recreation, mutual benefit association, credit union, etc.
V. Description of rules and regulations of the company regarding attendance,
working hours, advances, sick leave, conduct etc.
VI. Safety measures taken by the company for the protection of the workers and their
use by the workers.
VIL Grievances and disciplinary procedure and suggestion system in the company.
VIII. Information about the counseling service provided by the company to help
individuals to sort out their problems.
IX. Requirements of the particular job to which the new employee is presently
assigned as well as the job to which this may lead to in the chain of promotions.
X. Information about the training programmes carried out by the company to help the
employees learn new skills in doing their jobs.
5.5 Benefits of a Formal Induction Programme
1) It reduces new employee's anxieties and provides him an opportunity to
know about the organization and its people.
2) It helps the new employees in knowing expectations of the organization
and its executives.
3) It fosters a uniform understanding among the employees about the
company's objectives, policies, principles, strategies, and what the
company expects of its people. Orientation tells them how they and their
unit fit into the "big picture".

56
 4) It builds a positive attitudt;, towards the company and its stakeholders. First
dav is crndal because new employee remembers it for years.
5) It builds and strengthens a two-way communication channel in the
company.
6) It helps speed up socialization process by making the new employee
understand the social, technical and cultural aspects of the workplace.
7) It facilitates informal relations and team-work among the employees.
8) It reduces turnover, employee grievances, and absenteeism by making new·
employees more aware, adjusting and satisfied.

5.6 Problem Areas in Induction

An induction programme may be faced with the following problems:
1. Orientation may remain a superficial indoctrination into company philosophy,
policies and rules. Sometimes, it includes the presentation of an employee
handbook and a quick tour of the office or plant. The likely result is that the new
employee does not feel like part of the company.
2. Giving too much information in an orientation session becomes almost as much of
a problem as providing too little. If a great deal of information is given to
employees all at once, they may feel overwhelmed, overloaded, and "suffocated"
and may not retain much. Thus, providing an appropriate an appropriate amou.nt
of information becomes a real problem in orientation.
3. Orientation programme may be considered a burden by the supervisors. Even
when the personnel department has designed an elaborate orientation programme
and trained supervisors to conduct their part of it, orientation still may not be
effective. The supervisors might be more interested immediate production issues
and may see orientation as far less important than other problems they face.
4. Orientation may suffer from "Mickey mouse" assignment, i.e., small and
unimportant tasks. Sometimes, the new employee's first assignment is in the
nature of insignificant duties, perhaps intend.ed to teach the job 'from the ground
up'. Giving only menial tasks to the new employee might discourage job interest
and company loyalty in him.

5.7 How to Make Induction Effective

The following guidelines may be helpful in making orientatk,i; , ,:-::'':' effective;

1. Human side is the most important part of orientation. Therefore, first of all the
new employee should be introduced to the people with whom he will work- his
colleagues, superiors and subordinates. A tea party may be arranged for this
purpose.
2. Make the new employee aware of the general company policies that apply to him
as well as the specific work situation and requirements.
3. Administer smaller doses of information over a period of time rather than giving
everything on a single day. Orientation should be a gradual process.
4. Answer any questions and clarify any doubts that the employee may have about
the job and the organization.
5. Provide on-the-job instructions and counseling

57
 6. Keep in close touch with the new employee to oheck back how he is doing and
offer help if required.
7. Allow reasonable time to adapt to the new work environment and job demands.

5.8 Induction in Indian Industry

Induction has been one of the most neglected areas of human resource management in
Indian industries. Very little is done for systematic induction of a new employee in an
industrial unit. The newcomer is generally expected to know the enterprise through the
trial and error and stumble his way in the organization. In Indian industry, induction is
necessary particularly for rural workers, young persons and management trainees. A rural
worker joining a factory for the first time -has to adjust not only to his work environment
but also to a new social environment. When a young person above the age of 14 years
joins, the aged workers might resent, proper induction will help to develop a rapport
between the old and the new employees.. Graduates from management schools find it
difficult to adjust themselves with traditional management style in family owned
companies. Induction is required to help them adjust to a new work culture.
Thus, Induction has a greatef significance in a developing country like India, where the
percentage of illiteracy is very high. The worker finds himself completely at sea when by
force of circumstances he has to' shift from rural surroundings into an industrial unit. It is
no use trying to push a handbook of certified rules and regulations into his hands and
expecting him to tum out into a loyal and efficient employee. He needs a short and
simple induction conducted by someone who speaks his own language. This will go a
long way in reducing turnover and, above all, in preventing a worker from the likelihood
of failing a prey to subversive elements who thrive an creating labour unrest by
misrepresenting employees to illiterate employees.

58
 LESSON 6
TRAINING AND DEVELOPMENT
Dr. Pooja Goel
Shaheed Bhagat Singh College
University ofDelhi
Objectives
After going through this lesson you should be able to:
Define the terms training, development and education.
st Outline the areas and types of training.
@ List the various training methods that are currently employed.
@ Evaluate the effectiveness ,of training programmes.
Structure
6.1 Concept of Training
6.2 Importance of Training
6.3 Types of Training
6.4 Identifying Training Needs
6.5 Principles of Learning
6.6 Designing a Training Programme
6.7 Benefits of Training
6.8 Effectivenetos of Training
6.9 Essentialp of a Good Training Programme
6.10 Retraining
6.11 Summary
6.12 Test Questions
6.13 Further Readings

After the newly appointed he organization, employees have joined the next phase of the
personnel programme is to impart necessary training to them fully fit for the jobs they are
supposed to handle. Every company must have a systematic training programme for the growth
and development of its employees.
6.1 Concept Training
Training is the process of increasing the knowledge and skills for doing a particular job. It is an
organized procedure by which people learn knowledge and skills for a definite purpose. The
purpose of training is basically to bridge the gap between job requirements and present
competence of an employee. Training is aimed at improving the behaviour and performance of a
person. It is a never ending or continuous process. Training is closely related with education and
development but needs to be differentiated from these terms.
Training and Education: Training is any process by which the aptitudes, skills and abilities of
employees to perform specific jobs are increased. On the other hand, education is the process of
increasing the general knowledge and understanding of employees. Thus education is wider in
scope and more general in purpose than training. Training is job- oriented or occupational having
an immediate utilitarian objective and the major burden of training falls upon the employers.
Training is vocational whereas education is general and major burden of training falls upon the
employers. Education is person-oriented while training is job-oriented. Training is essentially
practical consisting of knowledge and skills required to perform specific tasks. On the contrary,
education is theoretical consisting of concepts aimed at stimulating analytical and creative
faculties of the individual. Education generally refers to formal instruction in a school or college,
whereas training is often imparted at the work-place. There is some education in all training and

59
in all education there is some training. The two are complementary and both involve
development of talent and human potential.
Training and Development: Employee training is distinct from management development.
Training is a short term process utilizing a systematic and organized procedure by which non
managerial personnel learn technical knowledge and skills for a definite purpose. It refers to
instructions in technical and mechanical operations like operation of a machine. It is designed
primarily for non-managers. It is for short duration and for a specific job-related purpose.
On the other hand, development is a long-term education process utilizing a systematic and
organized procedure by which managerial personnel learn conceptual and theoretical knowledge
for general purpose. It involves philosophical and theoretical educational concepts and it is
designed for managers. It involves broader education and its purpose is long-term development.
Training .involves helping an individual learn how to perform his present job satisfactorily.
Development involves preparing the individual for a future job and growth of the individual in
all respects. Development complements training because human resources can exert their full
potential only when the learning process goes far beyond simple routine.
6.2 Importance of Training
A well planned and well executed training programme can provide the following advantages:
1. Higher Productivity: Training helps to improve the level of performance. Trained
employees perform better by using better method of work. Improvements in manpower
productivity in developed nations can be attributed in no small measure to their
educational and industrial training programmes.
2. Better Quality of Work: In formal training, the best methods are standardized and
taught to employees. Uniformity of work methods and procedures helps to improve the
quality of product or service. Trained employees are less likely to make operational
mistakes.
3. Less learning period: A systematic training programme helps to reduce the time and cost
involved in learning. Employees can more quickly reach the acceptable level of
performance. They need not waste their time and efforts in learning through trial and
error.
4. Cost reduction: Trained employees make more economical use of materials and
machinery. Reduction is wastage and spoilage together with increase in productivity help
to minimize cost of operations per unit. Maintenance cost is also reduced due to fewer
machine breakdown and better handling of equipments. Plant capacity can be put to the
optimum use.
5. Reduced Supervision: Well- trained employees tend to be self- reliant and motivated.
They need less guidance and control. Therefore, supervisory burden is reduced and the
span of supervision can be enlarged.
6. Low Accident Rate: Trained personnel adopt the right work methods and make use of
the prescribed safety devices. Therefore, the frequency of accidents is reduced. Health
and safety of employees can be improved.
7. High Morale: Proper training can develop positive attitudes among employee.,. Job
satisfaction and morale are improved due to rise in the earnings and job security of
employees. Training reduces employee grievances because opportunities for internal
promotion are available to well -trained personnel.

60
 8. Personal Growth: Training enlarges the knowledge and skills of the participants.
Therefore, well - trained personnel can grow faster in their career. Training prevents
obsolescence of knowledge and skills. Trained employees are a more valuable asset to
any organisation. Training helps to develop people for promotion to higher posts and to
develop future managers.
9. Organisational Climate: A sound training programme helps to improve the climate of
an organisation. Industrial relations and discipline are improved. Therefore,
decentralization of authority and participative management can be introduced. Resistance
to change is reduced. Organisations having regular training programmes can fulfill their
future needs for personnel from internal sources. Organisational stability is enhanced
because training helps to reduce employee turnover and absenteeism.
6.3 Types of Training
Training is required for several purposes. Accordingly, training programmes may be of the
following types:
1. Orientation Training: Induction or orientation training seeks to adjust newly appointed
employees to the work environment. Every new employee needs to be made fully familiar with
the job, his superiors and subordinates and with the rules and regulations of the organisation.
Induction training creates self-confidence in the employees. It is also known as pre-job training.
It is brief informative.
2. Job Training: It refers to the training provided with a view to increase the knowledge and
skills of an employee for improving performance on-the-job. Employees may be taught the
correct methods of handling equipment and machines used in a job. Such training helps to reduce
accidents, waste and inefficiency in the performance of the job.
3. Safety Training: Training provided to minimize accidents and damage to machinery is known
as safety training. It involves instruction in the use of safety devices and in safety consciousness.
4. Promotional Training: It involves training of existing employees to enable them to perform
higher level jobs. Employees with potential are selected and they are given training before their
promotion, so that they do not find it difficult to shoulder the higher responsibilities of the new
positions to which they are promoted.
5. Refresher Training: When existing techniques become obsolete due to the development of
better techniques, employees have to be trained in the use of new methods and techniques. With
the passage of time, employees may forget some of the methods of doing work. Refresher
training is designed to revive and refresh the knowledge and to update the skills of the existing
employees. Short-term refresher courses have become popular on account of rapid changes in
technology and work methods. Refresher or re- training programmes are conducted to avoid
obsolescence of knowledge and skills.
6. Remedial Training: Such training is arranged to overcome the shortcomings in the behaviour
and performance of old employees. Some of the experienced employees might have picked up
appropriate methods and styles of working. Such employees are identified and correct work
methods and procedures are taught to them. Remedial training should be conducted by
psychological experts.
6.4 Identifying Training Needs
All training activities must be related to the specific needs of the organisation and the individual
employees. A training programme should be launched only after the training needs are assessed
clearly and specifically. The effectiveness of a training programme can be judged only with the
help of training needs identified in advance. In order to identify training needs, the gap between

61
 - .
the existing and required levels of knowledge, skills, performance and aptitudes should be
specified. The problem areas that can be resolved through training should also be identified.
Training needs can be identified through the following types of analysis:
1. Organisational Analysis: It involves a study of the entire organisation in terms of its
objectives, its resources, resource allocation and utilization, growth potential arid its
environment. The important elements that are closely examined in this connection are:
/

@ Analysis of Objectives: This is a study of short term and long term objectives and the
strategies followed at various levels to meet these objectives.
" Resource Utilization Analysis: How the various organizational resources (human,'
physical and financial) are put to use is the main focus of this study. The contributions of
various depaiiments are also examined by establishing efficiency indices for each unit.
This is done to find out comparative labour costs, whether a unit is under-manned or
over-manned.
• Environmental Scanning: Here the economic, political, socio-cultural and technological
environment of the organisation is examined.
(I Organisational Climate Analysis: The climate of an organisation speaks about the
attitudes of members towards work, company policies, supervisors, etc. Absenteeism,
turnover ratios generally reflect the prevailing employee attitudes. These can be used to
find out whether training efforts have improved the overall climate within the company
or not.
. 2. Task or Role Analysis: This is a detailed examination of a job, its components, its various
operations and conditions under which it has to be performed. The focus here is on the roles
played by an individual and the training needed to perform such roles. The whole exercise is
meant to find out how the various tasks have to be performed and what kind of skills,
knowledge, and attitudes are needed to meet the job. Questionnaire, interviews, reports, tests,
observation and other methods are generally used to collect job related information from time-to­
time.
3. Person Analysis: Here the focus is on the individual in a given job. There are three issues to
be resolved through manpower analysis. First, we try to find out whether performance is
satisfactory and training is required. Second whether the employee is capable of being trained
and the specific areas in which training is needed. Finally, we need to state whether poor
performers on the job need to be replaced by those who can do the job. Other options to training
such as modifications in the job or processes should also be looked into. Personal observation,
performance reviews, supervisory reports, diagnostic tests help in collecting the required
information and select particular training options that try to improve the performance of
individual workers. An appropriate programme that meets the company's objectives, task and
employee needs may then be introduced.
6.5 Principles of Learning
Learning has occurred when people demonstrate a difference in behaviour or ability to perform a
task. The following principles are irnportant for the development of any training programme:
1. Training must be Motivated to Learn: An employee must see a purpose in learning the
information presented and have a clear understanding of what is presented. If these two factors
are considered, there will be a greater chance of satisfaction. A good trainee perceives an
opportunity of real satisfaction from training.

62
 2. Information must be Meaningful: The training material must relate. to the purpose of the
training programme or it will stop being a motivator. Further,\the material must be presented in a
sequential manner, from the simple to the more complex. Further training should provide variety
to prevent boredom and fatigue. Materials can be presented through case studies, lectures, films,
discussions, or simulated com,puter games.
3. Learning must be Reinforced: New ideas and skills need to be practiced as soon as they
learnt. Unfortunately as humans we tend to forget 50 percent of what we learn within the first
forty-eight hours unless we recall the things learnt. Hearing a concept once does not mean we
will remember it.
4. Organisation of Material: The trainer must remember that well organized material will help
the trainees to remember the things taught to him. Presenting an overview of the material in a
logical order will help the employee understand everything. Further, the sequence can affect how
well the person can remember the material presented. The training section may prepare the
training material to be used for different jobs with the help of line supervisors. A complete
outline of the whole course should be made with the main topics included under each heading.
5. Distribution of Learning Periods: The instructor must remember that learning takes time.
And teaching in segments, over a time span, rather than all at once may be desirable. An
employee must learn, reinforce, and review. Every employee may be bombarded with facts from
other employees, the supervisor, the family, television and friends- so much so that there is a
natural "forgetting factors" to everything he hears. Therefore, many short sessions spread over a
long period, with opportunity to review, are sometimes better than two long sessions held over a
short period.
6. Feedback on Learning: People like to know how much they have learnt or how well they are
doing. The sooner employees know the results of a quiz or test, the sooner they can assess their
progress. The sooner employees receive positive feedback from the trainer, the less time they
will waste in learning;
6.6 Designing a Training Programme
In order to achieve the training objectives, an appropriate training policy is necessary. A training
policy represents the commitment of top management to employee training. It consists to rules
and procedures concerning training. A training policy is required:
• To indicate the company's intention to develop its employees.
• To guide the design and implementation of training pro&,rammes.
• To identify the critical areas where training is to be given on a priority basis; and
• To provide appropriate opportunities to employees for their own betterment.
A training programme is an integral part of human resource management. It consists of the
following inter-related steps:
Identification of Training Needs: The technological changes taking place is the main cause of
identification of the training needs in an organisation. Earlier the people were acquiring training
through apprenticeship and vocational courses, which are not sufficient in the modern era of
industrialization. It is necessary to identify the training needs because of the following reason:
• Adoption of new techniques in an organisation and introduction of modern working
methods. For example, computerization of the office as has been done in railways
bookings or airline bookings.

63
 • Poor performance by the workers is reflected by low output, lack of initiative,
_incompetence and bad decisions. This requires systematic training of the work force.
• Wide gaps between what workers should be doing and what they are doing.
• Analysis of the strength" and weaknesses of sn organisation may reveal the areas of
weaknesses which need to be ,f::-;d seriously.
More information could be obtained from the org,1nisation's human resource plan. While
preparing plans, the current skills with expected needs for future should be kept in mind and the
deficiencies be highlighted. Some orgnisations prepare 'skills- inventories' classifying
employees according to their qualifications, technical knowledge, skills, performances and
attitudes should be specified. The problem areas that can be resolved through training should
also be identified.
2. Setting Training Objectives: Once the training needs are identified, the next steps is to set
training objectives in concrete terms and to decide the methods to be adopted to achieve these
objectives. The overall aim of any training programme is to increase organizational
effectiveness. However, each training programme must also have specific objectives such as
increased productivity, improved quality, better human resource planning, better health and
safety, prevention of obsolescence and enhanced perso11al growth. These objectives contribute to
organizational effectiveness.
3. Organisation of Training Programme: Every training programme includes trainees, trainers,
a training period and training material. These constituents of training are discussed below:
(a) Selection of the trainees: The proper selection of trainees is of major importance if permanent
and gainful results are to be obtained; A trainee should be trained for the kind of job he likes and
is fitted to perform. In this respect, training is closely related to the selection of personnel.
Careful screening of candidates for training will raise the effectiveness of the training
programme. Moreover, the trainee must be given the proper background information before he
starts learning the new skills and knowledge. In case of supervisory training, it is better to
include all supervisors and other employees considered suitable for promotion to such posts.
(b) Preparation of the Instructor: The instructor or trainer is a key figure in an effective training
programme. He can contribute immeasurably to its success. Qualified instructor may be obtained
from inside or outside the organisation. Trainee needs many qualifications besides knowing how
to do the work. He must be able to divide the job into logical parts so that he may take up one
part at a time without losing his perspective of the ·whole. The trainer needs professional
expertise in order to fulfill his responsibility. An effective instructor or trainer can present the
operations involved in doing a particular job by various wa: :,.
(c ) Determination of Training Period: The length of the twining penvd ,J.-;-,,�nds upon the skill to
be acquired, the trainee's learning capacity and the training methodology used. For instance, a
simple indoctrination programme for clerks may require an hour a day over a period of one
week, while a course in computer programming may be given two hours a week for 15 weeks.
The use of effective and visual material usually helps to reduce the training time. To maintain
interest and secure maximum accomplishment, no single session should last longer than two
hours.
(d) Training Methods and Material: There arc several on- the-job and off-the-job methods of
training. The choice of any method would depend upon the specific objectives of the training
programme. To increase the effectiveness of training, some written material is usually desirable
as a basis for instruction, review and reference. A complete outline of the whole course should be
made with the main topics included under each heading. The training material should be
distributed among the trainees well in advance so that they may come prepared in the lecture

64
class and may be able to understand the subject prepared in the lecture class and may able to
understand the subject quickly and may remove their doubts by asking questions from the
instructor.
4. Evaluation of Training: Training is indispensable for both the organisation and the
individuals working therein. It is very costly and time consuming process. It is essential to
determine its effectiveness in terms of achievement of specific training objectives. Self- graded
tests and programmed learning kits provide the necessary feedback to a person on his progress
on a particular subject. Evaluation of training would provide useful information about the
effectiveness of training as well as about the design of future training programmes. It will enable
an organisation to monitor the training programme and also to modify its future programmes of
training.
6. 7 Methods of Training
A wide range of training methods and techniques have been developed over the years by various
organizations and training experts. Different training methods are suitable for different categories
of personnel in the organisation: managerial and non managerial, technical, administrative,
skilled, unskilled, senior, junior and so on. Each organisation has to choose those methods and
techniques of training which are relevant for its training needs. The various methods of training
may be classified into the following categories:
I. On- the-job training
II. Vestibule training
III. Off-the-job training

I. On the Job Training: On-the-job training is considered to be the most effoctive method
of training the operative personnel. Under this method, the worker is given training at the
work place by his immediate supervisor. In other words, the worker learns in the actual
work environment. It is based on the principle of 'learning by doing'. The following
methods of on-the-job training are described below:
a) Job Instruction Training(JIT): The JIT method is a four-step instructional
process involving preparation, presentation, perfonnance try out and follow up. It
is used primarily to teach workers how to do their current jobs. A trainer,
supervisor or co-worker acts as the coach. The four steps followed in the JIT
methods are:
• The trainee receives an overview of the job, its purpose and its desired outcomes,
with a clear focus on.the relevance of training.
• The trainer demonstrates the job in order to give the employee a model to copy.
The trainer shows a right way to handle the job.
,. • Next, the employee is permitted to copy the trainer's way. Demonstration by the
trainer and practice by the trainee are repeated until· the trainee masters the right
way to handle the job.
• Finally, the employee does the job independently without supervision.
b) Coaching: Coaching is a kind of daily training and feedback given to employees
by immediate supervisors. It involves a continuous process of learning by doing.
It may be defined as informal, unplanned training and development activity
provided by supervisors and peers. In coaching, the supervisor explains things and

65
 answer questions; he throws light on why things are done the way they are; he
offers a mode1 for trainees to copy; conducts lot of decision making meetings with
trainees; procedures are agreed upon and the trainee is given enough authority to
make di',risions and even commit mistakes. Of course, coaching can be a taxing
job in that thf.' coach may not possess requisite skills to guide the learner in a
systematic way. Somet:imes, doing a full day's work may be more important than
putting the learner on track.
c) Mentoring/ Understudy: Mentoring is a relationship in which a senior manager
in an organisation assumes the responsibility for grooming a junior person.
Technical, interpersonal and political skills are generally conveyed in such a
relationship from the more experienced person. A mentor is a teacher, spouse,
counselor, developer of skills and intellect, host, guide, supporter and facilitator in
the realization of the vision the young person has about the kind of life he wants
as an adult. The main objective of mentoring is to help an employee attain
psychological maturity and effectiveness and get integrated with the organisation.
In a work situation, such mentoring can take place at both formal and informal
levels, depending on the prevailing work culture and the commitment from the
top management. Formal mentoring can be very fruitful, if management invests
time and money in such relationship bundling exercises.
d) Job Rotation: This kind of training involves the ,movement of trainee from one
job to another. This helps him to have a general understanding of how the
organisation functions. The purpose of job rotation is to provide trainees with a
larger organizational perspective and a greater understanding of different
functional areas as well as a better sense of their own career objectives and
interests. Apart from relieving boredom, job rotation allows trainees to build
rapport with a wide range of individuals within the organisation, facilitating future
cooperation among departments. The. cross-trained personnel offers a great
· amount of flexibility for organizations when transfers, promotions or
replacements become inevitable. Job rotation may pose several problems,
especially when the trainees are rolled on various jobs at frequent intervals. In
such a case, trainees do not usually stay long enough in any single phase of the
operation to develop a high degree of expertise. For slow learners, there is little
room to integrate resources properly. Trainees can become confused when they
are exposed to rotating managers, with contrasting styles of operation. To get the
best results out of the system, it should be tailored to the needs, interests and
capabilities of the individual trainee, and not be a standard sequence that all
trainees undergo,
e) Apprenticeship Training: Most craft workers such as plumbers and carpenters
are trained through formal apprenticeship programmes. Apprentices are trainees
who spend a prescribed amount of time working with an experienced guide, coach
or trainer. Assistantships and internships are similar to apprenticeships because
they also demand high levels of participation from the trainee. An internship is a
kind of on-the-job training that usually combines job training with classroom
instruction in trade schools, colleges or universities. One important disadvantage
of the apprenticeship methods is the uniform period of training offered to trainees.
People have different abilities and learn at varied rates. Those who learnt fast may
quit the programme in frustration. Slow learners may need additional training
time.

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 f) Committee Assignments: In this method, trainees are asked to solve an actual
organizational problem. The trainees h;ive to work together and offer solution to
the problem. Assigning talented employees to important committees can give
these employees a broadening experience and can help them to understand the
personalities, issues and processes governing the o·rganisation. It helps them to
develop team spirit and work unitedly towards common goals. However,
managers should very well understand that committee assignments could become
notorious time wasting activities.
The above on-the-job methods are cost effective. Workers actually produce while they learn.
Since immediate feedback is available, they motivate trainees to observe and learn the right way
of doing things. Very few problems arise in the case of transfer of training because the
employees learn in the actual work environment where the skills that are learnt are actually used.
On-the-job methods may cause disruption in production schedules. Experienced workers cannot
use the facilities that are used in training. Poor learners may damage machinery and equipment.
Finally, if the trainer does not possess teaching skills, there is very little benefit to the trainee.
II Vestibule Training: The term 'Vestibule training' is used to designate training in a class­
room for semi-skilled jobs. It is more suitable where a large number of employees must be
trained at the same time for the same kind of work. Where this method is used, there should be
well qualified instructors in charge of training programme. Here the emphasis tends to be on
learning rather than production. It is frequently used to train clerks, machine operators, typists,
etc.
Vestibule training is adapted to the general type of training problem that is faced by on-the­
job training. An attempt is made to duplicate, as nearly as possible, the materials, equipments
and conditions found in the real work- place. The human resource department makes
arrangements for vestibule training when the training work exceeds the capacity of the line
supervisors. Thus, in vestibule training, the workers are trained on specific jobs as they would be
expected to perform at their work place.
Vestibule training is particularly suitable where it is not advisable to put the burden of
training on line supervisors and where special kind of learning is required. The trainers include
expert and specialist instructors. The trainees avoid confusion and pressure of the work place and
are thus able to concentrate on training. Their activities do not interfere with the regular
processes of production. Moreover, the trainees get an opportunity to become accustomed to the
work routine and recover from their initial nervousness before going on to their work place.
III Off the Job Training: It requires the worker to undergo training for a specific period away
from the work-place. Off- the-job methods are concerned with both knowledge and skills in
doing certain jobs. The workers are free of tension of work when they are learning.
There are several off-the-job methods of training and development as described below:
a) Role Playing: It is defined as a method of human interaction that involves realistic behavior
in imaginary situations. This method of training involves action, doing and practice. The
participants play the role of certain character, such as the production manager, mechanical
engineer, superintendents, maintenance engineers, quality control inspectors, foreman, workers
and the like. The method is mostly used for developing interpersonal interactions and relations.
b) Special Lecture cum Discussion: Training through special lectures is also known as 'class­
room training'. It is more associated with imparting knowledge than with skills. The special
lectures may be delivered by some executives of the organisation or specialists from vocational
and professional institutes. Many firms also follow the practice of inviting experts for special
lectures for the staff on matters like health, safety, productivity, quality, etc. The lecture method

67
can be used for providing instructions to large groups. Thus, the cost per trainee is low.
However, it has certain limitations also. The learners may be passive. It violates the principle of
learning by doing and constitutes one-way communication.
c) Conference Training: A conference is a group meeting conducted according to an organized
plan in which the members seek to develop knowledge and understanding by oral participation.
It is an effective training device for persons in the position of both conference member and
conference leader. As a member, a person can learn from others by comparing his opinions with
those of others. The literal meaning of conference is 'consultation'. But in practice, conference
implies sharing some information with an audience of a large number of people. It is conducted
in a big hall where the participants are allowed to exchange their views and raise queries. These
days video conferencing is also gaining popularity under which people can participate ... in the
conference.
d) Programmed Instruction: This method has become popular in recent years. The subject­
matter to be learned is presented in a series of carefully planned sequential units. These units are
arranged from simple to more complex levels of instruction. The trainee goes through these units
by answering questions or filling the blanks. This method is, thus, expensive and time­
consuming.
c) Case Study: The case method is a means of simulating experience in the classroom. Under
this method, the trainees are given a problem or case which is more or less related to the
concepts and principles already taught. They analyse the problem and suggest solutions which
are discussed in the class. The instructor helps them reach a common solution to the problem.
This method gives the trainee an opportunity to apply his knowledge to the solution of realistic
problems. Cases may be used in either of the two ways. Firstly, they can be used subsequent to
the expansion of formal theory under which the trainees apply their knowledge of theory to
specific situations. Secondly, the trainees may be assigned the cases for written analysis and oral
discussion in the class without any prior explanation of pertinent concepts and theory. The case
study places heavy demands upon the trainees and requires that they should have a good deal of
maturity in the subject-matter concerned.
6.8 Benefits Tra,ining
Training is useful to both employers and employees in the following ways:
(a) Benefits of training t o Employers:
1. Higher Productivity: Trained employees perform better by using better method of work.
2. Better Quality of Work: Trained employees are less likely to make operational mistakes.
Uniformity of work methods and procedures helps to improve the quality of product/service.
�
3. Cost Red;_H.•tiun: Trained employees make more economical use of materials and machinery.
Reduction ir. wastagt?/ spoilage together with increase in productivity helps to minimize cost of
operations per unit.
4. Reduced Supervision: Supervisory cost is reduced as well-trained employees tend to become
self reliant and motivated.
5. Lovv Accident Rate: Trained employees adopt the right work methods and make use of the
safety clev1ces, Therefore, the frequency of accidents gets reduced.
(b) training to Employees:
1. Training helps to improve the self-confidence of an employee. It enables him
to approach and perform his job with enthusiasm.
2. Higher Earnings: Trained employees can perform better and thereby earn more.

68
3. Safety: Training helps n employee to use various safety devices. He can handle the machines
safely and becomes less prone to accidents.
4. Adaptability: Training enables an employee to adapt to changes in work procedures and
methods.
5. Promotion: Through training, employee can develop himself and earn quick promotions.
6. New Skills: Training develops new knowledge and skills among employees. The new skills
are a valuable asset of an employee and remain permanently with him.
6.9 Effectiveness of Training
Training effectiveness is the degree to which trainees are able to learn and apply the knowledge
and skills acquired during the programme. It is influenced by the attitudes, interests, values and
expectations of the trainees and the training environment. A training programme is likely to be
more effective when the trainees want to learn, are involved in their jobs and have career plans.
Contents of training programme, and the ability of trainers also determine training effectiveness
to a certain extent. The following criteria may be used to measure the effectiveness of training:
1. Reactions: Trainees' reaction to the objectives, contents and methods of training are good
indicators of effectiveness. In case the trainees considered the programme worthwhile and liked
...
it, the training can be considered effective.
2.Learning: The extent to which the trainees have gained the desired knowiedge and skills
during the training period is a useful basis of evaluating training effectiveness.
3. Behaviour: Improvements in the job behaviour of the trainees reflects the manner and extent
to which the learning has been put to practice.
4. Results: Productivity improvements, quality improvements, cost reduction, accident
reduction, reduction in labour tumover and absenteeism are the outcomes of training which can
be used for evaluating effectiveness.
6..10 Essentials of a Good Training Programme
Training is an important tool of management capable of making significant contribution to the
goals of the organisation. Training tends to improve the performance of employees by narrowing
the gap between expectations and achievements. Because of its significant role, it is essential to
have an effective training programme in the enterprise. An effective training programme should
possess the following characteristics:
a) The contents of training programme should be chalked out after identifying the training ·
needs or goals. It should have relevance to the job requirements.
b) An effective training programme should be flexible. It should make due allowance for
the differences among the individuals as regards ability, aptitude, learning capacity,
emotional make-up, etc.
c) A good training programme should prepare the trainees mentally before they are
imparted any job knowledge or skill.
d) An effective training programme should be conducted by well qualified and
experienced trainers.
e) An effective training programme should emphasize both theory and practice. It should
help in acquiring knowledge and its· application.

69
 i) An effective training programme should have the top management's support. The top
management can greatly influence the quality of training in the organisation by the
policies it adopts and the extent to which it supports the training programme.
g) An effective training programme should be supported by a system of critical appraisal
of the outcome of the training efforts.
6.11 Retraining
Retraining is the process of providing training to persons who underwent training earlier in their
job. Retraining programme are generally arranged for employees who have long been in the
service of an organisation. Such programmes are designed to avoid obsolescence of a person in
terms ofjob requirements. Retraining is required on account of the following factors:
I. Some employees concentrate on a narrow task and lack all-round knowledge and skills,
Training is required to widen their knowledge and attitudes.
II. Employees who are called back to work after layoff are given training so as to handle
highly skilled jobs.
III. Due to technological changes some jobs may become unnecessary. Employees working
on such jobs are retrained for other jobs.
IV. Retraining is necessary to develop a versatile workforce capable of performing more than
one job.
V. Retraining becomes necessary when the knowledge and skills of employees become
obsolete due to rapid changes in technology. With automation and computerization, new
skills become necessary.
VI. Due to changes in demand for goods and services, some new jobs are created. Retraining
of existing staff is needed to handle new jobs.
Retraining may be required at all levels. But it is more common for rank and file workers. This is
so because technological changes make an immediate impact on these people. Moreover, they
are less equipped to forsee their personal needs and, therefore, require greater assistance than
others. Workers need refresher courses to help them recall what they have forgotten. They
require retraining when work tools and methods change due to technological progress.
6.12 Summary
Training is a planned programme designed to improve performance and to bring about
measurable changes in knowledge, skills, attitude and social behaviour of employees. Training
makes employees versatile, mobile, flexible and useful to the organization. Development is
future-oriented training, focusing on the personal growth of the employee. Learning principles
are the guidelines to the way people learn most effectively. More effective training incorporates
more of these principles. The various types of training include: skill training, refresher training,
diversity training, and literacy training. In order to have effective training programmes, the
systems approach is recommended. The systems approach consists of three phases: need
assessment, implementation and evaluation. Formal training methods include (i) on the job
training covering job instruction training, coaching, mentoring, job rotation, apprenticeship
training, committee assignments and (ii) off the job training includes lectures, conferences,
simulation exercises and programmed instructions. Training can be evaluated at five levels:
reaction, learning, behaviour, organization and result.

70
6.13 Test Questions
Q1. What are the reasons for the growing usage of external training in present-day
organizations?
Q2. What do you mean by 'training'? Distinguish between training, development and education.
Q3. Explain the various methods of training?
Q4. Explain whether and how the effectiveness of training programmes can be evaluated.

6.14 Further Readings

Chhadha, T.N., "Human Resource Management", Dhanpat Rai & Co , Delhi, 2004.
Gupta, C.B., "Human Resource Management", Sultan Chand & Co., Delhi. 2002.
Dwivedi, R.S., "Personnel Management", Oxford & I.B.H., New Delhi, 2001.
Singh, B.P., "Personnel Management & Industrial Relaiions ", Dhanpat Rai & Co.,Delhi, 2003.

71
 Unit III
Lesson 7
Performance Appraisal
Dr. Pooja Goel
Shaheed Bhagat Singh College
University ofDelhi
Objectives
After going through this lesson ·you should be able to:
• Define performance appraised and explain its feature.
• Elaborate the steps in, conducting an appraisal interview and offering the feedback in a
constructive manner.
• Explain the 360-degree feedback systems.
• State the essential features of an effective appraisal system.
Structure
7.1 Concept of Performance Appraisal
7.2 Objectives of Performance Appraisal
7.3 Who Will Appraise?
7.4 Performance Appraisal Process
7.5 Methods or Techniques of Performance Appraisal
7.6 Problems with Performance Appraisal
7.7 Essential Characteristics of an Effective Appraisal System
7.8 Summary
7.9 Test Questions
7.10 Further Readings

After an employee has been selected for a job, has been trainrd to ·:':1 it and has worked on it for
a period of time, his performance should be evaluatec!. ""'"''"r.,•= evaluation or Appraisal is
the process of deciding how employees do their here refers to the degree of
accomplishment of the tasks that make up an individual's job. H indicates how well an individual
is fulfilling the job requirements. Often the term is confused v1ith efforts, which mearis energy
expended and used in a wrong sense. Performance is always measured in terms of results.

7.1 Concept of Performance Appraisal

Performance appraisal is a method of evaluating the behaviour of employees in the workspot,

normally including both the quantitative and qualitative aspects of job performance. It is a
systematic and objective way of evaluating both work-related behaviour and potential of
employees. It is a process that involves determining and communicating to an employee how he
or she is performing the job and ideally, establishing a plan of improvement. The main
characteristics of performance appraisal may be listed thus:
I. The appraised is a systematic process involving three steps:
a. Setting work standards.
b. Assessing employee's actual performance relative to these standards.
c. Offering feedback to the employees so that he can eliminate deficiencies and
improve performance in course of time.

IL It tries to find out how well the employee is performing the job and tries to establish a
plan for further improvement.

72
 HI. The appraisal is carried out periodically, according to a definite plan. lt is certainly not a
one shot deal.
IV. Performance appraisal is not a past-oriented activity, with the intention of putting poor
performers in a spot. Rather, it is a future oriented activity showing employees where
things have gone wrong, hmv to set everything in order, and deiiver results using their
potentiai i.n a proper way,
V. Performance appraisal is not job evaluation; Performance appralsal refers to how well
someone is doing an assigned job. Job evaluation, on the other hand, determines how
much a job is worth to the organisation and therefore, ·what range of pay should be
assigned to the job.
VI. Performance appraisal is not limited to 'calling the fou!s'. Its. focus is on empioyee
development. It forces managers to become coaches rather than judges. The appraisal
process prcvides an opportunity to identify issues for discussion, e1iminate any potential
problems, and set new goals for achieving high performanc-e.
VIL Performance appraisal may be formal or informal. The informal evaluation is more likely
to be subjective and influenced by personal factors. Some employees are liked better than
others and have, for that reason only, better chances of receiving vurinus kinds of rewards
than others. The formal system is likely to be more fair and objective, since it is carried
out in a systematic n-iarmer, using printed appraisal f.)rms.

7.2 Objectives of Perfonnance Apprnis:d

Performance appraisal could be taken either for evaluating the performance of employees or for
developing them. The evaluation is of t,vo type2: td!ing the employees whe::-;:: he stands and
using the data for JJersona] decisi0ns c0ncerning pay ) prc;r1otions� �tc. d��le!opmenta!
objectives focus on finding individual and orgt·mizational stre;1gths and weaknesses; developing
healthy superior -subordinate relations; offering apprcpdai:': counsefrng /coaching i.O the
emplo ee with a viei,v tc develop his otential ir: fmurn. Apprni.sal d ernpl.oyees serves usefol
y p
purposes such as:
® Compensation Dceish:ms: It can S{T/e as a basis for pay raisc,s. t-v1m1ager:, and
performance appraisal to identify ernployees whG '1re performing at '.:>r above cxprcted
levels. This approach to compensation is at the hem1 of idea that rai:,es :::h0uld be
given for merit rather than for seniority. Under merit system, ernpkyee rmses
based on performance.
e Promotion Decisions: It can serve as a useful basis for job di.:.nge or promotion. 'Vhen
merit is the basis for reward, the person doing the best job receives frit promotion, 1f
relevant work aspects are· measured properly, it helps in minimizing feelings of
frustration of those who are not promoted.
0 Training and Development Programnw: It can serve as a gmcte formulating a
g p pp
suitable trainin and development rogramnie. Performance a rais:1l can inform
employees about their progress and te!l th,;m what skins they need to develop to become
eligible for pay raises or promotions or both.
$ .Feedback: Perform::mce appraisal enables the employee to know hov,, well he is doing on
the job, It tells him what he can do to irnprove I·1is present pcrformp.nGe and 30 up the
'organisational ladder'.
@ Personal Development: Performance appraisal can help reveal the causes of' good ;l.n.d
poor employee performance, Through discussions with individual employees, a line
manager can find out why they perform as they do and what steps can be initiated their
performance.

73
 7.3 Who '\,VHI Appraise?
The appraiser may be any person who has therough imowledge about the job content, contents to
be appraised, standards of contents and who observes the employee while performing a job. The
appraiser should be capable of determining what is more important and what is relatively less
important. He should prepare reports and rhake judgements without bias. Typical appraiser are:
supervisors, peers, subordinates, employees themselves and users of services and consultants.
• Supervisors: Supervisors include superiors of the empioyee, other superiors having
knowledge about the work of the employee and departmental head or manager. The
general practice is that immediate superiors appraise the performance, which in tum, is
reviewed by the departmental head/manager. This is because supervisors are responsible
for managing their subordinates and they have the opportunity to observe, direct and
control the subordinates continuously. Moreover, they are accountable for the successful
performance of their subordinates. Sometimes other supervisors, who have close contact
with an employee's work also appraise with a view to provide additional information. On
the negative side, immediate supervisors may emphasis certain aspects cf employee
performance to the neglect of others. Aiso, managers have been known to manipulate
evaluations to justify their decisions on pay increases and promotions.
• Peers: Peer appraisal may be reliable if the work group is stable over a reasonably long
period of time and performs tasks that require interaction. However, little research has
been conducted to determine how peers establish standards for evaluating others or the
overall effect of peer appraisal on the group's attitude. Whatever research was done on
this topic was mostly done on military personnel at the management er pre-management
level rather than on employees in business organizations.
• Subordinates: This concept of having superiors rated by subordinatc;s is being used in
most organizations today, especially in developed countries. ;nstance, in most US
universities, students evaluate a professor's performance in the cla::sroom. Such a novel
method can be useful in other organizational ·settings too, the relationships
between superiors and subordinates are cordial. Subcrdinatet;' in such cases can
be quite useful in identifying competent superior::.
• Self- appraisal: If individuals understand the objectives they arc expected to achieve and
the standards by which they are to be evaluated, they arc to a great extent, in the hest
position to appraise their own performance. Aiso, since employee development means
self-development, employees who appraise their own performance may become highly
motivated.
• User's of Services: Employees' performance in service organizations relating to
behaviours, promptness, speed in doing the job and accuracy can be better judged by the
customers or users of services. For example, a teacher's performance is better judged by
students and the performance of a conductor of a bus is better judged by passengers.
• Consultants: Sometimes, consultants may be engaged for appraisal when employees or
employers do not trust the supervisory appraisal and management does not trust the self­
appraisal or peer appraisal or subordinate appraisal. In this situation, consultants are
trained and they the self-appraisal or peer appraisal or subordinate appraisal. In this
situation, consultants are trained and they observe the employees at work for sufficiently
long periods for the purpose of appraisal. ..

7.4 Performance Appraisal Process

The performance appraisal process foHows a set pattern and it consists of the following steps:
1. Establishing Performance Standards: The appraisal process begin with the setting up of
criteria to be used for appraising the performance of employees. The criteria are specified with

74
the help of job analysis ·which reveals the contents of a job. The criteria should be clear,
objective and in writing. It should be discussed with the supervisors to ensure that all the relevant
factors have been included. Where the output can be measured the criteria is clean. If work
performance cannot be measured, the personal characteristics which contribute to employee
performance must be determined. These characteristics include 'Nork quality, honesty, and
reliability, cooperation and team-work, job knowledge, initiative, leadership, safety
consiousness, attendance, learning ability, adaptability, judgment, sense of responsibility.
Appraisal forms should be carefully designed and printed. In fact, performance standards will
depend upon the objectives of the appraisal, i.e. to appraise actual performance on the present job
or in judge potential for higher jobs.
2. Communicating the Standards: The performance standards specified in the first step are
communicated and explained to the employees so that they come to know what is expected of
them. The standards should be conveyed to the evaluators. The reactions of employees to the
standards should be obtained. If necessary the standards may be revised or modified in the light
of feedback obtained from the employees and the evaluators.
3. Measuring Performailce: Once the performance standards are specified and accepted, the
next stage is the measurement of actual performance. This requires factors influencing
performance and collecting information on resuits achieved. Personal observations, written
reports and face-to-face contacts are the means of collecting data on ;Jerformance. The
performance of different employees should be so measured that it is comparable. What is
measured is more important than how it is measured.
4. Comparing the Actual with the Standards: Actual perfonrn:mce is compared with the
predetermined performance standards. Such comparison ·Nin reveal the deviations whkh may be
positive or negative. Positive devic1.tions occur ,vhen the actual performance exceeds the
standards. On the other hand, excess of standards perfo,·,mmcc over the actual pcrfpnmmce
represents negative deviation.
5. Discussing the Appraisal: The results of the apprais:'il are cc,rnrmmicated ti..i and discussed
with the employees. Along with the deviations, the re?ssons behind them arc ab;•J analysed rrnd
discussed. Such discussion \Vill enabie an employee to know his ,-veaknesses and strengths.
Therefore, he will be motivated to improve himself. 1'he impression the subordinate received
about his performance has an impact on his subsequent performance. The impact may be positive
or negative depending how the appraisal feedback is presented and discussed with the employee.
6. Taking Correctiye Action: Through mutual discussions with employees, the steps requirerl to
improve performance are identified and iniiiated. Training, coachiHg, counselmg, etc. are
examples of corrective actions that help to improve performance.

7.5 Methods or Tcdmiques of Performm1cc Appraisal

Several methods and techniques are used for evaluating employee performance. They may be
classified into two broad categories namely traditional methods and mqdern methods.
(A) Traditional Methods: It includes the following rnethods:
l. Confidential Report: This is a traditional form of appraisal used in most government
organizations. A confidential report is a report prepared by the employee's immediate
superior. It covers the strengths and weaknesses, main achievernents and failure,
personality and behaviour of the employee. rt is descriptive apprnisal used for promotions
and transfers of employees. But it involves a lot of subjectivity bee.a.use rippraisal is based
on impressions rather than on data. No feedback is provided to the employee being
appraised and, therefore its credibility is very low. The method focuses on evaluating
rather than developing the employee. The employee •Nho is appraised never knows his
weaknesses and the opportunities available for overcoming them.

75
 2. Essay Evaluation: Under this.method; the rater is asked to express the strong as well as
weak points of the employee's behaviour. This technique is normally used with, a,
combination of the graphic. rating scale because the rater can elaborately present the scale
by substantiating an explahation for his rating. While preparing the essay on the
employee, the rater considers the following factors: (i) Job knowledge and potential of
the employee; (ii) Employee's understanding of the company's programmes, policies,
objectives, etc.; (iii) The employee's relations with co-workers and superiors; (iv) The
employee's general planning, organizing and controlling ability; (v) The attitudes and
perceptions of the employee, in general.
Essay evaluation is a non-quantitative technique. This method is advantageous in at least one
sense, i.e. the essay provides a good deal of information about the employee and also reveals
more about the evaluator. The essay evaluation method however, suffers from the following
limitations:
It is highly subjective; the supervisor may write a biased essay. The employees who are
sycophants will be evaluated more favorably than other employees.
Some evaluators may be poor in writing essays on employee performance. Others may be
superficial in explanation and use flowery language which may not reflect the actual
performance of the employee. It is very difficult to find effective writers now-a-days.
The appraiser is required to find time to prepare the essay. A busy appraiser may write the
essay hurriedly without properly assessing the actual performance of the worker. On the
other hand, appraiser takes a long time; this becomes uneconomical from the view point of
the firm, because the time of the evaluator is costly.
3. Critical Incident Technique: Under this method, the manager prepares lists of
statements of every effective and ineffective behaviour of an employee. These critical
incidents or events represent the outstanding or poor behaviour of employees on the job.
The manager maintains logs on each employee, whereby he periodically records critical
incidents of the workers' behaviour. At the end of the rating period, these recorded
critical incidents are used in the evaluation of the workers' performance. This method
provides an objective basis for conducting a thorough discussion of an employee's
performance. This method avoids recently bias. This method suffers, however, from the
following limitations:
e Negative incidents may be more noticeable than positive incidents.
• The supervisors have a tendency to unload a series of complaints about incidents
during an annual performance review session.
� It results in very close supervision which may not be linked by the empioyee.
• The recording of incidents may be a chore for the manager concerned, who may
be too busy or forget to do it.
Most frequently, the critical incidents method is applied to evaluate the performance of
superiors.
4. Checklist and ....�.. n,,u Checklists: Another simple type of individual evaluation
method is the checklist. A checklist represents, in its simplest form, a set of objectives or
descriptive statements �bout the employee and his behaviour. If the rater be'lieves
strongly that the employee possesses a particular listed trait, he checks the item;
otherwise, he leaves the item blank. A more recent variation of the checklist method is
the weighted list. Under this, the value of each question may be weighted equally or
certain questions may be weighted more heavily than others. The following are some of
the sample questions in the checklist.
$ Is the employee really interested in the task assigned? Yes/No
• Is he respected by his colleagues(co-workers) Yes/No
$ Docs he follow instructions properly? Yes/No

76
 • Does he make mistakes frequently? Yes/No
A rating score from the checklist helps the manager in evaluation of the performance of the
employee. The checklist method has a serious limitation. The rater may be biased in
distinguishing the positive and negative questions. He may assign biased weights to the
questions. Another !imitation could be that this method is expensive and time consumiQg.
Finally, it becomes difficult for the managers to assemble, analyse and weigh a number of
statements about the employee's characteristics, contributions and behaviours.
5. Graphic Rating Scale: Under this method, a printed form is used to evaluate the
performance of an employee. A variety of traits may be used in these types of rating
devices, the most common being the quantity and quality of work. The rating scales can
also be adapted by including traits that the company considers important for effectiveness
on the job. From the graphic rating scales, excerpts can be obtained about the
performance standards of employees. For instance, if the employee has serious gaps in
technical-professional knowledge; lacks the knowledge to bring about an increase in
productivity; is reluctant to make decisions on his own; declines to accept responsibility;
fails to plan ahead effectively; wastes and misuses resources; etc. then it can safely be
inferred that the standards of perfomrnnce of the employee are dismal and disappointing.
· The rating scale is the most common method of evaluation of an employee's performance
today. One positive point in favor of the rating scale is that it is easy to understand, easy
to use and permits a statistical tabulation of scores of employees. When ratings are
objectives in nature, they can be effectively used as evaluators. The graphic rating scale
may, however, suffer from a long standing disadvantage, i.e. it may be arbitrary and the
rating may be subjective. Another pitfall is that each characteristic is equally important in
evaluation of the employee's performance and so on.
6. Forced Choice Method: This method was developed to eliminate bias and the
preponderance of high ratings that might occur in some organizations. The primary
purpose of the forced choice method is to correct the tendency of a rater to give
consistently high or low ratings to all the employees. This method makes use of several
sets of pair phrases, two of which may be positive and two negative and the rater is asked
to indicate which of the four phrases is the most and least descriptive of a particular
worker. The following box is a classic illustration of the forced choice items in
organizations.

Forced Choice Items

l. Least Most
A Does not anticipate difficulties A
B Grasps explanations easily and quic.kly B
C Does not waste time C
D Very easy to talk to D
2. Least Most
A Can be a leader A
B Wastes time on unproductive things B
C At all times, cool and calm C
D Smart ,.vorker D

The favorable qualities earn a p!us credit and the unfavorable ones earn the reverse. The worker
gets an overall plus rating, when the positive factors override the negative ones or when one of
the negative phrases is checked as being insignificantly rated. The overall objectivity is increased
by using this method in evaluation of employee's performance, because the rater does not know

77
 how high or low he is evaluating the individual as he no access to the scoring key. This method,
however, has a strong limitation. In the preparation of sets of phrases trained technicians are
needed and as such the· method becomes very expensive. Further managers may feel frustrated
rating the employees 'in the dark'. Finally, the results of the forced choice method may not be
useful for training employees because the rater himself does not YJ1ow how he is evaluating the
worker. In spite of these limitations, the forced choice technique is quite popular.
7. Straight Ranking Method: This is a relatively easy methQd of performance evaluation.
Under this method, the ranking of an employee in a y.,ork group is done against that of another
employee. The relative position of each employee is expressed in terms of his numerical rank. It
may also be done by ranking a person on his job performance against another member of the
competitive group. The quintessence of this method is that employees are ranked according to
their relative levels of performance. While using this method, the evaluator is asked to rate
employees from highest to lowest on some overall criterion. Though it is relatively easier to rank
the best and the worst employees, it is very difficult to rank the average employees. Generally,
evaluators pick the top and bottom employees first and then ·select the next highest and next
lowest and move towards the average emp1oyees. The longstanding limitations of this method
are:
• The 'whole man' is compared with another 'whole man' in this method. In practice, it is
very difficult to compare individuals possessing varied behavioural traits.
� This method speaks only of th.e position where an employee stands in his group. It does
not teH anything about how much better or how much worse an employee is when
compared to another ei;::nployee.
• When a large number of employees are working, ranking of individuals becomes a
vexmg issue.
e There is no systematic procedure for ranking individuals in the organisation. The ranking
system does not eliminate the possibility of snap judgements. .,
In order to overcome the above limitations, a paired comparison technique has been advanced by
organizational scholars.
8. Paired Comparison Method: Ranking becomes more reliable and easier under the paired
comparison method. Each worker is compared with all other employees in the group; for every
trait, the worker is compared with aH other employees. For instance, when there are five
employees to be compared, then A's performance is compared with that of B's and decision is
arrived at as to whose is better or worse. Next, B is also compared with all others. Since A is
already compared with B, this time B is to be compared with only C, D and E. By this method,
when there are five employees, fifteen decisions are made. The number of decisions to be made
can be determined with the help of the formulae n(n-2). Ranking the employees by the paired
comparison method may be Hlustrated as below:

As compared to A B C D E
A + +
B + +
C + +
n +
E + + +

For several individual traits, paired comparisons are made, tabulated and then rank is assigned to
each worker.. Though this method seems to be logical, it is not applicable when a group is large.
When the group becomes too large, the number of comparisons to be made may become

78
 frighteningly excessive. For instance, when n = 100, comparisons to be made are 100(100-2) =
I 00(98) = 9800.
9. Group Appraisal Method: In this method, an employee is appraised by a group of appraiser.
This group consists of the immediate supervisor of the employee, other supervisors who have
close contact with the employee's work, manager or head of the department and consultants. The
head of the department or manager may be the Chairman of the group and the immediate
supervisor may act as the coordinator for the group activities. This group uses any one of
multiple techniques discussed earlier. The immediate supervisor enlightens other members about
. the job characteristics, demands, standards of performance, etc. Then the group appraise the
performance of the employee, compares the actual performance with standards, finds out the
deviations, discusses the reason thereof, suggests ways for improvement of performance,
prepares an action plan, studies the need for change in the job analysis and standards and
recommends changes, if necessary. This method eliminates 'personal bias' to a large extent, as
performance is evaluated by multiple raters. But it is very time consuming process.
10. Field Review Method: Wheri subjective performance measures are used, there is scope for
rater's biases influencing the"evaluation process. To _avoid this, some employees use the field
review method. In this method, a trained, skilled representative of the HR department goes into
the 'field' and assists line supervisors with their ratings of their respective subordinates. The HR
specialist requests. from the immediate supervisor specific information about the employees
performance. Based on this information, the expert prepares a report which is sent to the
supervisor for review, changes, approval and discussion with the employee who is being rated.
The ratings are done on standardized forms.
(B) Modem Methods: It includes the following methods:
1. Assessment Center Method: An assessment centre is a group of employees drawn from
different work units. These employees work together on an assignment similar to the one they
would be handling when promoted. Evaluators observe and rank the performance of all the
participants. Experienced managers with proven ability serve as evaluator. This group evaluates
,all employees both individually and collectively by using simulation technique like role playing,
business games and in basket exercises. Employees are evaluated on job-related characteristics
considered important for job success. The evaluators observe and evaluate employees as they
perform job. Assessments are done generally to determine employee potential for promotion.
The evaluators prepare a summary report and feedback is administered on a face-to-face basis to
the employees who ask for it. An assessment centre generally measures interpersonal skills,
communicating ability, ability to plan and organize, etc. Personal interviews and projective tests
are used to assess work motivation, career-orientation and dependence on others. Paper and
pencil tests are used to measure intellectual capacity. Assessment centers are not only a method
of appraisal but help to determine training and development needs of employees and provide data
for human resource planning. This method is also used to select students for entry level
positions. All candidates get an equal opportunity to prove their merit. They are evaluated by a
team of trained assessors under similar conditions. Rater's personal bias is reduced. But, this is a
time consuming and expensive method. Further the candidates who receive a negative report
from the assessment center may feel demoralized. In order to make this method effective, it is
necessary to state the goals clearly, to obtain top management support, to conduct job analysis, to
train the assessors, and to periodically evaluate the revise the assessment programme.
2. Human Resource Accounting: Human resources are a valuable asset of any organisation.
This asset can be valued in terms of money. When competent, and well-trained employees leave
an organisation the human asset is decreased and vice versa. Under this method, performance is
judged in terms of costs and contributions of employees. Costs of human resources consist of
expenditure on human resource planning, recruitment, selection, induction, training,
compensation, etc. Contribution of human resources is the money value of labour productivity or
value added by human resources. Difference between cost and contribution will reflect the

79
· performance of employees. The method is still in the transitionary stage and is, therefore, not
popular at present.
3. Behaviourally Anchored Rating Scales (BARS): This method combines graphic rating
scales with critical incidents method. BARS are descriptions of various degrees of behaviour
relating to specific performance dimensions. Critical areas of job performance and the most
effective behaviour for getting results are determined in advance. The rater records the
observable job behaviour of an employee and compares these observations with BARS. In this
way, an employee's actual job behaviour is judged against the desired behaviour. The steps
involved in constructing BARS are as follows:
(a) Identify Critical Incidents: Persons with knowledge of the job to be appraised describe
specific examples of both effective and ineffective job behaviours.
(b) Select Performance Dimensions: The persons then cluster the behavioural incidents into a
smaller set of performance dimensions.
(c ) Retranslate the Incidents: Another group of knowledgeable persons assign each incident to
the dimension that it best describes. Incidents for which there is less than 75 percent agreement
with the first group are not retranslated.
(d) Assign Scales to Incidents: The second group rates each incident on a seven or nine point
scale. Rating is done on the basis of how well the behaviour described in the incident represents
performance on the appropriate dimensions. Means and standard deviations are then calculated
for the scale values assigned to each incident. In incidents that have standard deviation of 1.5 or ..
less (on a seven point scale) are included in the final anchored scales.
(e) Develop Final Instrument: A subset of the incidents that meets both the retranslation and
standard deviation criteria is used as a behavioural anchor for the final performance dimensions.
A final BARS instrument typically comprises a series of vertical scales that are endorsed by the
included incidents. Each incident is positioned on the scale according to its mean value.
BARS method has several advantages. First, the ratings are likely to be accurate because these
are done by experts. Secondly, the method is more reliable and valid as it is job specific and
identifies observable and measurable behaviour. The rater's bias is reduced. Thirdly, ratings are
likely to be more acceptable due to employee participation. Fourthly, the method provides a basis
for setting developmental goals for employees as it differentiates between bwhaviour,
performance and results. Lastly, the use of critical incidents is useful in providing feedback to
the employee being rated. BARS method, however, suffers from weaknesses. First, it is very
time consuming and expensive to develop BARS for every job. Second, behaviours used are
more activity-oriented than result- oriented. Several appraisal forms are required to
accommodate different types of jobs in an organisation. Despite its intuitive appeal, this method
is not necessarily superior to the traditional methods of appraisal.

4. Management by Objectives: MBO requires the management to set specific, measurable goals
with each employee and then periodically discuss the latter's progress towards these goals. This
technique emphasizes participatively set goals that are tangible, verifiable and measurable. MBO
focuses attention on what must be accomplished rather than how it is to be accomplished. It is,
thus, a kind of goal setting and appraisal programme involving six steps:
• · Set the organisation's goals: Establish an organisation wide plan for next year and set
company goals.
• Set Departmental Goals: Departmental heads at this stage take the broader company goals
and, with their superiors, jointly set goals for their departments.
• Discuss Departmental,, G6als: The departmental goals are now put to discussion in a
departmental meeting with subqrdinates. The departmental heads v.:ould require the
subordinates to set their own preliminary individual goals, focusing mostly on what they
can do to achieve the department's goals.

80
 ® Define Expected Results: In the next step, the departmental heads and their [. 1bordinates
agree on a set of participatorily set short term, and individual performance targets.
0 Performance Reviews: Departmental heads compare each employee's actual and targeted
performance, either periodically or annually. While period_ic review is intended to
identify and solve specific perfonnance problems, the annual review is conducted to
assess and reward one's overall contribution to the organisation. Because employees are
evaiuated on their perfommnce results, 1\1180 is often called a result-'based performance
appraisal system.
111 Provide Feedback: Both parties now discuss and evaluate the actual progress made in
achieving goals, where things have gone off the track, how best to rectify the mistakes
made in the past, and how the employee could meet the targets next time, focusing
attention on his strength.
I-fowever setting dearly measurably goals is not an easy task. MBO demands a great deal of time
to set verifiable goals at all levels of an organisation. In the race to define everything rigidly,
some of the qualitative aspects might be ignored. Often the superior may set goals at a
frustratingiy high level, whereas the subordinate may wish to have it at a comfortable level. At
timt,s, t!1e short-term goals at a frustratingly high level, whereas the subordinate may wish to
have it at a comfortable level. At times, the short tenn goals may take precedence over long term
goat The only way to overcome these problems is to allow managers at all levels to explain,
coordinat(� ind guide the programme in a persuasive, democratic way. The jointly set targets
:must he fair and nttainable. Both the superiors and the subordinates must be taught how to set
realistic goals and be familiarized with the results for which they are finally help responsible.
5. The 360 Degree Appr�isal Technique: Performance appraisal has come to occupy a pivotal
piace in human resource function. The traditional merit rating which focused on personality traits
was replaced by performance appraisal with focus on work results. In order to make appraisal
more objective, transpai'ent and participative concepts such as self-appraisal, peer appraisal,
subordinate appraisal an_d appraisal by customers (both internal and external) were introduced:
These led ultinw.tdy to the introduction of 360° feedback system in the United States. 360°
system invo1ves evaluation of a manager by everyone above, alongside and below him.
Structured questionnaires are used to collect responses about a manager from his bosses, peers
and subordinates. Each manager is assessed by a minimum of fiftee1J colleagues, at least two of
·them subordinates. The responses are presented collectively to the assesses in the form of charts
and graphs. Comments and intcrpret:itions are presented later. Counseling sessions are arranged
to �olve the vveaknesses ideDtified in the 360 degree assessment. Several corporations like
Geneail Ele�tric, Reliance Industries, Crompton Greaves, Wipro etc. are making use of this
technique. The advm,tages of 360 degree evalwition are (i) greater self-awareness of the top
mar,agers. it reveals strengths and weaknesses in their managing styles.(ii) TI1e gap between self
assessment and the views of one's colleagues is reduced. (iii) When peer group assessment is
included teamwork thrives. (iv) Facts :ibout organizational culture and ambiance are brought to
light (v) Empowerment is facilitattd. (vi) Inflexible managers are forced to initiate st:if-change.
The disadvantages inc:udes: (i) The sy�tem may be t:ti1ized to humiliate people. (ii) Response
froin colleagues tends to be biased. (iii) Linking rewards to findings can prove to be unfair. (iv)
Ignores perform�nce in terms of reaching goals. (v) Assesses may deny the truth of negative
feedback.
The 360 degree assessment programme is effective when used from the top down. The fact that
the manager at the top has also been administered the test convinces everyone and they are
willing to go through it as well.

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 7.6 Problems with Performance Appraisal

The problems inherent in appraisal may be listed thus:

(A) Judgment Errors: People commit mistakes while evaluating people and their performance.
Biases and judgments errors of various kinds may spoil -,he show. Bias here refers to distortion of
a measurement. These are of various types:
I. First Impressions: The appraiser's first impression of a candidate may colour his
evaluation of all subsequent behaviour. In the case of negative primary effect, the
employee may seem to do nothing right; in case of a positive primacy effect, the
employee can do no wrong.
II. Halo: The Halo error occurs when one aspect of the subordinate's performance affects
the rater's evaluation of other performance dimensions. If a worker has few absences, his
supervisor might give the worker a high rating in all other areas of work. Similarly, an
employee might be rated high on performance simply because he has a good dress sense
and comes to office punctually!
III. Horn Effect: The rater's bias is in the other direction, where one negative quality of the
employee is being rated harshly. For example, the ratee rarely smiles, so he cannot get
along with people!
IV. Leniency: Depending on rater's own mental make-up at the time of appraisal, raters may
be rated very strictly or very leniently. Appraisers generally find evaluating others
difficult, especially where negative ratings have to be given. The leniency error can
render an appraisal system ineffective. If everyone is to be rated high, the system has not
done anything to differentiate among employees.
V., Central Tendency: An alternative to the leniency effect is the central tendency, which
occurs when appraisers rate all employees as average performs. For example, a professor,
with a view to play it safe, might give a class grades nearly equal to B, regardless of the
differences in individua! performance.
VI. Stereotyping: Stereotyping is a mental picture that an individual holds about a person
because of that person's sex, age, religion, caste, etc. By generalizing behaviour on the
basis of such blurred images, the rater grossly overestimates or underestimates a person's
performance. For example, employees from rural areas might be rated poorly by raters
having a sophisticated urban background, if they view rural background negatively.
.VII. Recency Effect: In this case, the rater gives greater weightage to recent occurrence than
earlier performance. For example, an excellent performance that may be six or seven
months old is conveniently forgotten while giving a poor rating to an employee's
performance which is not so good in recent weeks. Alternatively the appraisal process
may suffer due to a 'spill over effect' which takes place when past performance
influences present ratings.
(B) Poor Appraisal Forms: The appraisal process might also be influenced by the following
factors relating to the forms that are used by raters: .
• The rating scale may be quite vague and unclear.
• The rating form may ignore important aspects ofjob performance.
• The rating form may contain additional, irrelevant performance dimensions.
• The forms may be too long and complex.
(C) Lack of Rater's Preparedness: The raters may not be adequately trained to carry out
perform'1nce management activities. This becomes a serious limitation when 'the technical
compet.ence of a ratee is going to be evaluated by a rater who has limited functional
specialization in that area. The raters may not have sufficient time to carry out appraisals
systematically and conduct thorough feedback sessions. Sometimes the raters may not be

82
 competent to �o the evaluation owing to a poor self-image and lack of self-confidence. T'.1ey may
also get confused when the objectives of appraisal are somewhat vague and unclear.
� (D) Ineffective Organisational Policies and Practices: If the sincere appraisal effort put in by a
rater is not s111tably rewarded, the motivation to do the job thoroughly finishes off. Sometimes,
low rating:_; given by raters arc viewed negatively by management- as a sign of failure on the part
of rater or as indication of employee discontent. So, most employees receive satisfactorily
ratings, despite poor performance. Normally, the rater's immediate supervisor must approve the
ratings. However, in actual practice, this does not happen. As a result, the rater 'goes off the
hook' and causes considerable damage to the rating process.

7. 7 Essentfal C�mracteidstics of an Effective Appraisal System

Performaxic�; appraisal system should be effecth,� as a number of crucial decisions are made on
the basis of score or rating given by the appraiser, which in tum, is heavily based on the appraisal
system. An appraisal system, to be effective, should possess the following essential
chatacteristic:
l. Reliability imd \taUdity: Appraisal system should provide consistent, reliable and valid
inforrnation and data, \vhich can be used to defend the organisation •- even in legal
challenges. If tw0 appraisers are equally qualified and competent to appraise an employee
with the he;p of i:he same appraisal technique, their ratings should agree with each other.
The technique then demonstrably satisfies the conditions of inter-rater reliability.
Appraisals must also satisfy the condition of validity, by measuring what they are
suppost::d to m,;;asure.
II. ,fob Relatedness: The appraisal technique should measure the performance and provide
·information in job related activities/areas.
HI. Standardization: Appraisal forms, procedures, administration of techniques, ratings, etc.
should be standardized as appraisal decisions affect all employees of the group.
IV, Practical Viability: The technique should be practically viable to administer, possible to
implement and economical to undertake continuously..
V.. Legal Sa.ndion: Appraisals must meet the laws of the land. They must comply with
provisions of various statutes refating to labour.
VI. Trnining to Appraisers: Because appraisal is important and sometimes difficult, it
,\'ould be useful to provide training to appraisers viz. some insights and ideas on rating,
documenting appr&isals a;1d conducting appraisal !nterviews. Familiarity with rnting
tr.-:or::, can improve rater's performance and this may inject the needed confidence in
[1ppraiscrs to look into performance ratings more objectively.
VH. () p en comm:unicatkm: Most employees want tc, know how well they are performing the
jol;·, A good appraisal system provides the needed foi;:dback on a continuing ha.sis. The
apprnisal interviews should r�rmit both parties to leam about the gaps and prepare
themselves for fhture. To this end, managers should clearly explain their performance
expectations to their subordinates in advance of the appraisals period.
VIIL Employees aiecess to Results: Employees should know the rules of the game. They
should receive adequate feedback on their performance. If performance appraisals are
meant for improving employee performance, then withholding appraisal result would not
sei"ve any purpose. Empioyees simply canrtot perform better without having access to this
infonnation. Permitting employees to review the results of their appraisal allows them to
detect any errors that may have been made. If they disagree with the evaluation, th:;.;y can
even challenge the same through formal channels.
IX, Due Pro,cess: It follows then that formal procedures should be developed to enable
employ:.;;es who disagree with appraisal results. They must have the means for pursuing
their governance and having them addressed objectively.

83
Performance appraisal should be used primarily to develop employees as valuable resources.
Only then it would show promising results. When management uses it as a whip or fails to
understand its limitations, it fails. The key is not whic� form or which method is used.

7.8 Summary

Performance appraised systems are designed to improve performance, they broadly cover three
areas: define performance, facilitate performance and encourage performance. The appraisal
systems are used for a variety of development and administrative purposes. Appraisals can be
done either informally or systematically. Systematic appraisals are done annually. Appraisals can
be done by superiors, peers, subordinates, teams, outsiders or a combination of raters. Employees
also can carry out self-appraisals. Three types of appraisal methods are generally used: individual
evaluation methods, multiple persons evaluation methods and other methods, including HRA,
assessment centre, and 360 degree feedback, etc. Appraisals should be carried out in an obJective
manner, scrupulously following the criteria laid down for this purpose. When appraisals take a
subjective route, several problems crop up instantaneously: such as rating errors, poor ·forms,
lack of rater preparedness, ineffective organizational policies and practices. Giving and receiving
feedback is not an easy task. If done properly, both organi.zation and employee will immensely
benefit from such an exercise.

7.9 Test Questions

Q 1. Describe in detail the process of performance appraisaL

Q2. Evaluate the significance of performance appraisal in an educational institution. How
you make it more effective.
Q3. Discuss the pros and cons of using different potential raters to a person's,
performance.

7.10 Further Readings

Decenzo,. D.A. and S.P. Robbins, "Personnel/Human Resource A1anagement" Hall of

Indfa, New Delhi, 2003.
Dessler," Human Resource Management", Prentice Hall of India, New Delhi.
French, W., "the Personnel management Process", Haughten Miffin, Boston.
Ivanecevich, John M., "Human Resource Management", McGraw Hill.
Wreather and Davis, "Human Resource Management", Prentice Hall, New Jersey.

84
 Lesson 8
Potential Appraisal & Employee Counseling
Dr. Pooja Goel
Shaheed Bhagat Singh College
University ofDelhi
Objectives
After going through this lesson you should be able to:
• Describe the basic features of potential appraisal.
• Explain how leading Indian companies appraise employee potential.
e Indicate the objectives and benefits of employee counseling.
• List the steps involved in effective counseling.
Structure
8.1 Concept of Potential Appraisal
8.2 Step to be Followed while Introducing a Good Potential Appraisal System
8.3 Benefits of Potential Appraisal
8.4 How do Leading Indian Companies Appraise Potential?
8.5 Concept of Employee Counseling
8.6 Objectives of Employee Counseling
8.7 Need for Counseling
8.8 Functions of Counseling
8.9 Forms of Counseling
8.10 Steps in Counseling Process
8.11 Benefits of Employee Counseling
8.12 Effective Counseling
8. I 3 Case Studies
8.14 Summary
8.15Test Questions
9.16 Fmiher Readings

Generally, people earn promotions on the basis of their past performance. The past performance
is considered a good indicator of future job success. This could be true if the roles to be played
by the promotes are similar. However, in actual practice, the roles that .a job holder has played in
the past may not be the same if he assumes a different job after his transfer or promotion to a
new position. Past performance, therefore, may not be a good indicator of the suitability of an
indicator for a higher role. To overcome this inadequacy, organizations must initiate the process
of potential appraisal.

8.1 Concept of Potential Appraisal

The objective of potential appraisal is to identify the potential appraisal is to identify the
potential of a given employee to occupy higher positions in the organizational hierarchy and
underiake higher responsibilities. Potential appraisal can serve the following purposes:
• To advice the employees about their future prospects.
e To advise the employees about what they must do to improve their career prospects.
• To help the organisation chalk out a suitable succession plan.
111 To update training efforts from time to time.

85
 8.2 Step to be F ollowed while Introducing a Good Potential Appraisal System

Potential appraisal presupposes the existence of clear-cut 'job or role descriptions' and 'job or
role specifications', i.e. qualities needed to perfom1 the role. The following are some of the steps
required to be followed while introducing a potential appraisal system.
• · Role Descriptions: Organisational roles and functions must be defined clearly. To this
end, job descriptions must be prepared for each job.
e Qualities Needed to Perform the Roles: Based on job descriptions, the roles to be
played by people must be prepared.
111 Rating Mechanism: Besides listing the functions and qualities, the potential appraisal
system must list mechanisms ofjudging the qualities of employees such as:
I. Rating by others: The potential of a candidate could be rated by the immediate
supervisor who is acquainted with the candidate's work in the past, especially his
technical capabilities.
II. Tests: Managerial and behavioural dimensions can be measured through a battery of
psychological tests.
III. Games: Simulation games and exercises could be used to uncover the potentiai of a
candidate.
IV. Records: Performance records and ratings of a candidate on his previous jobs could
be examined carefully on various dimensions such as initiative, creativity, risk
taking ability, etc., which might play a key role in discharging his duties in a new
jo�
• Organ.ising the System:
After covering above preliminaries, the HR manager must set up a system that will aHmv
the introduction of the scheme smoothly incorporating answers to �mme complex
questions such as:
I. How much weightage to accord to rnerit in place of seniority in promotionr?
II. How much weight�ge to accord to each of the performance dimensions-technical,
managerial, behavioural qualities?
III. 'Nhat are the mechanisms of assessing the individual on different indicators of his
potential, and with what degree of reliability?
• Feedback: The system must provide an opportunity for every employee to know the
results of his assessment. "He should be helped to understand the qualities actually
required for performing the role for which he thinks he has the potential, the mechanism
used by the organizations to appraise his potential and the results of such an appraisal."

8.3 Benefits of Potential App1·aisal

Appraising potential is different from assessing performance. Potential refers to the abilities
present but not cu1Tently utilized. It is the latent capacity to discharge higher responsibilities
in future roles. On the other hand, performance implies the extent to which the requirements
of the presently held job are being met by the employee. The potential of employees can be
judged by:
a) Reviewing present performance.
b) Analysing personality traits.
c) Relocking at past experience.
d) Considering age and qualifications.
e) Explaining unused knowledge and skills of an employee.

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 8.4 How do Leading Indian Companies Appraise Potential?

Leading Indian companies like Philips, Glaxo, Cadbury, Sandoz, Mafatlal, Proctor and Gamble
have all redesigned their systems in recent times, shifting from a pure performance orientation to
a potential-cum-performance based appraisal system. The Philips model, in this connection, is
worth mentioning.
1. Low Potential-Low Performance: Employees with low potential and low performance
levels ('Question Marks') are asked to improve their performance initially. If that effort
fails, Philips works towards a planned separation.
2. Low Potential -� High Performance: Defined as solid citizens-high skills but limited
capability to grow beyond their current job profile -they constitute 70 to 75 per cent of
the company's employees. The company has to constantly recognize their limitations and
look after their needs.
3. Low Performance- High Potential: These are the problem children. In most cases, they
do well in their jobs- if a location, boss or job profile is changed. To tap their potential,
such employees are given a new scenari� to work in and are closely observed. 1f they
continue to show low performance, the separation process is initiated.
4. High Performance- High Potential: They are star performers and ought to be pampered
like race horses- putting them on challenging tasks constantly.
The potential appraisal criteria include the following: I. Conceptual effectiveness(including
vision, business orientation, entrepreneurial orientation, sense of reality), 2. Interpersonal
effectiveness(network directedness, negotiating power, personal influence, verbal behaviour), 3.
Operational (drive, professional ambition, innovativeness, stability). Once the potential of an
employee is measured along these dimensions on a five-point scale, Philips lays down a fast­
track, career growth plan for the star performers. Companies like Glaxo, Cadbury have similar
processes in place to separate the star performers from the employee ranks and exploit their
potential fully using rewards and incentive schemes to good effect.

8.5 Concept of Employee Counseling

Counseling is a two way process in which a counselor, usually a superior provides advice and
assistance to his subordinates. There are many occasions when an employee feels the need for
counseling. Performance Counseling means the help given by a superior to his subordinate in
improving the latter's performance. It is in effect, a process of guidir,g a subordinate to adjust
better understand others so that his dealings with them can be effective and purposeful.
Employee counseling may be informal or formal. Informal Counseling takes place in day -to-day
work relationship between a manager and his subordinates without any plan or schedule. Formal
Counseling involves a planned and systematic programme of advising and assisting employees
by their subordinates and/or by professional/expert couuselor. Employee counseling can be
helpful in strengthening superior subordinate relationships. It improves communication and helps
employees recognize their strengths and weaknesses and potential. Counseling also helps
employees to prepare action plans for their own development. Thus, counseling helps to solve
empioyee problems and to prevent future problems. It plays both curative and preventing roles.
Performance counseling involves assisting the employee to understand his own performance,
factors contributing to it, contribution of his own strengths and weaknesses, and assist him to
identify the extent to which he can influence the outcome of his work and hereby plan for
improving his competence and performance. The objective of performance counseling is to
identify development needs of subordinates and to draw a systematic plan of action. Counseling
is the process of advising and employee so as to enable him to overcome his emotional problems.
According to Keith Davis, Counseling means, "discussion of an emotional problem with an

87
employee with the general objective of minimizing it." The definition reveals that counseling
involves discussion in ·which the counselor listens sympathetically to the problem of the
employee. It is a method of understanding and helping people who are upset emotionally. As
counseling involves discussion, it forms a process of communication. Effective counseling
requires communication skills. Counseling is concerned with emotional problem. It has no
concern with other job problem such as technical. The main objective of counseling is to
understand and minimize emotional difficulty of an employee. Emotional problems have an
adverse impact on both work life and personal life of an employee. An employee who feels his
progress is very low and he has no chance of promotion in the company is for example facing an
emotional problem.

8.6 Objectives of Employee Counseling

Counseling helps a person overcome emotional problems and weaknesses relating to

performance. It aims at developing the counselee fully. It involves the following:
I. Help him relies his full potential.
2. Help him understand his strengths and weaknesses.
3. Gain insight into his behaviour and analyse the dynamic of such behaviour.
4. Help him understand the work environment better.
5. Provide an emphatic climate where he can discuss his tensions, conflicts, concerns and
problems.
6. Increase his personal and inter-personal effectiveness through prompt feedback about his
behaviour.
7. Prepare action plans for improving his behaviour and performaru:e,,

8.7 Need for Counseling

Several on-the-job and off-the-job conditions may necessitate for

1. Conflict: An organisation consists of several people. The feelings, needs and
perceptions differ from person to person. These individual differences may cause
misunderstanding and conflicts between individuals and groups. Interpersonal and intergroup
conflicts result in emotional disorder. Counseling is required to resolve conflicts and maintain
emotional balance otherwise employee morale and organizational performance may suffer.
2. Frustration: When the motivation drive is blocked and the individual is prevented from
reaching a desired goal, frustration occurs. Frustration may result in aggression, apathy,
withdrawal, physical disorders and other such behaviour. Long run frustration causes harm both
to the individual employee and his organizations. Counseling can help the employee to overcome
his frustration so as to restore emotional balance.
3. Stress: Counseling is an important technique to prevent and treat emotional problems arising
out of stress at work. Work overload, job insecurity, role ambiguity, role conflict are the main
causes of stress at the job. Off the job stress may arise from family and financial problems. Stress
is a major source of emotional disorder as well as physical disorder. Counseling is necessary to
deal with emotional disorders caused by stress. It helps the employee to develop self-confidence,
self-control and understanding.

8.8 Functions of Counseling

According to Keith Davis counseling performs the following functions:

I. Advice: Counseling is not merely advice giving activity. Advice is only one of the
functions of counseling. In giving advice, the counselor makes judgment about an
employee's emotional problems and suggests the necessary course of action. Problem

88
 arises when the counselor is unable to understand the individual'.s emotional problem and
. suggest a solution for it. It also provides an inferior status to the individual who remains
dependent on the counselor.
U. Reassurance: Reassurance is a way of providing courage to an individual to deal with
the problem and develop confidence. For example, the counselor may say "Don't worry,
go ahead" or "Well, you are making good progress." However, the difficulty with such
assurance is that the counselor's reassurance fades away as the problem re-emerges.
Despite its weaknesses, reassurance can be helpful provided it is handled carefully.
HI. Communication: Counseling facilitates both upward and downward communication. It
provides an opportunity to the employee to express his fecfo1gs to the counselor. The
counselor should keep in confide,nce the identity of the employee and interpret logically
the statement of his feelings. Counseling also facilitate, dmvmvard communication
whereby the counselor helps the individual to interpret company policies and
programmes.
IV. Release of Tension: Another import�mt functior1 of counseling is to release the emotional
tension or catharsis of the employee. As the employee explains his emotional problem to
a sympathetic counselor, his frustration and allied problems get reduced. The release of
tension may not necessarily solve the employee's problems. But it removes mental
barriers and enables the employ�e to t:11ce the problem boldly and think constructively.
V. Clarified Thinking: Counseling facilitates clarified thinkirig by removing mental blocks
and encournging rational thoughts. During the counseling process, the individual tends to
accept responsibility for solving his ernotional problems in a realistic way.
VI. Reorientation: Lastly, counseling performs the function of reorientation which involves
a change in the employee's psychic self through change in basic goals and values. The
individual's level of aspiration is shifted towards reality. Counsiding ena.bies him to
recognize and accept his own limitation. But reorientation can he largciy gener1ted by a
professional counselor rather than a. line ex�cutive.

8.9 Forms of Counseling

Keith Davis has classified counseling into three forms depending upon the extent of direction
provided by the counselor.
1. Directive Couns�ling: In this form of counseling, the counselor listens to an employee's
emotional difficulty, decides with him what can be done and then motivates him to do it. The
employee receives advice and reassurance. His emotional feeling i:� released aPd his thinking is
clarified. The counselor enthuses the employee to take a workable course of action.
2. Non-Directive Counseling: This form of counseling is also called client-centered counseling
due to the focus on the counselee rather 1than on the counselor. It involves skillfully listening and
inducing the employee to describe his einotional problems so that the counselor can understand
them and ascertain possible courses of action. The counselor listens with empathy and respects
without interrupting the employee. }fo knows that the employee himself is best qualified to solve
his own problems. Therefore, the counselor aliows the employee to talk about anythin.g which
may even seem to be irrelevant. Non directive counseling is democratic but more time
consuming.
3. Cooperative Com:iseling: This is an integration of directive and non-directi•ie counseling. It
is neither entirely counselor centered nor 1::ntirely counselee centered. Rather it requires both of .
them to come forward with their varied krnowiedge and perspectives to resolve the employee's
problems in a cooperative manner. Such counseling requires some amount of training and time to
practice. The cooperative counselor provides the employee his own knowledge and insight and
discusses the situation from a broad organizational perspective. This form of counseling is most

89
 appropriate for practicing managers to help resolve day-to-day emotional problems of their
employees.

8.10 Steps in Counseling Process

The counseling process may be divided into the following stages:

1. Preparation Stage: At this stage, the aim is to establish, support or prepare a base for
communication. This stage is very important because it generates the necessary confidence in the
subordinate and assures him of the counselor's genuine interest in helping him. At this stage, the
counselor should patiently and carefully listen to what the subordinate has to say and respond to
the same. Any movement which distracts the subordinate's attention should be avoided. The
counselor should control his feelings and emotions in such vvay as to convey warmth and
concern for the subordinate.
2. Intermediate Stage: Once the support is established, the counselor seeks more information
which requires the subordinates to do self-introspection. This stage helps the subordinate to
explore and understand his problems. The counselor comes closer to understanding the
subordinate and should keep his mind open. Once the problem is mutually agreed upon, the
process of understanding begins. The counselor has to draw the subordinate's attention to
possible causes which are within the subordinate's control. Gradually, the counselor can help the
subordinate to internalize the problems and it causes. The internalization may reveal the
subordinate's strengths and weaknesses.
3. Helping Stage: At this stage, the counselor assists the subordinate ln identifying the
alternative solutions to the problems. The pros and cons of each alternative me evaluated and the
best course of action is selected. The s:ubordinate should be allowed to self-monitor the action
plan and be assured of all help and support" These counseling sessions shouM be followed up and
reviewed at regular i11tervals.

8.11 Benefits of Employee Counseling

Performance counseling talces a positive approach. phHosophy is quite simple.

People can grow and improve their competence and performance with timely help and proper
coaching. "An effective counselor -manager is one who helps his employees to become more ion
planaware of their strengths and weaknesses and helps them to improve fur ther on the strong
points and overcome weaknesses'.
• Counseling, generally speaking, offers the foHowing benefits
to the counselee.
He learns to respond and adjust more positively to people and situation.
He is able to improve his personal effectiveness.
He is able to clear the mind of emotional irritants; overcome his personal weaknesses and work
more effectively.
He feeJs more relaxed when he is able to share his concerns and problems with a trusted friend,
the counselor who assures confidently and extends a helping hand readily.

8.12 Effective Counseling

Counseling is an art. It requires serious effort on. the part of the counselee to learn from each
situation and stand on his own. The counselor is there to lend a helping hand, clarify things,
enable the counselee look at the picture himself clearly, show the alternatives paths and suggest
action plans for impr ovement. The process is built around mutuality and trust- the belief that
each person has enough to contribute.
Both parties should be willing to invest their time and energies on the following things.

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 @ Cmmselee: The subordinate must open up hefore the counselor--manager fully and shares
his problems, feelings, concerns without any reservation/hesitation. As far as possible he
must confine himself to issue relating to job performance. He needs to take responsibility
for his behaviour and begin to look for ways to ractify the problems. He should b� willing
to develop on his own after carefolly translating the suggestions given by the counselor
into an action plan. Afi:er aH, a counseior is there to help, not �arry a poor performer
forever.
® Cotm5:clor: Initially the counselor should try to d�cument specific job behavioms like
late coming, absenteeism, poor quality, peer group conflicts in terms of dates, times and
what happened. He should encourage the subordin2te to come out with his own u;i;que
version of vvhat has happened. lnstead of pointing an accusing fmger against the
employee, he should help the employee find where things have gone wrong. After
identifying the key issues, he should help the subordinate develop alternative ways of
resolving the issue. Be specific as to what the empioyee is expected to do, vv·hen it ii;
expected and what resources y.:iu are willing to commit to assist. Once the plan is ready,
evaluate the progress constantly and reinforce good efforts to the extent possible.
� Climate: Both parties must focus on work-related gcais and performance behaviours.
They should discuss issues objectively, fairly and equitably. The dis�•.,ssions should
:flourish in an atmosphere of mutual trust,. cooperation and understanding.

8.13 Case Studies

. . ' . ' .m1rort
r�a.se 1,,.
iManeK-Jaco
l T
b·sen I.1m1tea, an T1noo-...
' C' ,1· r
,v✓eL.1sn comp;u1y, d:eat . ' tne
! pnw.·.1. pal',y w1L-;
and distribution of a wide range of engineering and consmner goods. li.s ht-;1d offlce was h
Mumbai and it had branches in many impo1 tan! (:ities in lnctia. \Vith the chr.n.[.;,lng patte:r,-. of +he;
country's economy after independence, Mane'.(- h.cob:;,:m c:·tpended v,�ry quickly, relying kss on
imports and more on selling goods manufactun�d indigenou:,ly.
The company's management changed, a-: ,:vdl; nw'.ct of the Swedes in senior &'1d rniddle
management posts were replaced by their in,.,r;,1.edi::1te subordinates. This vvas th(� fire;; time that
Indians had held these positions. though they had her:n t,:chnically qualified to de so .. ��inu: the
new managers had never expected to reach thes;'; positions they were caught unprnpare.d. The
business, however, did not suffer. In fact, it gre'/1 t:emendovsly in what was e:."::.,eP.tia!ly a seller's
market.
This was in 1954. Jn April J. 962, th-e managemE:r1t of Tvic,,:ek-- Jacobsen appcinted a General
Manager to look after human resource- an area which they recorrnized a3 of growing and vital
importance. He was to deal with industria! relations, human resource w_,r, 1ini�tr<1twn :md
0

management development.
The new General Manager attacked his job w·itb zest, forming new Luman re:,ou:rce
policies and streamlining procedures. He brought ln a management consultant who condu::;ted
training sessions on organization and humiln relations, for senior and middle--ievel manage,nent.
Appraisal was also discussed. As a result of this dfscrn�sion, manae;�ment decided.Jo reconsider
its appraisal policy.
Till then appraisal had been done on a forrn printed in 1955 listing various attributes such 9.S
Appearance, personality (convincing, impressive, plc:1:.zml --unconvincing and un i mpressive),
Initiative, 'Judgment, Rescurcefolncss, O;::ien--mindedness, Character, Loyalty, and sr1 nn All
these characteristics were to be ;::;ppraiseci on a thrcr ,point scale, It ,vas the Hurnan Re�0urce
General Manager's view that the managers usually 'p!ayed safo and marked the middle of' the
scale' when using this form.
As a first step in the new appraisal policy a cydo:tyled she�t was auadwd to the 1955
form. This sheet had open-end responses on the strengths and weaknesses of t�e r;;,tet:s, specii'ic

91
 instances of outstanding deficient perfonnance, limiting factors such as health, habits,
character, organizational obstacles which impeded the ratee's performance, capacity for further
development, and so on.
At the end of 1961, a new Genera! manager was appointed to look after human resource.
He revised the 1955 printed form and on the basis of position descriptions evolved a new fonn
which was to be used by Departmental Managers (who were senior managers) to appraise their
immediate subordinates, who were in middle management. These new appraisal forms were
introduced on an experimental basis, in April, 1965.
The new Appraisal Form (for Assistant Department Managers) covered basically two
areas- knowledge and ski.lls. In the area of knowledge, it covered product, job, operational and
business knowledge. In the area of skills it covered relational skills, and skills in communication
(relating these to public and customer relations, and the development of subordinates). The form
also appraised the ratee's analytical ability and originality, and asked questions on the ratee's
suitability to his present assignment, his potential for growth and his training needs. There was
space at the end of the form for comments by the rater's superior. The form had space for open­
end responses under each attribute, but also included a four-point scale. The idea was that the
rater had to tick-off the point the scale at vvhich he rated the subordinate, and he had to back
this with evidence, or other.vise elaborate on his rating.
In April 1967, the Human Resource Manager studied the filled in appraisals sent to him by
the Department Managers. He was greatly disappointed. He felt there were a large number of
contradictions in the ratings, and that most of the open-end responses were too circumspect to
have any meaning. He wondered why the rating system had not worked satisfactorily.
On his instructions, a quick survey was made of the appraisal system. A cross-section of
Department Managers was interviewed and asked the same questions. They all felt the appraisal
system was working p!'operly. One of them however felt that specific incidents should not be
mentioned on the form because it could colour the whole rating. Three said the appraisal system
was conveyed to them only through a circular and one that it was conveyed through training
sessions. None of them faced any problems in appraisal at present, though one suggested that the
Human Resource General Manager should give illustrations against each attribute to help the
rater use the form. AH of them maintained an Incidents Diary though only three of them used it
while filling in the appraisal form. Three of them discussed the appraisal with their subordinates.
One of them used it only to counsel his ratees" None of them knew if their superior rated them.
One of them felt his superior probably did but was not sure. Norie of their superiors had
discussed their appraisals ,vith them. Departmental Managers rated from one to four
subordinates and reviewed upto 12 appraisals subordinates or functional equals in branches.
AH felt that it was not possible to use tangible performance measures in their apprais::tls because
of the limitations ,vithin which the company's business operated, Government, they said, was the
customer for anything frorr: 50 percent to 80 percent of business.
The Human Resource General Manager of Manek-Jacobsen felt his problem has become
even more acute, especiaHy since business conditions had changed and ,the company was facing
stiff competition for all its products. He had to design an appraisal system that would pull the
company up by its boot-straps and he had to do it quickly.
Questions:
1. Identify the problems involved in the case.
2, Suggest measures to solve the problems.
3. Give pros and cons of your solution.

Case Kalyani Electronics Corporation Ltd., recently diversified its acuvmes and started
producing It employed personnel at the lower level and middle level. It has received
several applications for the post of Commercial Ivfanager- Computer Division. It could not

92
 decide upon the suitability of the candidate to the position, but did find that Mr. Prakash is more
Qualified Sor the position than other candidates. The Cooperation has created a new post below
the cadre of General Manager i.e. Joint General Manager and asked Mr. Prakash to join the
Corporation as Joint General Manager. Mr. Prakash agreed to it viewing that he will be
considered for General Manager's position based on his perfom1ance. Mr. Anand, the Deputy
General Manager of the Corporation and one of the candidates for General Manager's position
was annoyed with the management's practice, But, he wanted to show his performance record to
the m�magement at the next appraisal meeting.'The Management of the Corporation asked Mr.
Sastry, General Manager of Televisions Division to be the General Manager in-charge of
Computer Division for some time, until a new General Manager is appointed. Mr. Sastry wanted
to switch over to Computer Division in view of the prospects, prestige and recognition qf the
position among the top management of the Corporation. He viewed this assignment as a chance
to prove his performance.
Th� Corporation has the system of appraisal. of the superior's performance by the subordinates.
The·performance of the Deputy General Manager, Joint General Manager and General Manager
has to be appraised by the same group of the subordinates. Mr. Anand and Mr. Sastry know very
well about the system and its operation, whereas Mr. Prakash is a stranger to the system as well
as its modus operandi. Mr. Sastry and Mr. Anand were competing with each other in convincing
their subordinates about their performance and used all sorts of techniques for pleasing them like
promising them a wage hike, transfers to the job of their interest, promotion etc. However these
two officers functioned in collaboration with a view to pull down Mr. Prakash. They openly told
their subordinates that a stranger should not occupy the 'chair'. They created several groups
among employees like pro-Anand's group, pro-Sastry's group. Anti-Prakash and Sastry group,
Anti- Anand and Prakash group.
t-.1r. Prakash has been watching the proceedings calmly and keeping the top management in
touch with all these developments. However, Mr. Prakash has been quite work-conscious and top
management found his performance under such a political atmosphere to be satisfactory.
Prakash's pleasing manners and way of maintaining human relations with different levels of
employees did, however, prevent the emergence of an anti -Prakash wave in the company. But in
view of the political atmosphere within the company, there is no strong pro- Prakash's grouo
either.
Management administered the performance appraisal technique and the subordinates
appraised the performance of all these three managers. In the end, surprisingly, the workers
assigned the following overall scores. Prakash: 560 points, Sastry: 420 points; and Anand: 260
points.

Questions:
1. How do you evaluate the worker's appraisal in this case?
2. Do you suggest any techniques to avert politics creeping into the process of performance
appraisal by subordinates? Or do you suggest the measure of dispensing with such
· apprajsal system.

8.14 Summary

,Appraisal of potential is important. It can be based on personality traits, past performance,

experience, and unused skills. Employee counseling is the process of guiding and assisting.
�mployees in improving their attitudes, behaviour and performance. Preparation, exploration,
understanding and helping are the main stages in counseling. Desire to learn, continuous
dialogue, mutual efforts and job focus are the requirements of success in counseling.

93
8.15 Test Questions

Q 1. Distinguish between performance appraisal and potential appraisal.

Q2. What is employee counseling? Describe the process of employee counseling.
Q3. Explain the requirements of success in employee counseling.

8.16 Further Readings

Annstrong Michael , A handbook ofHuman Resource Management Practict<: 10th edition, Kogan
Page.
Rao V S P , Human Resource Management Text and Cases, 2nd edition, Exce·! Books
Gupta C.B., Human Resource Management , Sultan Chand & Sons.
Dwivedi R.S., lvfanaging Human Resources, Galgotia Publishing Company.

94
 Lesson 9
Job Changes - Transfers and Promotions
Dr. Pooja Goel
Shaheed Bhagat Singh College
University ofDelhi
Objectives
After going through this lesson you should be able to:
• Review the important issues in transfers and promotions.
• Discuss the various forms of separation.

Structure
9.l Purposes of Job Changes
9.2 Concept of Transfer
9.3 Need and Purposes of Transfers
9. 4 Types of Transfers
9.5 Transfor Policy
9.6 Conct:pt of Promotion
9.7 Purposes and Advantages of Promotion
9.8 Criteria (Bases) for Promotion
9.9 Promotion Policy
9.10 Demotion
9. 11 I Need for Demotion
9.12 Demotion Policy
9.13 Types of Employee Separation
9.14 Summary
9.15 Test Questions
9.16 Further Readings

Flexibility in the workforce deployment is essential to cope with changing workforce

requirements of the organization. The conditions affecting the workforce requirements include
the following:
• Changes in technology resulting in rise in job demands.
111 Fluctuations in volume of work due to expansion, diversification, recession etc.
0 Introduction of new products and processes and stoppage of existing products and
processes.
@)
Changes in organization structure leading to job redesign, job regrouping, etc.
• Changes in the jurisdiction of some departments requiring relocation of employees.
To cope up with the above changes, the organization can resort to job changes of the existing
workforce. Such job changes might involve transfers, promotions, retirements, etc. and might be
necessary to improve organizational effectiveness.

9.1 Purposes of Job Changes

Job changes serve the following useful purposes:

To Improve Organisational Effectiveness: The successful functioning of an organization
depends largely on effective implementation of its policies and programmes. In order to improve
the organization structure, superfluous positions may be abolished and other positions may be

95
 redesigned or regrouped. These changes help to improve the effectiveness of the organization.
But these cannot be implemented without job changes.
2.To Maximise Employee Efficiency: Knowledge, skills and potential of an employee can be
utilized in an optimum manner when there is a match between qualifications and job
requirements. Job changes are made to assign every employee to the job where his capabilities
can be used to the maximum.
3. To Cope with Changes in Operations: The operations of an enterprise have to be adjusted to
changing economic conditions. During depression and recession, layoff and transfers help
management to reduce labour cost by adjusting the workforce to the operating level. In periods
of prosperity, promotions and transfers are used to meet the demand for higher order skills.
Temporary adjustments have to made in vacancies arising from death or illness of an employee.
4. To Ensure Discipline: Job changes serve as tools of disciplinary action. Demotions and
layoffs may be used to punish erring employees because these cause a loss of status and
earnmgs.

9.2 Concept of Transfer

Transfers of employees are quite common in all organizations. A transfer may be defined as a
change in job within the organization where the new job is substantially equal to the old in terms
of pay, status and responsibilities. Transfers are possible from one department to another or from
one plant to another.
Transfers may be initiated by the organization or by the employees with the approval of the
organization. Transfers have a number of objectives such as moving employees to positions with
,, a higher priority in terms of organizational goals, placing employees in positions more
appropriate to their interests or abilities and filling department vacancies with employees from
overstaffed departments. Transfers may be resorted due to changes in organizational structure or
changes in the volume of work. Transfers may become necessary in an organization for a variety
of other reasons also. Management may think it necessary to rectify the mistakes in the selection
and placement of employees. Every man is good for something and, as far as possible, must be
placed on the job for which he is most suitable. Sound personnel policy requires that if a person
is misfit for a job, he should not be discharged, but transferred to a job for which he is better
suited. Transfers may stimulate the employees if handled properly.

9.3 Need and Purposes of Transfers

The need for transfers may arise due to several reasons. Transfers may be made to achieve the
following objectives:
1. To Meet Organisational Needs: A company may transfer employees due to changes in
volume of production, in technology, in production schedule, in product line, in
organization structure, etc. All these changes require shift in job assignments.
2. To Satisfy Employee Needs: Employees may request their transfer because of dislike of
boss or fellow workers or due to lack of opportunities for future advancements. Personal
problems or employees like health, family circumstances, etc. may also require transfer.
For example, an employee may like to be shifted to or near his native place. Sometimes,
transfers are made to avoid interpersonal conflicts and to provide an outlet from blind
alley jobs.
3. To Better Utilise Employees: An employee may be transferred because management
feels that his capacities would be better utilized elsewhere. An employee who is not
performing satisfactorily may be more suitable in another job.
4. To Make the Employee more Versatile: Employees may be transferred to different jobs
· to widen their knowledge and skills. In some companies, transfers are made as a matter of

96
 I

policy after an ernployee has stayed on a job for a specified period. !Such rotation from
one job to another serves as a method of training and reduce monotony.
5. To Adjust the 'Nork.force: There may be changes in the volume of work in different
sections or plants. Employees from the overstaffed plant or office may be transferred
where vacancies exist.
6. To Provide Relief: Transfers may be made to give relief to the employees who are
overburdened or doing risk work for long period.
7. To Punish Employees: Employees indulging in undesirable activities may be transferred
to remote places. It is in the form of a disciplinary action. This practice is widespread in
Government offices. In some organizations, transfers are made because permanent stay
may cause frauds, bribery, politicking, etc. Problem employees may be transferred to
some other jobs.

9. 4 Types of Transfers

Employee transfers may be classified as follows:

L Production Transfer: Such transfers are made when labour requirements in one factory
or branch are declining. The surplus employees who are efficient or trained might be
absorbed in other places to avoid layoff. Such transfers help to stabilize employment.
2. Replacement Transfer: This type of transfer is made to retain long service employees.
The long standing employee replaces a new employee and thereby gets relief from the
heavy pressure of work.
3. Versatmty Transfc:r: Also known as rotation this transfer is made to develop all round
employees by moving them from one job to another. It also helps to reduce boredom and
monotony.
4. Remedial Transfer: Such a transfer is made to rectify mistakes in selection and
placement. As a follow tip, the wrongly placed employee is transferred to a more suitable
job.
5. Shift Transfer: Employees may be shifted from one shift to another for personal reasons,
e.g., marriage, infant care, old parents, etc.

9.5 Transfer Policy

Every organization should have a just and impartial policy concerning transfer of employees.
Such a policy will help to avoid ai1 adhoc and arbitrary approach to transfers. Every transfer
involves some description and cost. Therefore, transfers should not be made frequently or
without justified reasons. Instead of deciding each case separately, a policy should be formul;ited
to govern all types of employee transfers. This will ensure uniformity or treatment and avoid
transfers for petty reasons. A good transfer policy should satisfy the following requirements:
• Transfer policy should clearly specify the types of transfers and the circumstances under
which transfers ,.:vill be made.
0 It should prescribe the basis for transfers. When two persons want transfer to the same
job, whether the decision will be based on seniority or merit or some other factor.
• It should indicate the executives responsible for initiating and approving the transfers.
0 It should tell whether the transfers can be made only within a depaitment or also between
departments.
·&i It should specify ihe effect of transfer on the seniority and pay of the employee.
• It should be put in writing.
• It should be communicating and explained to the employees.

97
 • The transfer should as far as possible be made in consultation with the employee.
Alternatively the transfer should be made known to the employee well in advance.
• Reasons which will be considered for personal transfers and their order of priority should
be specified.
• Facilities (e.g., leave, special allowance for shifting to the new place etc.) to be extended
to the transferred employee should be prescribed.

9.6 Concept of Promotion

Promotion refers to advancement of an employee to a higher post carrying greater

responsibilities, higher status and better salary. It is the upward movement of an employee in the
organisation's hierarchy, to another job commanding greater authority, higher status and better
working conditions. When an employee is assigned a higher level job with more pay anµ powers,
he is said to be promoted. Promotion may be temporary or permanent, depending upon the needs
of the organization. When an employee is assigned to a higher level job without increase in pay,
it is called a 'dry' promotion. For example, when a university professor is made Head of The
Department, there is no increase in pay.
Promotion Vs. Upgradation: Upgradation implies movement of an employee to a higher pay
scale without change ofjob. The job itself is elevated to a higher grade without increase in_ status
and authority. On the other hand, promotion involves change of job with increase in status,
authority and salary. B9th promotion and upgradation are used to reward employees for better
performance and to motivate them for greater effort. Due to limited vacancies at higher levels, it
is not possible for management to promote all employees. Therefore, upgradation may be used to
motivate those employees who cannot be promoted.
Promotion vs. Transfer: The term 'transfer' refers to changes in which the pay, status and job
conditions of new position or job are almost the same as that of the old. In case of promotion, the
new position has higher pay, status and job conditions as compared w_ith the old. A transfer may
be associated with a higher pay, but is counterbalanced by changes in other conditions.
Promotion implies an upward elevating of an individual in terms of job responsibilities, pay
scale and status. It represents an advancement, and going up a step in the career ladder. It is a
case of upward mobility which most of the employees seek for their career advancement. But
transfer refers to a lateral shift of an individual from one job position to another on the same
occupational level and pay scale.
Promotion represents a recognition of and reward for merit, good performance and behaviour,
and so on. It tends io improve satisfaction of the person promoted and to induce him to perform
better. Transfer does not have these implications. Considerations of merit and seniority do not
generally enter into transfer matters; there may however be some instances where an employee
with good performance is transferred to another unit to utilize his skills more meaningfully. The
incentive value of transfers is generally low unless the.new job position has more powers.
Promotion vs. Recruitment from Outside: Promotion may be used as a means of filling up
vacancies in higher or senior positions. Whenever a higher post falls vacant, sound personnel
policy requires that it should be filled up by promotion from within the organization if a person
of required skills, ability and caliber is available. If all such vacancies are filled up from outside,
there will be no inducement for the existing staff to improve their efficiency. Absence of such
prospects is apt to make the employees dissatisfied, demoralized and frustrated. This will be
reflected in low quality of output, wastage, absenteeism, indiscipline and turnover of employees.
The morale of the workers will also be low and it will tell upon the working of the entire
enterprise.
Promotion from within to fill up the senior posts shall have the following advantage:

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 (i) Insiders are intimately connected with organization structure, production process,
products and different problems and they can handle the new jobs easily.
(ii) It will keep the morale of the employees high.
(iii) It \Vill ensure sincere effort on the part of employees because they know that they
may rise to senior positions by promotions.
(iv) The costs of training the insiders on the senior posts will be less.

However, the filling up of senior vacancies from amongst the employees of the .
organization is also not free from demerits. Firstly, the more talented outsiders may not be
employed and persons promoted to sen i or jobs may not possess the required qualities. Secondly,
mobility of labour is halted. Once a man joins an organization, he will stick to that organization.
Employee turnover to a certain extent is good for the health of the organization. Employee
turnover to a ce1iain extent is good for the health of the organization. Thirdly, in promotion,
there may be a clash between factors like seniority and ability. The decision may lead to
favoritism. Lastly, further growth of the business is hindered by the limited talents of the
insiders.
In order to avoid the disadvantages from filling up senior vacancies through promotion a
sound policy of promotion should be designed. It should lay down what percentage of vacancies
in higher posts is to be filied up by promotion from within the organization and what shall be the
basis of promotion, i.e. seniority or ability, or a combination of both.

10.7 llurposcs and Advantages of Promotion

(i) To recognize an employee's performance and commitment/loyalty and motivate him

towards better performance.
(ii) To boost the morale and sense of belonging of employees.
(iii) To develop a competitive spirit among employees for acquiring knowledge and skills
required by higher level jobs.
(iv) To retain skilled and talented employees.
(v) To develop a competent internal source of employees for higher level jobs.
(vi) To utilize more effectively the knowledge and skills of employees.
(vii) To attract competent and suitable employees for the organization.
The policy of filling higher level jobs by promoting employees working at lower levels creates a
feeling of content among employees. it improves their job satisfaction and motivation by
providing greater income, status and responsibilities. By building up loyalty, promotion reduces,
!aboui· turnover, Employees will have little incentive to work hard and stay in the organization if
higher level jobs are reserved for outsiders. Promotion stimulates self development and creates
interest in training and development programmes. According to Yoder, " promotion provides
incentive to initiative, enterprise and ambition; minimize discontent and unrest; attracts capable
individuals; necessitates logical training for advancement and forms an effective reward for
loyalty and cooperation, long service, etc.
Filling up all the higher level vacancies through promotion leads to in breeding and stagnation
wherein new thinking does not enter the enterprise. Therefore, promotion should not be entirely
from within. It should be used as the norms but people from outside should be brought in
periodically into higher level jobs.

9.8 Criteria (Bases) for Promotion

Pm motions can be made on the basis orseniority or merit or a combination of both.

a) Srnforit'y as a Basis of Promotion: Seniority implies relative length of service in the
same organization. Seniority is suggested as the criteria for promotion on the plea that

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 there is a positive correlation between length of service and talent. This system is also
based on the tradition ofrespect for older people. The advantages of seniority as the basis
ofpromotion are as follows:
1. It is relatively easy to measure length of service and thereby judge the seniority of an
employee.
2. The system is simple to understand and operate. Every employee can himself find his
place in the promotion list.
3. It is objective criteria owned there is no scope for favoritism. Therefore, it creates a sense
ofsecurity among employees and avoids grievances and conflicts arising from promotion
decisions.
4. It helps to reduce labour turnover because every employee has a chance for promotion
provided he remains with the organization.
5; This system enjoys the full support of trade unions and, therefore, contributes to cordial
industrial relations.
6. It provides a sense of satisfaction to senior employees and is in line with the Indian
culture ofrespecting seniority in all walks oflife.
Seniority system suffers from the following disadvantages:
1. The assumption that length ofservice indicates talent is not valid. Beyond a ceitain age a
person may not learn. So oldest is not always the ablest.
2. In this system the performance (worth) and potential of an individual is not recognized.
Therefore, it demotivates and demoralized the young employees who are talented. They
have to wait for long to get promotion and may, therefore, leave the organization due to
frustration.
3. The system kills ambition and zeal to improve performance because everybody will be
promoted without improvement.
4. The efficiency of the organization suffers in the absence of incentive for hard \Nork and
self-development.
5. The concern fails to attract young and hardworking employees.
b) Merit as a Basis of Promotion: Merit implies the knowledge, skills and performance
record of an employee. The merit of the employees may be judged either by written or
oral examinations, personal interviews and their records of performance. The 'ability'
criterion ignores the value ofexperience. The advantr.ges ofthis system an· as under:
• It motivates competent employees to work hard and acquire new skills.
• It helps to maintain the efficiency of the organization by recognizing
talent and performance.
• It helps to attract and retain young and promising employees in the
organization.
• Merit based promotion system suffers from the following disadvantages:
, • It is very difficult to judge merit and subjective judgment is involved.
• Trade union and workers distrust the integrity of management .in judging
merit. Therefore, employer employee relations may be strained.
• Merit indicates past achievement. It may not denote the future potentiai
and past experience ofan employee.
• When young employees are promoted over older employees, the o!d and
experienced people may leave the organization.
• Old employees feel insecure.
c) Seniority-cum-Merit: Both seniority and merit suffer from certain limitations. None of
them is by itself a complete criterion. Therefore, a sound promotion policy should be
based on a combination of both seniority and merit. A proper ba.lance between the twG
criteria can be created in several ways: Firstly, minimum length of service m,ry be

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 prescribed. For example, employees with five years of service or more are made eligible
for promotion. Among these merit is used as the sole criteria to select the employee for
promotion. Among these merit is used as the sole criteria to select the employee for
promotion. Clerks in commercial banks are generally promoted to officers on this basis.
Secondlly, relative weightage, may be assigned to seniority and merit. For instance, 40
percent for seniority and 60 percent for merit weightage may be used. Thirdly,
.:::mployees with a minimum performance record and qualifications are treated eligible for
promotion. Seniority is used to choose from among the eligible candidates.
In India, seniority is generally used for promotion in Government offices and public
sector undertakings. In Government departments a certain percentage of higher level
vacancies are reserved for schedules caste and scheduled tribe employees. In the private
sector, the policy by and large is 'promote the best man available'.
d) Open vs. Closed Promotional System: An organization may adopt an open or a closed
promotional system, or a combination of both. An organization is said to have an open
promotion system where it is willing to consider all its employees as potential candidates
and also announces the various position openings. But where an organization does not
announce the vacancies or where the candidacy is restricted and is not open for all the
employees in the organization, it is said to follow · a closed promotional system.
Generally, the organizations use a combination of both these systems. For instance, for
openings below a certain management level, an organization may adopt an open
promotion system and give every interested employee a chance. But for levels above that
patiicular managerial level, the selections may be done by maintaining great secrecy.

9.9 Promotion Policy

Every organization should formulate a sound policy regarding promotion of its employees. The
company that has· no recognized promotion policy is likely to have frustrated and restless
employees as they have no opportunity for advancement. The main features of a good promotion
policy are as follows:
1. It must provide for a uniform distribution of promotional opportunities throughout the
company. It means the ratio of internal promotions to external recruitment must be the
same in all departments. Otherwise there will be discontent and frustration in the
department where this ratio is lower. Therefore, equal opportunities for. promotion should
be provided to all categories of job in all the departments.
2. It must tell employees the avenues of advancement available to them. Multiple chain
promotion charts may be prepared for this purpose. In such a chart each position is linked
to several other positions to which promotions can be made. The charts showing ladders
or paths of advancement or promotion routes are called opportunity charts or fortune
sheets. Dead end jobs should be labeled and the upward path should be well marked on
the chart.
3. The basis of promotion should be clearly specified. Due weightage should be given to
seniority, merit and future potential of an employee. Clear cut norms and criteria should
be laid down for judging length of service, merit and potential. The assessment and
reporting system should be objective.
4. Appropriate authority should be entrusted with the responsibility of taking decision on
promotion. The final authority to sanction a promotion should rest with the concerned
line executive. The human resource department should only suggest the names along with
their records.
5. Suitable training and development opportunities should be provided so that employees
can prepare themselves for advancement.
6. Detailed records of service and performance should be maintained for all employees.

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 7. The policy should be fair and impartial. Arbitrariness, favourtism, etc. should be
eliminated.
8. It should be consistent, i.e. it should be applied uniformly irrespective of the person
concerned.
9. It should be correiated with career planning. Sudden spurt of promotions and long period
of no promotion should be avoided.
10. A suitable system of follow-up, counseling and review should be established. All
promotions should be on a trial basis and the progress of the promoted employee should
be monitored to ensure that all is going on well. Coun�cling and guidance should be
provided to the employees rejected for promotion. Alternatives like upgradation may be
provided for deserving candidates.
11. A provision for appeal against the management's decision and its review should be made.
This is necessary to satisfy employees who accuse management of being biased.
12. Provision should be made for timely release of the promoted employee from his present
superior.
13. The promotion policy should be in writing and should be communicated to the
employees. The policy may also specify that whenever a senior person is not selected for
promotion, he will be told the reason for his suppression. "'
14. The policy should be flexible, internal staff should be given a fair chance of promotion
before higher level posts are filled from outside.

9.10 Demotion

Demotion is just th'e opposite of promotion. It is a downward movement of an employee in the

organizational hierarchy with lower status and lower salary. It is a downgrading process and is
insulating to an employee. Demotion is a punishment for incompetence or mistakes of serious
nature on the part of an employee. It is a serious type of penalty or punishment and should be
given rarely and only under exceptional circumstances and also tactfully. Demotions may be
necessary under the following situations:
a) When the company curtails some of its activities, officers occupying certain posts are
demoted.
b) Errors in the promotions already made are corrected through demotions.
c) It may be necessary to use demotion as a tool of disciplinary action against erring
employees.
The tool of demotion should be used only when it is absolutely necessary. However, there should
not be any injustice to any employee in this regard. Demotions should be made for genuine
reasons. Promotions are easily accepted by employees, but demotions are not accepted easily as
they affect their status, career and position. Demotion is usually treated as an insult and naturally
resented by the employees in one way or the other. It is, therefore, desirable to avoid demotions
as far as possible. Demotions should be an exception and not a normal rule.

9.11 Need for Demotion

Demotions become necessary due to the following reasons:

Adverse Business Conditions: Due to recession and other crisis, an enterprise may have to
combine departments and eliminate jobs. Consequently, junior employees may be retrenched and
senior employees may be required to accept lower level positions until normalcy is resorted.
Incompetence: Some of the employees promoted on the basis of seniority and past performance
may fail to meet the requirements of higher level jobs. Such employees may be demoted to jobs
suitable to their knowledge and skills. Thus, demotions help to correct errors in promotion.

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Technological Changes: On account of changes in technology and work methods, some
employees may be unable to handle their jobs or adjust to new technology. These employees
may have to be demoted.
Disciplinary Measures: Demotions may be used as a tool of disciplinary action against erring
employees. However, demotion should be used rarely in exceptional cases because it affects job
satisfaction and morale of employees. Demotion should not be used as a penalty for poor
attendance record, violation of rules of conduct or in subordination because because such action
produces defensive behavior without any improvement in behavior or performance.

9.12 Demotion Policy

A systematic policy on demotions should contain the following points:

I. The circumstances under which employees can be demoted (reduction in operations,
serious indiscipline, etc.) should be clearly specified and made known to employees.
II. The superior who is authorized and responsible to initiate a promotion should be named.
III. Any alleged violation of established rules and regulations should be completely
investigated.
IV. Once violations are proved there sh·ould be consistent and equitable application of the
policy.
V. The policy should be fair and impartial.
VI. The lines of demotion should be specified.
VII. In case of demotions caused by adverse economic conditions and technological changes,
the basis for demotion should be specified.
VIII. Clear cut norms for judging merit and seniority should be stated.
IX. Guidelines for determining seniority of demoted employee and nature of demotion should
be formulated.
X. A provision should be made for appeal and review of every demotion.
XI. It should be an open rather than a closed policy.

9.13 Types of Employee Separation

Separation of an employee takes place when his service agreement with the organization comes
to an end and the employee leaves the organization. It may occur due to resignation, retirement,
death, dismissal and layoff.
a) Resignation: An employee may decide to quit an organization voluntarily on personal or
professional grounds such as getting a better job, changing careers, wanting to spend
more time with family, or leisure activities. The decision could, alternatively, be traced to
the employee's displeasure with the current job, pay, working conditions or colleagues.
Sometimes an employee may be forced to quit the organization compulsorily on grounds
of negligence of duty, insubordination, misuse of funds, etc. The resignation in this case,
unlike voluntary separation, is initiated by the employer. ff the employee refuses to quit,
he may have to face disciplinary action. When employees resign or quit an organization,
there will be a certain amount of disruption to the normal flow of work. Replacing an
experienced and talented person may not be easy in a short span of time. Training new
recruits would take time and may even prove to be a prohibitive exercise in terms of
costs. The HR Department, therefore, should examine the factors behind resignations
carefully. Whenever possible, exit interviews must be conducted to find out why a person
has decided to call it a day. To get at the truth behind the curtain, departees must be
encouraged to speak openly and frankly. The interviewer must ensure confidentiality of
the infom1ation leaked out by the employee. The purpose of the interview must be
explained clearly and the interviewer must listen to the departee's views, opinions and

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 critical r�marks patiently and sympathetically. Every attempt must be made to make the
parting of ways more pleasant. There should, however, be no attempt to (a) defend the
company against criticism or attacks (b) justify actions which may have annoyed the
employee (c) attack the deprtee's views or choice of new company or job (d) convince
the employee to change his mind about leaving etc.
b) Retirement: Like a quit, a retirement is normally initiated by the employee. However, a
retirement differs from a quit in a number of ways. First, a retirement usually occurs at
the end of an employee's career. A quit can happen at any time. Second, retirements
usually result in the retiree's receiving benefits in the form of provident fund, pension,
gratuity, encashment of earned leaves, etc. from the organization. People who quit do not
receive these benefits, (without a minimum qualifying service period in case of voluntary
separations.) Finally, the organization normally plans retirements in advance. HR staff
can groom current employees or recruit new ones during the intervening period in a
methodical way. Quits are not easy to estimate and plan for. Employees retire from
service on account of following reasons:
• Compulsory Retirement: Government employees retire compulsorily after attaining the
age of superannuation (either 60 or 65). In the private sector, the retirement age may well
go beyond 65, depending on a person's ability to perform well in a competitive scenario.
• Forced Retirement: If an employee is found guilty either in court of law or has violated
the conditions enumerated in the service agreement, he may be forced to retire from the
service agreement. He may be forced to retire from the service with or without any
benefit, though he has not attained the retirement age.
• Premature Retirement: If an employee becomes disabled in an accident, or due to some
disease, he may be given the option of retiring by the management before attaining the
retirement age with full benefits of retirement. There may be some other personal reasons
also for premature retirement �uch as bad health, family problem, etc.
• Voluntary Retirement: Liberalisation and opening up of the· Indian economy have
exposed the Indian companies to foreign competition. This has forced many Indian
companies to adhere to strict cost cutting measures. One option popular among the
employers to cut cost is offering "golden handshake" to the existing employees.
Voluntary Retirement Scheme (VRS) has become an indispensable tool for the
organizations with surplus staff to cut the cost and remain competitive. Voluntary
retirement scheme (VRS) involves separation of employees- both on mutual agreement
between the organization and its employees. VRS is not know new to the Indian
corporate sector as it has been practiced in the past though the magnitude was not large
enough to attract attention. This scheme attracted attention during 1990s after the
beginning of economic liberalization in India. The liberalization has intensified
competition which has forced many organizations to have a re-look at their redundant
human resources which has been a source of fat wage bill by offering lucrative
compensation to the employees opting for this scheme.
Though it is the service sector, which is more dependent on manpower than the
manufacturing sector, it is the latter which took the lead in giving golden handshake. Even in
the service sector only banking companies have resorted to VRS to prune their manpower to
reduce their wage bills. For VRS to be successful there are several factors which have to be
taken into account. For the employer, it is the cost at which the employee is ready to separate
which is the most important aspect.
In case of voluntary retirement, the normal retirement benefits are calculated and paid to all
such employees who put in a minimum qualifying service. Sometimes, the employer may
encourage the employee to retire voluntarily-with a view to reduce surplus staff and cut down
labour costs. Attractive compensation benefits are generally in-built in all such plans. To

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 reduce post-retirement anx1et1e, companies these days organize counseling sessions, and
offer investment related services (e.g. Citibank, Bank of America). Some companies extend
medical and insurance benefits to the retirees also, e.g. Indian Oil Corporation.
c) Death: Some employees may die in service. When the death is caused by occupational
hazards, the employee gets compensation as per the provisions of Workmen's
Compensation Act, 1923. On compassionate grounds, some organizations offer
employment to the spouse/child/dependent of the employee who dies in harness.
The normal separation of people from an organization owing to resignation,
retirement or death is known as 'attrition'. It is initiated by the individual employee,
not by the company.
d) Lay A layoff is a temporary removal of an employee from the payroll of an
organization due to reasons beyond the control of an employer. Global competition,
reductions in product demand, changing technologies that reduce the need for workers,
and mergers and acquisitions are the primary factors behind most layoffs. The services of
the employees are not utilized during the layoff periods. If the layoff is for a temporary
period (sometimes it could the definite) the employee is likely to be called back to join
the ranks once again. The employer -employee relationship, therefore, does not come to
an end but is merely suspended during the period of layoff. The purpose of layoff is to
trim the extra fat and make the organization lean and competitive.
Under the Industrial Disputes Act, 1947, a lay-off implies the following things (section 2 KKK)
® The employer is temporarily unable to employ some workers on a full-time basis.
0 The reasons for the refusal of employment could be traceable to shortage of inputs,
power, accumulation of stocks, breakdown of machinery etc.
e The employer-employee relationship stands suspended during the period of lay-off.
® The employee gets (excluding holidays) only fifty per cent of his normally eligible total
basic wages plus dearness allowance during the period of lay off. (Section 25 C)
@ To claim this compensation, the laid off workman (a) should not be a casual worker (b)
his name must be there on the muster rolls (c) he must have one year's continuous service
(d) he must report for work at the appointed time at least once a day.
These conditions, however, do not apply when (i) the worker is able to find alternative
employment in a nearby location (within 5 miles), (ii) the lay off is due to strike or slowing down
of production by workers in another part of the establishment (iii) the industrial establishment is
seasonal in character, and (iv) where less than 20 workers are normally employed therein.
Layoffs have a powerful impact on the organization. They bring down the morale of the
organization's remaining employees, who are forced to live in an environment of uncertainty and
insecurity. Sometimes, even employees whose services may be essential for the organization,
may quit fearing loss of membership-thus causing further damage to the organization. The
company's standing as a good place to work may suffer. It may be difficult for the company to
have the services of talented people afterwards. Layoffs, therefore, have to be carried out in a
cautious way keeping the financial, psychological anq.s@cial consequences in mind.
e) Retrenchment: Retrenchment is the permanent termination of an employee's ser:vices
due to economic reasons (such as surplus staff, poor demand for products, general
economic slow down, etc.) It should be noted here that termination of services on
disciplinary grounds, illness, retirement, winding up of a business does not constitute
retrenchment. In respect of organizations employing 100 or more persons, the Industrial
Disputes Act, 1947, makes it obligatory for the employer to give advance notice or pay
equivalent wages before the actual lay off date. To claim 50 percent of basic wage plus
dearness allowances, the \Vorkmen (who is not a casual worker, whose name app�ars on
pay roll, who has completed 12 months of continuous service) must present himself on
each working day at the appointed time inside the factory/office premises during the lay

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 off period. If necessary, he might be asked to report a second time during the same day.
While laying off workman, the employer is expected to follow the first-in-last-out
principle. He should give preference to such workmen if he advertises for re-employment
against future openings. The employer has to give three months' notice before
retrenching the worker and get prior approval from the government as well.
f) Outplacement: Employees who are retrenched/laid off may have difficulty in finding an
alternative job if the market conditions are adverse. There might be a demand for certain
category of employees possessing multiple skills, but the retrenched employees may not
have those 'marketable skills'. To fill this vacuum, some organizations offer training in
such skills and assist the retrenched employees in finding a suitable job elsewhere.
Outplacement assistance includes 'efforts made by employer to help a recently separated
worker find a job'. Apart from training, some multinational firms offer assistance in the
form of paid leave, travel charges for attending interviews, search firm charges, waiving
bond requirements to the retrenched employees. Bank of America has given a 'fat sum'
as liberal retrenchment compensation running into several lakhs of rupees to all eligible
retrenched officers in 1998. It has also held counseling sessions for those officers on
issues such as how to repay their car/house loans, where the downsizing effort stabilized,
Bank of America had even extended the former employees' a 'warm welcome back
home!' Such outplacement assistance, in whatever form it is available, assures the
remaining employees of the management's commitment towards their welfare if a further
downsizing ever happens to take place in future. Merits of outplacements are (i) it shows
the human face of.� company (ii) eases the pain of retrenchment (iii) preserves the
morale of those who remain with the company (iv) smoothens the way for future
downsizing moves. (v) helps you retain your former employees' respects. The demerits
include (i) may be time consuming and costly (ii) maintaining databases an other jobs is
not easy (iii) Can work only when retrenching a few managers at a time. (iv) can be
turned down by hungry, disillusioned employees (v) difficult to convince and implement
at the level of workers.
g) Suspension: Suspension means prohibiting an. employee from attending work and
performing normal duties assigned to him. It is a sort of punishment for a specified period
and is generally resorted to only after a proper inquiry has been conducted. During
suspension, the employee receives a subsistence allowance. If the charges against the
suspended employee are serious and are proved, suspension may lead to termination also.
h) Discharge and Dismissal: Dismissal is the termination of the services of an employee as
a punitive measure for some misconduct. Discharge also means termination of the
services of an employee, but not necessarily as a punishment. A discharge does not arise
from a single, irrational act. There could be many reasons for it such as (i) inebriation and
alcoholism (ii) willful violation of rules (iii) carelessness (iv) insubordination (v) physical
disability (vi) dishonesty (vii) violent and aggressive acts (viii) inefficiency (ix)
unauthorized absence from duty for a long time. Discharge/ dismissal is a drastic measure
seriously impairing the earnings potential and the image of an employee. It should be
used sparingly, in exceptional cases where the employee has demonstrated continued
inefficiency, gross insubordination or continued violating rules even after several
warnings. Before discharging the employee, must be stated clearly. The employee should
be given the opportunity to defend himself. If the grounds under which an employee has
been discharged are not strong enough, there should be a provision for reviewing the
case, the punishment should not be out of proportion to the offence.

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9.14 Summary

Transfers of employees are made to satisfy needs of both employer and employees. Production,·
replacement, versatility, remedial and shift are the types of transfer. Promotion of employees
helps to improve motivation, morale, efficiency, etc. of employees. Seniority and merit are the
two main bases of promotion. Every company should have proper policies relating to transfer
and promotion. Demotion is reverse of promotion. · Separations take place in the form of
resignation, retirement, layoff, retrenchment, dismissal and death of employees.

9.15 Test Questions

QI. Why is it necessary to change an employee's job? Explain the purpose ofjob changes.
Q2. Define promotion. How does it differ from upgradation and transfer?
Q3. Explain the relative merits and demerits of seniority and merit as the basis of promotion.
Q4. Briefly explain the ways by which employees separate themselves from the enterprise they
· are serving.

9.16 Further Readings

Decenzo, D.A. and S.P. Robbins, "Personnel/Human Resource Management",. Prentice Hall of
India, New Delhi, 2003.
Dessler," Human Resource Management", Prentice Hall of India, New Delhi.
French, W., "the Personnel management Process", Haughten Miffin, Boston.
lvanecevich, John M., "Human Resource Management", McGraw Hill.
Wreather and Davis, "Human Resource Management", Prentice Hall, New Jersey.

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 Unit IV
LESSON 10

COMPENSATION ADMINISTRATION
Dr. Pooja Goel
Shaheed Bhagat Singh College
University ofDelhi

Objectives
After going through this unit you should be able to:
• Define Compensation
• Establish Pay rates
• Outline the Factors Influencing Compensation levels
• Discuss the Wage Policy in India

Structure
10.1 Meaning of Compensation
10.2 Principles of Wage and Salary Administration
10.3 Essentials of a Sound Wage and Salary Structure
10.4 Factors Affecting Wages
10.5 Methods of Wage Payment
10.6 The Process of Wage Determination
10.7 Wage Policy in India
10.8 Executive Compensation
10.9 Problems in Wage and Salary Administration
10.10 Indian Practices
10.11 Summary
10.12 Test Question
10.13 Further Readings

Compensation is what employees receive in exchange for their contribution to the organization.
Generaliy, employees offer their services for three types of rewards. Pay refers to the base wages
and salaries employees normally receive. Compensation forms such as bonuses, commissions
and profit sharing plans are incentives designed to encourage employees to produce results
beyond normal expectations. Benefits such as insurance, medical, recreational, retirement etc.,
represent a more indirect type of compensation. So, the term compensation is a comprehensive
one including pay, incentives, and benefits offered by employers for hiring the services of
employees. In addition to these, managers have to observe legal formalities that offer physical as
well as financial security to employees. In addition to these, managers have to observe legal
formalities that offer physical as well as financial security to employees. All these issues play an
important role in any HR department's efforts to obtain, maintain and retain an effective
workforce.

10.1 Meaning of Compensation

Compensation refers to a wide range of financial and non-financial rewards to employees for
their services rendered to the organization. It is paid in the form of wages, salaries and employee

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benefits such as paid vacations, insurance, maternity leave, free travel facility, retirement
benefits, etc. Monetary payments are a direct form of compensating the employees and have a
great impact in motivating employees. The system of compensation should be so designed tjlat it
achieves the following objectives:
1. Attract Talent: Compensation needs to be high enough to attract talented people. Since
many firms compete to hire the services of competent to hire the services of competent
people,.the salaries offered must be high enough to motivate them to apply.
2. Retain Talent: If compensation levels fall below the expectations of employees or are not
competitive, employees may quit in frustration.
3. Ensure Equity: Pay should equal the worth of a job. Similar jobs should get similar pay.
Likewise, more qualified people should get better wages.
4. New and Desired Behaviour: Pay should reward loyalty, commitment, experience, risk
taking, initiative and other desired behaviours. Where the company fails to reward such
behaviours, employees may go in search of greener pastures outside.
5. Control Costs: The cost of hiring people should not be too high. Effective compensation
management ensures that workers are neither overpaid nor underpaid.
6. Comply with Legal Rules: Compensation programmes must invariably satisfy
governmental rules regarding minimum wages, bonus, allowances, benefits, etc.
7. Ease of Operation: The compensation management system should be easy to understand
and operate. Then only will it promote understanding regarding pay-related matters between
employees, unions and managers.
8. To Attract Competent Personnel: A sound wage and salary administration helps to attract
qualified and hard-working people by ensuring an adequate payment for all jobs.
9. To Improve Union Management Relations: Wage and salaries based on systematic
analysis of jobs and prevailing pay levels are more acceptable to trade unions. Therefore,
sound wage and salary administration simplifies collective bargaining and negotiations over
pay. It reduces grievances arising out of wage inequities.
10. To Improve Public Image of the Company: Wage and salary programme also seeks to project
the image.of a progressive employer and to comply with legal requirements relating to wages
and salaries.

10.2 Principles of Wage and Salary Administration

The following guidelines should be followed in the administration of wages and salaries:
@ Wage policy should be developed keeping in view the interests of the employer, the
employees, the consumers and the community.
·@ Wage policy should be stated clearly in writing to ensure uniform and consistent application.
® Wage and salary plans should be consistent with the overall plans of the company.
Compensation planning should be an integral part of financial planning.
@ Wage and salary plans should be sufficiently flexible or responsive to changes in internal and
external conditions ofthe organizations.
@ Management should ensure that employees know and understand the wage policy of the
company. Workers should be associated in formulation and implementation of wage policy.
111 All wage and salary decisions should be checked against the standards set in advance in the
wage policy.
o Wage and salary plans should simplify and expedite administrative process.
@ An adequate database and a proper organizational set up should be developed for
compensation determination and administration.

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 • Wage policy and programme should be reviewed and revised periodically in conformity with
changing needs.

10.3 Essentials of a Sound Wage and Salary Structure

The main requirements of a sound structure of base compensation are as follows:

I. Internal Equity: It implies a proper relationship between wages paid for different jobs
within the company. If, for example, the salary of a clerk is lower than that of a peon, there is
lack of internal equity. Pay differentials should be related directly to differentials in job
requirements. Fair pay differentials between jobs can be established with the help of job
evaluation. Job evaluation helps to determine relative worth of a job. It is useful in
eliminating widely varying wages for jobs of equal difficulty. It also minimizes wage.
differentials on the basis of sex, religion, caste, etc. Thus, the relationship of wages and
salaries paid for different jobs is just as important for good personnel relations as is the firm's
general level of wages.
II. External Competitiveness: Wages and salaries in the organization should be in line with
wages and salaries for comparable jobs in other organizations. Otherwise the organization
may not be able to attract and retain competent personnel. Data relating to pay levels in other
organizations can be collected through wage and salary survey. A salary survey reveals what
other organizations pay for specific jobs and the basis for payment. Once the going rate
prevailing in the region is known, the company can decide a higher or lower level for its
employees without distributing internal equity.
III. Built-fo-Inc�ntive; Wage or salary plan should contain a built-in-incentive so as to motivate
employees to perform better. Such an incentive can be developed through performance based
payment. A part of the total payment should be linked to individual or group performance. A
soundperformance appraisal system should be used to measure accurately and objectively
the performance of individual employees.
IV. Link with Productivity: Some part of the total pay should be linked to productivity. Such
linkage is necessary because workers expect a share in productivity gains. This will also help
to control labor costs.
V. Maintain Real Wages: At least a part of the increase in the cost of living should be
neutralized so as to protect the real wages of labour. Dearness allowance is used in India for
this purpose.
VI. Increments: Compensation policy can be good motivator if pay increases are linked with
merit. But annual increments should partly be linked to seniority or years of service. The
logic for seniority based increments is that as a person accumulates experience his skills get
sharpened and his efficiency tends to increase.

10.4 Factors Affecting Wages

The amount of compensation received by an employee should reflect the effort put in by the
employee, the degree of difficulty experienced while expending his energies, the competitive
rates offered by others in the industry and the demand-supply position within the country, etc.
The main factors influencing wage or salary levels are as follows:
I. Job Needs: Jobs vary greatly in their difficulty, complexity and challenge. Some need high
levels of skills and knowledge while others can be handled by almost anyone. Simple,
routine tasks that can be done by many people with minimal skills receive relatively low pay.
On the other hand, complex, challenging tasks that can be done by few people with high skill

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 levels generally receive high pay.
2. Ability to Pay: Projects determine the paying capacity of a firm. High profit levels enable
companies to pay higher wages. This partly explains why computer software industry pays
better salaries than commodity based industries. Likewise, multinational companies also pay
relatively high salaries due to their earning power.
3. Cost of Living: Inflation reduces the purchasing power of employees. To overcome this,
unions and workers prefer to link wages to the cost of living index. When the index rises due
to rising prices, ,Nages follow suit.
4. Prevailing VVage Rates: Prevailing wage rates in competing firms within an industry are
taken into account while fixing wages. A company that does not pay comparable wages may
find it difficult to attract and retain talent.
5. Unions: Highly unionized sectors generally have higher wages because well organized
unions can exert presence on management and obtain all sorts of benefits and concessions to
workers.
6. Productivity: This is the current trend in most private sector companies when workers'
wages are linked to their productivity levels. If your job performance is good, you get good
wages. A sick bank, for example, can't hope to pay competitive wages, in tune with profits
making banks.
7. State Regulations: The legal stipulations in respect of minimum wages, bonus, dearness
allowance, allowances, etc., determine the wage structure in an industry.
8. Demand and Supply of Labour: The demand for and the supply of certain skills determine
prevailing wage rates. High demand for software professionals, R&D professionals in drug
industry, telecom and electronics engineers, financial analysts, management consultants
ensures higher wages. Oversupply kills demand for a certain category of employees leading
to a steep fall in their wages· as well.
Most employers, nowadays, are interested in paying a fair wage to all workers which is neither
very high nor very low.

10.5 Methods of Wage Payment

Basically there are two methods of paying labour remuneration and other methods are
combinations or modifications of these two. One is the time wage system and another is the
piece wage system.
(A) Time Wage System: Under this system, wages are paid on the basis of time spent on the
job irrespective of the amount of work done. The unit of time may be a day, a week, a
fortnight or a month. In the past, daily wages have been the most common basis and,
therefore, it came to be known as the 'Day Wage System'.
Time wage system has the following advantages:
L It is the simplest and the oldest method. It is easy to understand and workers can
easily compute their own remuneration.
IL Earnings of workers are regular and fixed and they do not suffer from temporary loss
of efficiency. This gives them a sense of economic security and self-confidence. The
worker is assured of a fixed income and can, therefore, plan his expenses accordingly.
III. The plan is economical as no detailed records of output are required. Clerical work in
the computation of wages is minimum. The employer knows the cost of labour.
IV. As there is no pressure to speed up production, the quality of work can be kept high.
A worker can show his skill.
V. This method also avoids wasteful handling of materials and tools. In the absence of

111
 -,i;
rough handling of machinery, repairs and maintenance expenditure is iow. Workers
can adjust the pace of work so that there is no injury to their health.
VI. Learners can concentrate on learning the best methods of work as their earnings are
not dependent on the amount of work.
VII. Unions prefer time wage as it does not differentiate between efficient and inefficient
workers. A sense of equality and solidarity is created among them.
VIII. Where work done is of an intangible nature, e.g., mechanics, design engineers,
service, etc. It is difficult to measure output accurately and standards of output
cannot be laid down. In mental and non-repetitive jobs, therefore, time vvage is a
more equitable and convenient method.
IX. In continuous or assembly line production, the pace of work is beyond the control of
an individual worker. Time wage is, therefore, a better method.
X. It is an objective method.
XL The employer can calculate the wage bill in advance.
The time wage system suffers from the following disadvantages:
I. The method provides no incentive for better performance as reward is not proportionate
to effort. It makes no distinction between efficient and inefficient workers. Efficient and
hardworking employees receive the same remuneration as inefficient employees and
shrinkers. It thus has a demoralizing influence and encourages soldiering on the job.
II. Guaranteed remuneration makes workers indifferent and complacent
III. Calculation of labour cost per unit is difficult as the total wage bill does not change with
the volume of production.
IV. In the absence of an incentive to hard work, productivity of labour becomes low unless
close supervision is used. Thus, cost of supervision is high.
V. Control over labo.ur cost becomes difficult and more payment may be made for the lesser
amount of work.
VI. There is no basis for finding the merit of different employees and promotions may have
to be made on the basis of seniority. This may lead to deterioration in the morale of
efficient and young employees.
Time wage system is suitable under the following conditions:
I. Where units of output are non- measurable as in case of office work and mental work is
involved as in policy working.
II. When employees have little control over the quantity of output or there is no clear-cut
relation between effort and output as in some machine- paced or assembly line jobs.
III. When delays in work are frequent and beyond the control of employees, i.e. where output
is uncertain and irregular.
IV. When quality of work is especially important, e.g. artistic furniture, fine jewellery, etc.
V. When supervision is good and supervisors know what constitutes a "fair day's work".
VI. When competitive conditions and cost control do not require in advance the precise
knowledge of labour costs per unit of output.
VII. Where machinery and materials used are very sophisticated and expensive.
VIII. Work is of a highly varied nature and standards of performance cannot be established.
IX. Employees and trade unions strongly oppose incentive payments.
X. When workers are new and learning the job.
XI. When collective efforts of a group of persons are essential for completing the job.
(B) Piece Wage System: Under this system, remuneration is based on the amount of work
done or output of a worker. One unit of output is considered as one piece and a specific
rate of wage is paid per piece. Greater is the number of pieces produced by a worker,

112
 higher is his rs:muneration. Thus, a workman is paid in direct proportion to his output. It
is cailed payment by results.
Piece wage systern has the following 3dvantages:
I. There is a direct relation between effort and reward; workers who work hard and produce
more get more wages. This provides an incentive to increase productivity.
II. Ambitious and f,fficient \vorkers are provided mnple opportunity to utilize their talent and.
increase their ,::1rnings and thereby improve their standard of living and morale.
The method is just and fair In all. Efficient workers get ample reward, while shrinkers are
penaiized. lt prevents soldierir.g on the job.
!V. Management can distinguish between efficient and inefficient workers for the purpose of
promotion, etc.
!ncrcas::; in prcductivity resu;u; in higher output and lower costs of production per unit.
The cost of bbour per unit of output can be easily calculated as the wage bill varies in
direct proportion to the output.
VTI. As ·workers themselves have a stake in maximization of efficiency, cost of supervision is

vm. Workers are i>Fxe likely to cooperate with the schemes of rationalization designed to
improve efficicricy of operations.
J >C. If the benefits of lov-.'cr costs are passed to consurners in the for1n of lower prices or better
quality, foe sock:ty a.·, a whole st,:mds to gain.
Piece wage sys1ern is, howeve:r, subject to the foilowing drawbacks:
L It is very difficult to fix piece \vage rates. Employers often cut the piece rate when they
find \Vorkers ::'tie producing large qu:mtities.
H. The errnings of \\\H+�ers a.ie not stable and they may suffer due to temporary delays or
difficulties. They fr,1:3j insecure ai1d dissatisfied.
EI. In or.3,;;r 10 nrnximi:,�e their l:arnings, workers work with excessive speed. This may affect
their health. It a.lso incrtascs the \.Vastage M' materials and wear and tear of machinery.
The method is not suitable for wcnk of artistic and delicate nature.
r1 Employe,�s may nc)t stress quality so that rigid quality control becomes necessary.
V, This system m:::y create jealousy between efficient and inefficient workers. Trade unions
do not like it ct-; lt �1fff.:cts their sohdarity.
VI. Detailed records cf production have to be kept so that the clerical work is increased. The
rnethod is not practicable when contribution of individual workers cannot be calculated.
VH. The method rnay lead to industrial disputes. Fixation of piece rates may create
controversy. \Vorkers resent loss of output and earnings due to breakdown of machinery
or power, non-availability of materials and such other factors beyond their control. Trade
unions dislike piece \vagc system.
Piece wage system is suitflble under the following conditions:
I. When work done by an individual worker can be measured acciirately, e.g. production of
standardized goods in the factory.
H. When the quantity of output depends directly upon the skill and efforts of the worker.
J.II. Where the flow of work is regular and interruptions are minimum, i.e. repetitive jobs.
IV. Where quality and workmanship are not very important.
V. In large scale production involving heavy overheads and broad supervision.
VI. When competitive conditions and cost control require that labour cost per unit fixed in
order.
\'fl. When methods of production arc standardized and the job is of a repetitive nature.

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=10.6 The Process of Wage Determination

The wage determination process consists of the following steps:

(i) Job Analysis: First of all the contents and requirements of a job are analysed. The data
collected through job analysis is used to prepare job description and job specification.
On the basis of these statements standards ofjob performance are laid down.
(ii) Job Evaluation: The relative value of every job is determined through job evaluation.
The relative job value is then converted into money value so as to fix basic wage for
the job.
(iii)Wage Survey: Wage or salary surveys are conducted to find out wage/salary levels
prevailing in the region or industry for similar jobs. Other organizational problems
such as recruitment policy, fringe benefits, etc. are also considered.
(iv)Developing Wage Structure: On the basis of foregoing steps an equitable wage
structure is prepared. While determining such a structure several points need to be
considered:
a) Legislation relating to wages;
b) Payments equal to, more or less than prevailing wage rates;
c) Number and width of pay grade;
d) Jobs to be placed in each pay grade;
e) Provision for merit increases;
f) Differentials between pay plans; and
g) Dealing with wages/ salaries that are not ofline with the structure.
(v) Wage Administration Rules: Rules are required to determine the degree to which
advance will be based on length of service rather than merit, the freqi.1ency with
which pay based on length of service rather than merit, the frequency with which pay
based on length of service rather than merit, the frequency with which pay increments
will be awarded, the rules that will govern promotions from one pay grade to another,
and the way control over wage/salary costs can be maintained. Once the rules are
framed these should be communicated to the employees.
(vi)Employee Appraisal: In order to reward merit and performance, it is necessary to
evaluate the performance of individual employees. Some differentials in pay are
maintained on the basis of employee's performance. This is necessary to provide
incentive for hard work and superior performance is evaluated against predetermined
standards of performance.

10.7 Wage Policy in India

�
Pay structure in a company depends upon several factors; e.g., wage settlements, labour
market situation, company's nature and size, etc. Pay structure consists of certain grades,
scale and range of pay in each scale. Each scale has a minimum and a maximum limit. Jobs
placed within a particular grade carry the same value though the actual pay in a grade
depends upon length of service and or performance of the employee.
Pay structure in India generally consists of the following components:
► Basic wage/salary
► Dearness allowance (D.A.) and other allowances
► Bonus and other incentives
► Fringe benefits or perquisites
a) Basic wage/salary: The basic wage provides the foundation of pay pocket It is a price

114
 for services rendered. It varies according to mental and physical requirements of the job
as measured through job evaluation. In India, basic wage has been influenced by statutory
minimum wage, wage settlemenis, and awards of wage boards, tribunals, pay
commissions, etc. According to the Fair Wages Committee any attempt to evolve
principles fo;_· governing the fixation of wages must be made against the background of
general economic conditions of the country and the level of national income. The
committee gave three concepts relating to basic wages.
i. Minimum Wages: Minimum wage is that wage which must invariably be paid
,vhetl1er the company, big or small, makes profits or not. It is the bare minimum
that a \vorker crn expect to get for services rendered by him. The 15 th Indian
Labour Conference( i ()57) formally quantified the term 'minimum wage' thus:
• In calculating the mini,W.'.ll\ wage, the standard working class family should be
taken to comprise three consumption units for one earner, the earnings of women,
children and adolescents being disregarded;
e Minimum food requirements should be calculated on the basis of a set intake of
calorics as recommended by Dr. Aykroyd for an average Indian audit of moderate
activity:
.. Ciothing r,�quiremcnts shou!<l be estimated on the basis of per capita consumption
of i 8 y,u ds per annum which would give for the average worker's family of four

:i in resper..:t of housing. the rent c0rresponding to the minimum area provided for
under G0vernrnent Industrial Housing Scheme should be taken into consideration
in fixing the minimum wage;
� Fuel, iighting and other miscellaneous items of expenditure should constitute 20
percr:::nt of the total miiiinrnm wage.
lL Fair Wage: it is that wage ·which is above the minimum wage but below the
living vvage. According to the Committee on Fair wages, 1948, fair wage should
be determined taking the follon1ing factors into account:
• The produc1ivity of labour;
41 The pr(;vaifo·1g rates of wages in the same or similar occupation in the same region
or neighboring regions;
• The level of national income and its distribution;
411 1 he pla..:e of industry in the economy ofihe country; and
• The employer's capacity to pay.
iii. Uving \"th,ge: A.ccord;ng to the Committee on Fair Wages, the living wage is the
highest among lhe thre0. Ii must provide (i) basic amenities of life (ii) efficiency
of worker and (iii) satisfy soci21l needs of workers such as medical, education,
retirement, etc. 'Living Wage' is a dynamic concept, which grows in line with the
growth of the national economy.
State Regulation of Wages
The Government has adopted various methods to regulate wages in India such as prescribing
minim um rates of wages, regulating payment of wages, settlement of wage related disputes
through adjudication process setting up of wage boards, etc.
:Minimum Wages Act, 1948: The Act prescribes minimum rates of wages for certain sweated
and unorganised sectors covered under the Act. The minimum wages can be fixed by hour, day,
rnonlh or any other longer period. The Act provides for setting up a tripartite body consisting of
0mpioyees, unions and the government, to advise and assist in fixing and revising minimum
,.vage rates. The rates could be subjected to revision at intervals not exceeding 5 years. The Act

115
 has not been able to prevent exploitation of labour due to a variety of reasons:
e The Vidyasagar Commiittee, 1965, pointed out that the desired objective of the Act could
not be realized due to inadequate and improper organisation of the administrative
machinery.
• Minimum wages have not been revised as stipulated in the Act. They are revised after
much longer intervals.
• The Act did not define minimum wages nor specified any norms for its determination.
The Supreme Court has held (in 1992) that · the appropriate authorities should take into
consideration the components such as children's education, allowance, medical needs, minimum
recreation, provision for marriage, old age etc. while calcuiating minimum wages.
The Payment of Wages Act, 1936: The main objective of the. Act is to provide for regular
payment of wages without any unauthorised reductions to persons who are employed in any
industrial establishment or factory or railway or by a railway contractor whose monthly wages is
less than Rs. 1600. The Act prescribes the following permissible deductions to be made from the
employee's salary: fines, deductions for absence, deductions for (i) loss of goods entrusted to
worker, (ii) house given by employer, (iii) services provided by employer, (iv)advances given to
worker, (v) tax payable by employer, (vi) deductions under court orders, cooperative society.
P.F., insurance premium, etc.
Adjudication of Wages disputes: CoHective bargaining is a procedure through which employee
problems relating to various issues including wages are settled through the process of joint
consultation, in an atmosphere of' give and take', trust and mutual confidence. If these problems
are not settled through collective bargaining, they may be settled through voluntary arbitration or
adjudication. The awards given or reached by or through the arbitrator or adjudicator or
collective bargaining agreements from the basis for fixing wages in various organisations.
Wage Boards: This is one of the important set up by the Government of India for fixation and
revision of wages. Separate wage boards are set up for separate industries. Government of India
started instituting Wage Boards in accordance with the recommendations of Second Five -ye3r
Plan, which were reiterated by the Third Five-Year Plan. Wage Boards arc not governed by any
legislation but are appointed on an adhoc basis by the Government. Each Wage BoLd consists of
one neutral Chairman, two independent members and two or three representatives of workers and
management each. The Wage Boards have to study various factors before making any
recommendations. The recommendations of Wage Board are first referred to the Government for
acceptance. The Government may accept with or without modification or reject the
recommendations of the Wage Board. The recommendations accepted by the Government Pre
enforceable by the parties concerned. The Wage Boards take the following factors into
considerations for fixing or revising the wages in various industries: (i) Job evaluation (ii) Wage
rates, for similar jobs in comparable industries (iii) Employees' productivity, (iv) Firm's ability
to pay, (v) Various wage legislation (vi) Existing level of ·.vage differentials and their
desirability, (vii) Government's objectives regarding social justice, social equality, econornic
justice and economic equality, (viii) Place of the industry in the economy and the society of the
country and the region, (ix) Need for incentives, improvements in productivity, etc.
Pay Commissions: Wages and allowances of Central and State Government employees are
determined through the pay commissions appointed by the appropriate Government. So far the
Central Government has appointed five pay commissions. The disputes, arising out of pay
commission awards and their implementations are decided by commissions of inquiry.
adjudication machinery and the joint consultative machinery.
b) Dearness Allowance (D.A.) and Other Allowances: This allowance is given to protect
the real wages of workers during inflation. Under Section 3 of the Minimum Wages /\ct

116
 it is described as cost of living allowance. Dearness allowance has become an integral
part of the wage system in India. The following methods are used to calculated dearness
allowance:
I. Flat Rate: According to this method, D.A. is paid at a flat rate to all workers
irrespective of their wage levels and regardless of changes in the consumer price
index. This method was used in jute, cotton and engineering industries in West
Bengal in the early days of adjudication.
II. Graduated Scale: Under this method, D.A. increases with each slab of salary.
Therefore, D.A. as a percentage of basic pay decreases steadily as shown in table
11.1.

Table 11.1: Graduated Scale of D.A.

Pay Scale Amount ofD.A. D.A. as Percentage of
(Rs.) (Rs.) Maximum of the Pay
scale
0-500 100 20
500-1000 150 15
1000-1500 200 13
1500-2000 250 12.5

III. Index Based D.A.: In this method a flat rate per point of index is prescribed so
·that all workers determine the same amount of D.A. irrespective of their pay
scale. For example, if Rs. 1.50 is the rate Rs. 15 will be paid as D.A. whenever the
All India Consumer Price Index (AICPP) increases by 10 points. This method is
in force in the cotton mills of Mumbai and Chennai and in many Central
Government unde1takings.
IV. D.A. Linked to Index and Pay Scale: Under this method, a higher rate ofD.A. is
prescribed for lower pay scales and a lower rate for higher pay scales. This
method is used to pay D.A. to employees in Government offices and in many
central public sector undertakings.
In addition to D.A., several types of allowances are in use. These are city compensatory
allowance, bank allowance, education allowance, house rent allowance, car/conveyance
allowance, medical allowance, tiffin allowance.
c) .Borms: An important component of employees' earnings, besides salary, is bonus. The
dictionary meaning of 'bonus' is an extra payment which' aims at bridging the gap
between the actual wage and the need based wage. It is also said that bonus is primarily a
share of the workers in the prosperity of an organisation. Bonus is primarily a share in the
surplus. It is not only incidentally treated as a source of bridging the gap between the
actual wage and the need based wage. According to the Bonus Commission (1961),
bonus is "sharing by the workers in the prosperity of the concern in which they are
employed. In the case of low paid workers such sharing in the prosperity augments their
earnings and iielps to bridge the gap between the actual wage and the need based wage."
Payment of Bonus Act, 1965: The Act provides for the payment of bonus to persons
employed in specific establishments. The main provisions of the Act are as follows:
® Every employee in the specified establishments drawing a salary (basic pay plus
D.A.) not exceeding Rs. 3,500 per month is entitled to bonus provided he has
worked for not less than 30 days in the year.
® Bonus is to be calculated on a salary ofRs. 2,500 per month whenever the actual

117
 salary exceeds this amount.
• Every employer is bound to pay a minimum bonus of 8.33 per cent of the salary
of an employee or Rs. 100 per year whichever is higher whether or not he has any
allocable surplus in the accounting year.
• If an any accounting year the allocable sm1Jlus exceeds the amount of minimum
bonus payable to employee the employer shall pay a higher bonus sut:iect to a
maximum of20 percent of salary or wage.
• The surplus or deficit in the allocable surplus can be carried fonvard to be set off
or set on during the next four years.
• An employee dismissed from service for fraud, theft, misappropriation . or
sabotage of property and riotous/violent behaviour on the premises or the
establishment is not entitled to bonus.
• · Employers and employees can enter into any agreement or settlement for payment
of productivity linked or other type of bonus subject to the minimum and
maximum limits of bonus prescribed under the Act.
d) Fringe Benefits: Abroad range of benefits and services is provided by an employer to his
employees in addittion to wage and salary, These are based on critical job factors and
performance. These represent indirect compensation. These are no longer fringe as these
constitute a significant part of total compensation package and substantial labour cost for
employer. Fringe benefits are like- payment for time not worked such as sick leave with
pay, earned leave, pension, gratuity, stock options, insurance, leave travel pay, maternity
leave etc.

10.8 Executive Compensation

The pay packet of executives consist of several components such as the following:
a) Straight Salary.
b) Bonus based on company's profits or commission as a percentage of profit.
c) Stock options involving issue of the company's shares at a special price wh:d1 is lower
than market value.
d) Fringe benefits or perquisites such as free furnished housing, servants, chauffeur driven
car, free telephone, membership of professional association, discount coupons,
sponsorship to executive development irogrammes, expense account, enteriairnm:nt
allowance, etc.
Executive compensation depends on several factors, some of which are as foliows:
(i) Complexity of the Job: Managerial jobs are more complex requiring higher skilis and
greater responsibilities. These jobs call for creativity, innovation, decision-makin/
and other skills, Job complexity differs with the nature of industry for instance in high
tech industries like petrochemicals, pay scaies tend to be relatively higher.
(ii) Capacity to Pay: Large (sales volume) fast growing (increases in fixed assets) and
diversified companies generally pay higher remuneration to the executives than small
and stagnant companies.
(iii) Educa.tion and Experience: Professionally trained and experienced managers nre
relatively short in supply. Therefore, higher remuneration fr, paid to young and
inexperienced executives.
(iv) Performance: Performance in efficiency are more significant in managerial jobs.
Executives who consistently outperform others are in great demand and companies
are willing to reward them substantially.

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 .
(v) Economic Environment: Liberalisation and globalisation in India has led to increase in
executive pay. Multinationals' pay scales tend to be high and Indian firms are
stepping up managerial salaries to attract and retain executive talent.
(vi) Legislation: In India, managerial remunerational is subject to Government control under
the Companies Act. Statutory limits on the amount of remuneration payable to
different categories of managerial personnel of public limited companies and their
subsidiaries have been laid down. These limits are given in Table 11.2

T a ble 112 : C ategones ofM ana2ena. I ersonne Ifor Remunera fion

p
Category of Managerial Personnel Maximum
Percentage of
Annual Net
Profit
(i) Total remuneration payable to managerial personnel 11%
(ii) Managing/Whole time director : one 5%
(iii) Manager 5%
(iv) Managing director(s)/Manager with one or more 10%
whole- time directors taken together

10.9 Problems in Wage and Salary Administration

Pressure is constantly exerted on the wage and salary committee for pay increases by
cx.ecutives, supervisors and employees. If the committee yields to such pressure, it would serve
to boost the wage expenditure of the company above the funds available for the payroll. It may
also result in glaring injustice because the rewards that belong properly to the efficient workers
would be granted instead to those who could press the hardest. The aggressive department head
may possess in an unusual degree the commendable loyalty to his people that prompts him to
take a belligerent stand with reference to salary increases. Because of human element, wage and
sa/21ry committee or administrator yields more often to the department head who is aggressive.
Such pressure may be restrained to some extent where a departmental budget system is used. On
this basis, 1f a given department exceeds the budget allowed to it, the departmental head may be
asked to ex.plain the reason for this.
The broad view point of the wage and salary committee is seldom possessed by the
individual department head, whose activities are confined to compare the situation within his
o
department with that existing in other departments. Therefre, he is inclined to have a biased
view that his department is the most important department in the organisation. This pride in his
own department might lead him to seek higher monetary rewards for his subordinates than they
desz'.rve. The wage committee, by vi1iue of its central position and available records, can readily
serve as c. much needed break upon the departmental head whose wage scales are definitely
higher than are justified by sound company practice and as a spur to the departmental head who
is consistently opposed to pay a higher rate than is required. Sound practice in wage and salary_
administration ca!is for rnsing wages which are too low as well as curtailing those which are too
high. Effective wages and salary administration recognize the need for a direct tie-up between
performance and reward and to do economic justice to all employees.
In rnany organisations, there are serious inconsistencies in the wage scales of different -
employees. These inequities are essential to any sound wage administration programme. The
wage and satary committee must give attention to individual rates and salary range when:

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 1. Increase of work makes it necessary to create a new job in a department.
2. It is proposed to change the minimum or maximum rates for a job in order to maintain a
proper balance.
3. It is proposed to change the rate of pay of an individual employee as a result of his
demonstrated efficiency or inefficiency.
4. It is proposed to transfer an employee to the same job but in another department.
5. It is proposed to transfer or promote an employee to another job in the same or another
· department.

10.10 Indian Practices

Executive compensation in India is basically built around three important factors: job
complexity, employers' ability to pay and executive human capital. The complexity of cheap
executive's jobs would depend on the size of the company as measured by its scale volume,
earnings and assets' growth, the geographic dispersal of the unit, etc. The employer's ability
to pay is also a major factor to be considered while deciding executive compensation. A sick
bank, for instance, cannot to pay the same kind of salary to its executives as that of a healthy
and growing bank. This partly explains why executive's compensation in public undertakings
is less when compared to private sector units.
The economic theory of human capital says that the compensation of the worker should be
equal to his marginal productivity. The productivity of an executive likewise depends on his
qualification, job knowledge, experience and contribution. Indian companies usually
structured executive compensation along the following factors: salary, bonus, commission,
PF, family pension, superannuation fund, medical reimbursement, leave travel assistance,
house rent allowance and other perquisites. In recent years, instead of increasing the base
compensation, companies have been enhancing the worth of an executive job through novel
payment plans based on earnings/assets or failed growth of company over a period of time,
well-supported by an ever-expending list of allowance and perquisites including stock
options, educational, recreational, academic allowance and several other developmental
initiatives aimed at improving the overall personality of an executive.

10.11 Summary

Compensation administration intends to develop the lowest-cost pay structure that will not only
attract, inspire and motivate capable employees but also be perceived as fair by these employees.
The pay structure of a company depends on several factors such as labour market conditions,
company's paying capacity, legal provisions, prevailing wage rates, demand and supply of
labour, degree of unionization etc. The wage policy in India is built around certain cardinal
principles: (i) equal pay for equal work (ii) living wage for all workers so that they lead a decent
life (iii) payment of wages on appointed dates without unauthorized deductions (iv) resolving
wage related issues through collective bargaining (v) payment of statutory bonus at 8.33 percent
as per legal provisions (vi) ensuring a fair, equitable wage plan for various employees without
significant wage differences etc.

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10.12 Test Question

Ql.Ifwe pay predominantly for jobs rather than people, how can we reward the truly exceptional
performing �mployee?
Q2. What are the principal objectives of wage and salary administration? What factors should be
taken into account while deciding executive compensation?
Q3. Explain the various method of fixing wages and salaries in an organization.

10.13 Further Readings

Robert L. Mathis and John H. Jackson, "Human Resource Management", ThomsonLearning.

Storey, "Human Resurce Management", Thomson Learning, 2001.
Singh, A.K., and B.R Duggal,., "Human Resources Management", SunrisePublication, New Delhi, 2003.
Saiyalaim, M.S., "Human Resource Management", Tata McGraw-Hill, New Delhi,1999.

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 LESSON 11

INCENTIVE COMPENSATION
Dr. Pooja Goel
Shaheed Bhagat Singh College
University ofDelhi

Objectives
After going through this unit you should be able to:
• Describe the Features of an Ideal Wage System
• List the Various Methods of Wage payment
• Understand the Need for Fringe Benefits
• Outline the Various Types o±:Fringe Benefits

Structure
11.1 Meaning of Wage Incentives
11.2 Advantages of incentive plans
11.3 Requirements of a Sound Wage Incentive System
11.4 Limitations of Incentive Plans
11.5 Wage Incentives in India
11.6 Types of Wage Incentive Plans
11.7 Fringe Benefits
11.8 Need for Fringe Benefits
11.9 Types of Fringe Benefits
11.10 Summary
11.11 Test Question
11.12 Further Readings

The basic object of any incentive plan ·is to increase the production by giving an inducement to
workers in the fo1m of higher wages. An efficient plan must provide for minimum guaranteed
wage based on hourly rate and extra remuneration for increased output. In other words, an
incentive plan must include in its purview the characteristics of time based and output based
'systems of wage payment. There are a large number of such plans which are used in industrial
concern these days.
11.1 Meaning of Wage Incentives
Incentive wages refer to performance linked compensation paid to improve motivation and
productivity of employees. It implies monetary inducements offered to employees to perform
beyond acceptance standards. It is related directly or indirectly to productivity and profitability
of the enterprise. Wage incentives include all the plans that provide extra pay for extra
performance in addition to regul�r wages for the job. It is a formal system under which the
earnings of a worker, a small group or a plant workforce, are related partially or wholly to some
measure of output. According to the National Commission on Labor, "Wage incentives are extra

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financial motivation. They are designed to stimulate human effort by rewarding the person, over
and above the time rated remuneration, for improvements in the present or targeted results". In
the words of Suri, "A wage incentive scheme is essentially a managerial device of increasing
workers productivity. Simultaneously, it is a method of sharing gains in productivity with
workers by rewarding them financially for their increased rate of output."
Thus, wage incentive plans are designed to improve productivity and to secure better
utilization of human and material resources of the enterprise.
11.2 Advantages of incentive plans
Wage incentive schemes are considered beneficial to both employers and employees in the
following ways:
1. Before introducing an incentive plan, scientific work study is carried out. It helps to make
improvements in workflow, work methods and man machine relationship.
2. Wage incentive plans provide an opportunity for hard working and ambitious workers to
earn more.
3. Employees are encouraged to become innovative. They think and involve more efficient
ways of doing work. Moreover, they bring to the notice of management wasteful
practices and problems that retard productivity.
4. Incentive plans help to improve discipline and industrial relations. These plans are useful
in minimizing absenteeism, accidents, and go slow. This is because workers have an
interest in increasing productivity.
5. The costs of supervision are reduced are workers themselves are motivated to work hard
and improve performance so as to earn monetary rewards.
6. A spirit of mutual cooperation and team work is created among workers. As the activities
are interdependent, any obstruction on the part of a worker can affect output and reward.
7. Wage incentives are a sound technique of improving productivity. Workers are likely to
work at their best when they are offered monetary rewards for good performance.

11.3 Requirements of a Sound Wage Incentive System

An incentive aims at increasing productivity, reducing cost, improving efficiency and increasing
employees earnings while at the same time maintairy.ing and enhancing employee morale and
employer-employee relations. In order to achieve these goals, the following requirements must
be fulfilled:
(i) Sound policies - Their must be a set of sound wage administration policies, preferably in
writing, which are fare to both management and employees and which are such that
organization can maintain its competitive position. These policies and incentive plans
must be clearly and understood by all members of the management team whose
decision can in any way affect the wages paid to the employees .
(ii) Scientific system for fi�ing standard work load- Under the incentive plan, extra
payment is given for the extra work, i.e., work which is over and above certain
standard quantity. Such standard workload must be clear, specific and fixed by
conducting scientific time study so that majority of the employees are able to give

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 extra production for extra payment. Incentive wage plan will be meaningless if
majority of workers remain away from its benefits.
(iii)Workcrs participation - Wage incentive plan is installed primarily to benefit the
employees. So the management must discuss the wage incentive system with the
employees and their representatives.
(iv)Guarantee of minimum wage payment - An incentive wage plan must ensure certain
minimum wage payment to every worker per month. this should be irrespective of the
production he gives. Such provision of minimum guarantee payment creates a scene
of security and confidence among the workers.
(v) Simplicity- A good incentive is one which is easy to understand and simple to operate.
An average worker must be able to know the incentives offered and what he is
expected to do. The monetary benefits must be made clear to all workers. This will
create initiative and interest among them.
(vi)Definiteness- An incentive plan must be defiant. This means frequen changes should not
be made as such changes create confusion and doubts in the minds of workers. Such
plan must give clear benefits to workers.
(vii) Wide coverage- An incentive plan should not be restricted for employees of certain
sections only. It should have wide coverage and almost all employees should be
covered by such plans. Such wide coverage would make the plan popular at all levels
and among all categories of workers. In addition, an incentive plan should be
equitable. This means it should provide equal opportunity to all employees to show
efficiency and earn more.
(viii) No upper limit- The wage incentive system should place no upper limit on incentive
earnings. This is so because the more the worker produces, the more the organization
will be benefitted in general. Therefore, if a ceiling is put to the incentive earnings, it
may also curtail the oppo1tunity to achieve lower production cost per unit.
(ix)FoHow up- Management must constantly and carefully follow up and checkup to see
whether employees are adhering to the specifications. Similarly, management must
observe whether the standards are being met or not. The reasons for any deficiency
should be investigated and corrective steps taken to facilitate the smooth functioning
of wage incentive system.
11.4 Limitations of Incentive Plans
Wage incentive schemes may cause the following ill effects:
I. In the absence of a ceiling on incentive earnings, some workers may overwork and
thereby spoil their health.
II. In order to maximize output, workers may sacrifice quality unless strict check or
inspection is maintained.
III. Once an incentive plan is introduced, management may face resistance while revising
standards and rates due to changes in technology methods, machinery and materials.
IV. Strict vigilance becomes necessary to ensure that workers do not disregard safety
regulations.
V. Introduction and administration of incentive plans increase the cost and time of
clerical work.
VI. Whenever production flow is disrupted due to the fault of management, workers insist
on compensation.
VII. Jealousy and conflicts among workers may arise when some workers earn more than
others.

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11.5 Wage Incentives in India
In a country like India wage incentives are an important tool for motivating workers,
improving productivity and reducing costs per unit. Various five years plans have suggested
introduction of incentive schemes to promote more efficient working of industries. The
second plan recommended that the earnings beyond the minimum wage should be related to
results and that workers should be consulted before a system of payment by results was
introduced. In India, the need for introducing wage incentive plans is greater due to the
following reasons:
I. The average Indian worker is financially poor. Wage incentives will help to improve the
earnings of workers.
II. The productivity of the Indian workers is low and needs to be increased. Wage incentives
can help to improve productivity.
III. Technology in Indian industries needs to be modernized and upgraded. Wage incentives
may help to reduce worker's resistance to mechanization and automation.
IV. Effective application of wage incentive plans is likely to have a beneficial impact in the
price level.
V. Wage incentive schemes can be applied to all sectors of the economy in the national
interest.
The National Productivity Council conducted an All India Survey of wage incentive plans in the
country. The survey revealed that:
I. Incentive plans are more popular in labour incentive industries.
II. Group incentive schemes were more common than plant-wise or individual plans.
III. Standards were fixed generally through time study and past experience.
IV. Incentive plans led to significant rise in average productivity.
V. More comprehensive plans led to greater savings in cost per unit and overtime working.
VI. Scientific techniques of work measurement are preferable in the setting of standards.

11.6 Types of Wage Incentive Plans

Wage incentive plans may be classified into three broad categories as follows:
A. Individual incentive plans
B. Group incentive plans
C. Organisation incentive plans

A. Individual Incentive Plans: Individual incentive plans are the most widely used pay for
performance plans in industry. These pay plans attempt to relate individual effort to pay.
Popular approaches include piece work plans, (such as Taylor's differential piece rate
plan, Merrick's differential piece rate plan, etc.), standard hour plans, (such as Halsey
plan, Bedeaux plan, Emerson's plan etc.) merit pay raises, lumpsum merit payments,
sales incentives and commissions.
I. Piece Rate: Taylor's Differential Piece Rate System: F. W. Taylor, the father of
Scientific Management, originated this system. The main features of this plan are:
• There shall be two piece work rates, one is lower and the other is higher.
• The standard of efficiency is determined either in terms of time or output based on time
and motion study.
e If a worker finishes work within standard time (or produces more than standard output
within time) he will be given high piece rate.

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 This system penalizes the slow worker by paying low rate because of low production, rewards an
efficient worker by giving him high rate because of higher production indirectly, this system
. gives no place to inefficient work. In other words, if the output of a worker is less than the
standard output, he is paid a low rate and vice versa.

II. Merrick's Differentials Piece Rate System: In this system there are three piece rates,
and workers producing below the standard output are not penalized by the low piece rate.
Since the earnings increases with increased efficiency, performance above the standard
will be rewarded by more than higher differential piece rate. The basic features of this
scheme are: (a) upto 83% of the standard output workers are paid at the ordinary piece
rate (b) 83% to 100% at 110% of the ordinary piece rate, and (c) above 100% at 120% of
the ordinary piece rate, and (c) above 100% at 120% of the ordinary piece rate.
III. Halsey Plan: This plan, originated by F.A. Halsey recognizes individual efficiency and
pays bonus on the basis of time saved. The main features of this plan are:
• Standard time is fixed for each job or operation.
• Time rate is guaranteed and the worker receives the guaranteed wages irrespective
of whether he completes the work in the time allowed or takes more to do the same.
• If the job is completed in less than the standard time, the worker is paid a bonus of
50 % of time saved at time rate in addition to his normal time wage.
Total Earnings = Time taken x Hourly Rate plus Bonus
Bonus = 50% of time saved
Merits
1. It is easy to follow and relatively simple to operate;
2. It guarantees minimum wage and thus provides security to the employees;
3. It provides increasing benefit and incentive to efficient workmen;
4. The benefit from time saved is shared equally between the employer and the workman;
5. The system is based on time saved and not on output, thus preventing over production.
6. Saving in time reduces both labour cost and overhead expenses.
Demerits
1. The worker may be encouraged to rush through work and thus neglect., the quality of
production to save more time and higher bonus;
2. It does not pr'ovide adequate incentive to highly efficient workmen as it involves sharing
of the benefit with employers.
3. Fixation of standard is not easy.
4. Earnings are reduced at high level of efficiency. Therefore, it does not act as a sufficient
incentive.
IV. Rowan Plan: This plan was introduced by D. Rowan in 1901. As before, the bonus is paid
on the basis of time saved. But unlike a fixed percentage in the case of Halsey plan, it
takes into account a proportion as follows:
Time saved/ Time allowed
Thus, under this plan bonus is that proportion of the wage of time taken which the time
saved bears to the time allowed or standard time.
Time saved
Bonus = x Time taken x Hourly rate
Standard time or time allowed

Total earnings = Time taken x Hourly rate + Bonus

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Merits
1. It assures minimum time wages. It is more liberal than the Hasley plan in that it provides
incentive to work and earn extr1;1 remuneration.
2. As the increase in effort is much .less rewarded after a certain stage, an automatic check
for limiting production of inferior quality of goods is ensured.
3. This is automatic check enables the worker· to earn a fair wage, because there is less
chance of rate-cutting by the employer, as he is not paying extraordinary wages.
Demerits
1. The ordinary worker may find the bonus calculations a bit difficult.
2. Like Halsey plan, this plan does not encourage extraordinary efficiency. Foe example, if
the time saved is more than half the total, earnings begin decreasing.
V. Gantt Task and Bm1us Plau: This plan combines· time, piece and bonus systems. The
main features of this plan are:
1. Day wages are guaranteed.
2. Standard time for task is fixed and both time wages as well as a high rate per piece
are determined.
3. A worker who cannot finish the work within the standard time is paid on time
basis.
4. If a worker reaches the standard, he will be paid time w1;1ge plus a bonus at fixed
percentage of normal time wage.
5. If the worker exceeds the standards. he is paid a higher piece rate.
Merits
1. This plan is not as harsh as the Taylor's differential piece rate system. Hence it is more
acceptable to the ,.vorkers.
2. Workers can easily understand its working.
3. It ensures guaranteed time wages to inefficient workers also.
4. It makes distinction between efficient and inefficient workers because the system ensures
time wages for inefficient workers and piece wage plus 20% bonus for efficient workers.
5. Labour cost per unit decreases with increase in production due to incentive for efficiency
given under this plan.
Demerits
I. It classifies workers into two competing categories and this may bring disunity among
workers.
2. When this method is used, labour cost will be high for low production.
3. Extreme care is to be exercised in fixing the guaranteed time rate and determination of
standard output. Any error due to lack of experience will lead to unfavorable
consequences.
VI. Bedeaux Plan: Under this plan, every op'eration or job is expressed in terms of so many
standard minutes, which are called "Bedeaux points" or "B's", each B representing one
minute through time and motion study. Upto 100% performance, i.e. upto standard B's, a
worker is paid time wages without any premium for efficiency. If the actual performance
exceeds the standard performance in terms of B's, then 75% of the wages of the time
saved is paid to the worker as bonus and 25% is earned by the foreman. For example, if
the standard time is 10 hours actual time taken is 8 hours and rate per hour Re. 1 , the
worker will get:
= 8 hours at Re. 1 + 75% of 120 (points saved) x 1/60
= Rs. 9.50.

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 VIL Haynes Manit Plan: This plan is just like the above plan, i.e. the Bedeaux plan with the
difference that:
a) The standard is fixed in terms of standard minute known as 'Manit', instead of
Bedeaux. Manit stands for man-minute.
b) The bonus is only 50% as against 75% of the Bedeaux plan. Of the remaining
50%, 10% bonus is paid to supervisors and 40% is retained by the employers.
VIII. Emerson's Efficiency Plan: Under this plan, when the efficiency of the worker reaches
67% he gets bonus at the given rate. The rate of bonus increases gradually from 67% to
100% efficiency. Above 100% bonus will be at 20% of the basic rate plus 1% for each
1% increase in efficiency.

B. Group Incentive Plans: Team based incentive plans reward all team members equally
based on overall performance of the team members. Performance is evaluated using an
objective standard. As in individual plans, payments to team members may be made in
the form of cash bonus or in the form of non-cash rewards such as pleasure trips, time off
or luxury items. Team based incentives foster cohesiveness among team members. They
can motivate group members to behave and think as a unit rather than as competing
individuals. Also it is easy to measure the overall performance of the entire team (rather
than contributions of each member of the team). Some of the important team-based
incentive plans may be listed thus:
1. Preistman's Production Bonus: Under this system, a standard is fixed in terms of
units or points. If actual output, measured similarly, exceeds the standard, the
workers will receive bonus in proportion to the increase. Therefore, this system
can operate in a factory where there is mass production of a standard product with
little or no bottleneck.
2. Rucker Plan: In this plan, employees receive a constant proportion of the 'added
value'. The term 'added value' means the change in market value resulting from
an alteration in the form, location or availability of a product or service, excluding
the cost of brought-out materials or services. In this plan, ratio between earnings
and 'added value' is ascertained and any reduction to the ratio of earnings to
added value will, result in proportionate bonus payment. This plan presupposes a
great deal of consultation between management and workers so that the effott
could be made more effective.
3. Scanlon Plan: Under this plan, constant proportion of the added value of output
is paid to the workers who are responsible for the addition of the value. The added
value is the change in market value (including profit) resulting from an alteration
in the form, location or availability of product service, excluding the cost of
purchased materials or services used in production.
4. Towne Plari: The main objective of this plan is to bring about cost reduction by
foreman and workers. However, bonus is paid upon a reduction in labour cost
alone. A standard labour cost per unit for a particular period is determined and if
actual labour cost per unit is less than the standard labour cost, 50% of the saving
in labour cost is distributed among workers and foreman in proportion to their
wages.

In individual or group incentive plans, competition can lead to withholding information

or resources, political gamesmanship, not helping others, and even sabotaging the work

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 of others. To avoid the problems ansmg out of inter individual and inter group
ccrnpetition, some firms prefer to use organization wide incentive plans.

c,a.,u.:i,,a,,,.,., focentive Plans: Organisation wide incentive plans reward employees on

the basis of the success of the organization over a specified time period. These plans seek
to promote a 'culture of ownership' by developing a sense of belongingness, cooperation
and teamwork among ali employees. There are three basic types of organization wide
incentive plans: profit sharing, gain sharing and employees stock ownership plans.
Profit Sharing: Profit sharhig is a scheme whereby employers undertake to pay a
particular portion of net profits to their employees on compliance with certain service
conditions and qualifications. The purpose of introducing profit sharing schemes has been
mainly to strengthen the loyalty of employees to the firm by offering them an annual
bonus provided they are on the service rolls of the firm for a definite period. The shares
are called bonus shares. In India, the share of the worker is governed by the Payment of
Bonus Act.

1. Th:.:: idea of sharing the profits inspires the management and the worker to be
sincere, devoted and loyal to the fom.
2. It helps in supplementing the remuneration of workers and enables them to lead a
rich life.
3, It is likely to induce motivation in the workers and other staff for quicker and
better work so that profits of the firm are increased which in turn increases the
share ohvorker therein.
4. Workers do not require dose supervision, as they are self-motivated to put in
extra labour for the prosperity of the firm.
5. lt attracts talented people to join the ranks of a firm with a view to share the
profits.
])emedts
1. Profits sharing scheme is, in practice, a fair -weather plan. Workers may get-
nothing business does not succeed.
2. 1'vfanagernent may dress up profit figures and deprive the workers of their
legitimate share it profits.
3. tend to develop loyalty toward firm discounting their loyalty towards
trade unions, thus impairing the solidarity of trade unions.
4. Fixation of worker's share in the profits of firm may prove to be a bone of
contention in the long run.
ii. Gain Sharing: A gain sharing aims at increasing productivity or decreasing labour costs
and sharing the resultant gains with employees. It is based on a mathematical formula
that compares a baseline of performance with actual productivity during a given period.
When productivity exceeds the baseline an agreed-upon savings is shared with
employees. Gain sharing is built around the idea that involved employees will improve
productivity through more effective use of organizational resources. Three major types of
gain sharing plans are currently in use: Scanlon Plan, Rucker Plan, and Improshare.
Improshare stands for improved productivity through sharing. Unlike profit sharing plans
which have deferred payments, gain sharing plans are currently distribution plans. They
are directly related to individual behavior and are distributed on a monthly or quarterly
basis. Gain sharing plans tend to increase the level of cooperation across workers and
teams by giving them a common goal. Managers are not required to base their

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 calculations on complex mathematical formulae, nor are they required to closely look
into the specific contributions of individuals or independent teams. It is easier for both, to
formulate bonus calculations and to achieve employee acceptance of those plans. Gain
sharing plans, however, protect low performers. Where rewards are spread across a large
number of employees, poor performers may get rewards for non performance at the cost
of the bright performers. Gain sharing plans may fail due to other reasons as well: poorly
designed bonus formulae, lack of management support for employees' participation,
increasing cost factors that undermine the bonus formula, poor communication, lack of
trust, and apathy on the part of employees. To develop an organization-wide incentive
plan that has a chance to survive, let alone succeed careful, in depth planning rnust
precede implementation. A climate of trustworthy labour-management in also absolutely
essential. The financial formula should be simple and should measure and reward
performance with a specific set of measurable goals and a clear allocation method.

iii. Employeies Stock Ownership Plans: Employee stock ownership plans originated in the
USA in early 90s. Such plans have not gained popularity in India till recently, due to the
absence of legal provisions in the Companies Act covering stock options. However, in
1988, the Government has allowed stock options to software professionals, recognizing
the importance of retaining talent within the country. Under employee stock option plan,
the eligible employees are aHotted company's shares below the market price. The term
stock option implies the right of an eligible employee to purchase a certain amount of
stock in future at an agreed price. The eligibility criteria may include length of service,
contribution to the department/division where the employee works, etc. The company
may even permit employees to pay the price of the stock allotted to them i.n insiallments
or even advance money to be recovered from their salary every month.· The c,11otted
shares are generally held in trust and transferred to the name of the employee whenever
he or she decides to exercise the option. The stock option empowers the employee to
participate in the growth of the company as a part owner. It also helps the company to
retain talented employees and make them more committed to the job.
Employee stock options are welcomed everywhere due to their in-built motivating
potential. Some of the powerful benefits offered by Esops may be catalogued thus:
111 Stock options are a tremendous motivator because they directly link performance
io the market place. The underlying rationale is to let employees add value to a
company and benefit from it on the same terms as any other provider of risk­
capitaL
• Employees remain loyal and committed to the company. To become part owners,
everyone has to stay for a while, contribute their best and then share the resultant
gains according to an agreed criteria. Stock options motivate people to give their
best to the company because individual performances will translate into share
price increases only if it is part of a larger collective effort.
e By transforming your employee into a stockholder, stock option fosters a long­
term bond between the employee and the employee and the company. Employees
begin to look at themselves as real owners in place of just paid servants of a
company. ESOPs give employees a 'piece of the action' so that they can share in
the growth and profitability of their company. Everyone also loves the concept of
employee ownership as a kind of "People capitalism."
• ESOPs underscore the importance of team effort among employees.

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 0 Better industrial relations, reduced employee turnover, lesser supervision,
increased dividend income, etc. are other incidental benefits.
ESOPs have their critics as well who attack the method on the following grounds:
® Only profitable e:empanies can use the tool.
� Stock prices do not always reflect fundamentals.
"" Falling share price could mean losses for employees.
@ The inability to cash in quickly can dampen the interest.
� Lack of transparency C?� earn accusations of favouritism.

11.7 Fringe Benefits

The term 'fringe benefits' refers to the extra benefit provided to employees in addition to the
normal compensation paid in the form of wage or salary. Many years ago, benefits and services
,vere labeled 'fringe:' benefits because they were relatively insignificant or fringe components of
compens2tion. However, the situation now is different, as these have, more or less, become
imporumt r:omponcnts of a comprehensive compensation package offered by employers to
employees.
The main ieJtures of fringe benefits, as they stand today, may be stated thus:
., Th,.:!y are suppiemwtary forms of compensation .
., rrhcy are paid to al! empioyees based on their membership in the organization.
@ They are indirect compensation because they are usually extended as a condition of
employment and are not directly related to performance.
:., They help to raise the 1; ving conditions of employees.
• Th,:y may be statutory or voluntary. Provident fund is a statutory benefit whereas
transport is a voluntary benefit.

11.8 Nred for Fringe Benefits

Most organizatioi1s in India have been extending fringe benefits to their employees, year after
year, due to the folloYv ing reasons:
Employee Dem.rnds; Employees demand more and varied types of fringe benefits rather than
pay hike because of reduction in tax burden on the part of employees and in view of the
galloping price index m1d cost of living.
Trade llniou Demands: Trade unions compete vvith each other for getting more and newer
varieties of fringe benefits to their members. If one union succeeds in getting one benefit, the
other union persuades management to provide a new one. Thus, the competition among trade
unions '.vithin an organization results in more and varied benefits.
Employer;s Preference: Employers also prefer fringe benefits to pay-hike, as fringe benefits
motivate employees to give their best to the organization. It improves morale and works as an
effective advertisement ·
As a Social Security: Social security is a security that society furnishes through appropriate
organization against certain risks to which its members are exposed. These risks are
contingencies of life like accidents and occupational diseases. Employer has to provide various
benefits like safety measures, compensation in case of involvement of w orkers in accidents,
medical . facilities, etc. with a view to provide security to his employees against various
contingencies.
To Improve Hum�m Relations: Human relations are maintained when the employees are satisfied
economically, socially and psychologically. Fringe benefits satisfy the worker's economic, social

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 and psychological needs. Consumer stores, credit facilities, canteen, recreational facilities, etc.,
satisfy the worker's social needs, whereas retirement benefits satisfy some of the psychological
problems about the post-retirement life. However, most of the benefits minimize economic
problems of the employee.

11.9 Types of Fringe Benefits

The fringe benefits offered by various organizations in India may be broadly classified into five
categories. These are discussed below:
A. Payment for Time not Worked: This category includes:
Hours of Work: Section 51 of the Factories Act, 1948, specifies that no adult worker shall be
required to work in a factory for more than 48 hours in any week. Section 54 of the Act restricts
the working hours to 9 on any day. In some organizations, the number of working hours is less
than the legal requirements.
, 1. Paid Holidays: According to the Factories Act, 1948, an adult worker shall have weekly
paid holidays, preferably Sunday. When a worker is deprived of weekly holidays, he is
eligible for compensatory holidays of the same number in the same month. Some
organizations allow the workers to have two days' holidays in a week.
ii. Shift Premium: Companies operating second and third shifts, pay a premiurn to the
workers who are required to work during the odd hour's shift.
iii. Holiday Pay: Generally organizations offer double the normal rate of the salary to those
workers, who work during holidays.
iv. Paid Vacation: Workers in manufacturing, mining and plantations who worked for 240
days during a calendar year are eligible for paid vacation at the rate of one day for every
20 days worked in case of adult workers and at the rate of one day for every 15 days
worked in case of child workers.
B. Employee Security: Physical and job security to the employee should also be provided with
a view to ensure security to the employee and his family members. When the employee's
services get confirmed, his job becomes secure. Further, a minimum and contir�'.Jous wage or
salary gives a sense of security to the life. The Payment of Wages Act, 1948, the Payment of
Bonus Act, 1965; provide income security to the employees.
1. Retrenchment Compensation: The Industrial Disputes Act, 1947, provides for the
payment of compensation in case of lay off and retrenchment. The non-seasonal
industrial establishments employing 50 or more workers have to give one month's notice
or one month's wages to all the workers who are retrenched after one year's continuous
service. The compensation is paid at the rate of 15 days \vage for every completed year of'
service with a maximum of 45 days wage in a year. Workers are eligible for
compensation as stated above even in case of closing down of undertakings.
ii. Lay off Compensation: In case of lay off, employees are entitJed to lay off
compensation at the rate equal to 50% of the total of the basic \Vage and dearness
allowance for the period of their lay off except for weekly hoii days. Layoff compensm.ion
can normally be paid upto 45 days in a year.
C. Safety and Health: Employee's safety and health should be taken care in order to protect the
employee against accidents, unhealthy working conditions and to protect the worker's
productive capacity. In India, the Factories Act, 1948, stipulated certain requirements
regarding working conditions with a view to provide safe working environment. These
provisions relate to cleanliness, disposal of waste and effluents, ventilation and tcmperntun.\
dust and fumes, artificial humidification, over-crowding, lighting, drinking water, latrine,

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 urinals and spittoons. Provisions relating to safety measures include fencing of machinery,
work on or near machinery in motion, employment of young persons on dangerous machines,
striking gear and devices for cutting off power, self-acting machines, casing of new
machinery, prohibition of employment of women and children near cotton openers etc.
D. Workmcn"s Compensation: In addition of safety and health measures, provision for the
payment of compensation has also been made under Workman's Compensation Act, 1923.
The Act is intended to meet the contingency of invalidity and death of a worker due to an
employment injury or an occupational disease specified under the Act at the sole
responsibility of the employer. The Act covers the employees whose wages are less than Rs.
500 per month. Amount of compensation depends on the nature of injury and monthly wages
of the employee. Dependants of the employee are eligible for compensation in case of death
of the employee.
E. Health Benefits: Today, various medical services like hospital, clinical and dispensary
facilities are provided by organization not only to employees but also to their family
members. Benefits under this Act include sickness benefit, maternity benefit, disablement
benefit, dependent's benefit and medical benefit.
F. Wdfare and Recreational Facilities: Welfare and recreational benefits include canteens,
consmner societies, credit societies, housing, legal aid, employee counseling, welfare
organizations, holiday homes, educational facilities, transportation, parties and picnics and
m isce! laneous.
G. Old Age and Retirement Benefits: Industrial life generally breaks.joint family system. The
saving capacity of the employees is very low due to lower wages, high living cost and
increasing aspirations of the employees and his family members. As such, employers provide
some benefits to the employees, after retirement and during old age, with a view to create a
feeling of security about the old age. These benefits include provident fund, pension, deposit
linked insurance, gratuity and medical benefits.

11.10 Sum_m_a_ry________________________________

The system of wage payment is an important issue between labour and management. Employees
could be paid either on the basis of time spent or contributions made by them. To motivate
employees further, monetary incentives could also be given using different bases. There should
be a proper way of inspiring indirect workers too through financial incentives. The fringe
benefits offen::d by various organizations in India may be broadly put into five compartments.
Payments for time not worked, employee security, safety and health, welfare and recreation
facilities and old age and retirement benefits. In addition to these, modern organizations have
niso been rewarding their employees through employee stock options and co-partnership
schemes in recent times.

J1.U Test
---····--· Qm�stion
--------·----------- -----------------------

Qi. \Vhy have benefits grown in strategic importance to employees?

Q2. Why vmuld an empioyee stock ownership pian be seen by employees both as an attraction
and as a risk?
Q3. \Vlwt do you understand by incentive plans? Describe the perquisites of a sound incentive
plan.

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11.12 Further Readings

Decenzo, D.A. and S.P. Robbins, "Personnel/Human Resource Management",.Prentice Hall of India,
New Delhi, 2003.
Dessler," Human Resource Management", Prentice Hall ofindia, New Delhi.
French, W., "the Personnel management Process", Haughten Miffin, Boston.
Ivanecevich, John M., "Human Resource Management", McGraw Hill.
Wreather and Davis, "Human Resource Management", Prentice Hall, New Jersey.

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 LESSON 12

JOB EVALUATION
Dr. Poo]a Goel
Shaheed Bhagat Singh College
University ofDelhi

Objectives
Airer going through this unit you should be able to:
., Define Job Evaluation
• Explain the Process of Job Evaluation
@ Discuss Various Methods of Job Evaluation
• Outline the Limitation of Job Evaluation

Structure
12.1 Concept and Nature of Job Evaluation
12.2 Job Evaluation vs. Job Analysis
12.3 Job Evaluation vs Performance Appraisal
12.4 Objectives of Job Evaluation
12.5 Principles of Job Evaluation
12.6 Process of Job Evaluation
12.7 Significance of Job Evaluation
12.8 Limitations of Job Evaluation
12.9 Essentials of Successful Job Evaluation
12.10 Methods of Job Evaluation
12, l I Comparative Study of Job Evaluation Systems
12.12 Summary
12.13 Test Question
12.14 Further Readings

Determination of an equitable wage and salary structure is one of the most important phases of
employer-employee relations. For good industrial relations, each employee should receive
sufficient wages or salaries to sustain himself and his dependents, and feel satisfied with the
relationship between his wages and the wages of other people performing the same type of work
in some other organization. The primary objective of wage and salary administration programme
is that each employee should be equitably compensated for the services rendered by him to the
enterprise on the basis of:
1, The nature of job
2. The Present worth of that type of job
3. The effectiveness vvith which the individual performs the job.
The first two factors are closely related to Job Evaluation while the third to the Performance
Appraisal. Generally, wage payments within the organizations are determined by a flow of
events including job analysis, writing of job descriptions and specifications, job evaluation,
surveys of wages and salaries, analysis of relevant organizational problems and minimum wage
laws, structuring of wages, establishing rules for administering wages and finally wage payments
to individuals.

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 12.1 Concept and Natur�·of Job Evaluation

An important problem with which the management is usually confronted is t�e establishment of
a wage rate for each'of the jobs in the organization. There are different methods used to establish
wage rate for a, job which range from subjective intuitive methods to highly objective
quantitative methods. Job evaluation is an orderly and systematic technique which aims at
determining th� worth of jobs. In other words, it is a formal system of determining the base
compensation of jobs. The basic object ofjob evaluation is to ascertain the relative worth of each
job through an objective evaluation so that relative remuneration may be fixed for different jobs.
Job evaluation may be defined as the process of determining the demands in terms of efforts a.nd
abilities which the normal perfonnance of a job makes on normal workers. The demand made on
the workers by a particular job is the worth of that job. Job evaluation rates the job and not the
man. It takes into account the demands of the job in terms of efforts and abilities, but it does not
take into account the individual abilities and efforts, which may of course be taken into
consideration and reflected in the worker's earnings under a system of payment by results or of
merit rating or performance appraisal. Job evaluation is a systematic procedure for determining
the relative worth of job. Once the worth ofjobs is determined, it becomes easier to fix the wage
structure that will be fair and equitable. Thus it is an important tool in fixing the scales of wages
for different grades of jobs. The important features ofjob evaluation may be summarized thus:
I. It tries to assess jobs, not people.
II. The standards of job evaluation are relative, not absolute.
III. The basic information on which job evaluation are made is obtained from job analysis.
IV. Job evaluations are carried out by groups, not by individuals.
V. Some degree of subjectivity is always present in job evaluation.
VI. Job evaluation does not fix pay scales, but merely provides a basis for evaluating a
rational wage structure.

12.2 Job Evaluation vs. Job Analysis

Job evaluation is the process of analysis and assessment of jobs to ascertain in a systematic way
their worth using assessment as the basis for a balanced wage structure. Therefore, job evaluation
is something more than job analysis. Job analysis is in no way concerned with the calculation of
job's worth. It is only concerned with the collection of data concerning particular job. Job
evaluation follows the job analysis which provides the basic data to be evaluated. Obviously, job
evaluation aims at measuring the value of job descriptions. When the value of job description is
determined, it may be translated in terms of money according to some basis to have a balanced
wage structure in the organization. The total wage structure consists of different scales of wages
or pay which will lead to classification of wages. Thus the process of job evaluation staf!s from
job analysis and ends with the classification of jobs according to their worth.

12.3 Job Evaluation vs Performance Appraisal

Job evaluation is different from performance appraisal. Performance appraisal is the systematic
.description of an employee's job-related strengths and weaknesses. The basic purpose of
performance appraisal is to find out how well the employee is doing the job and establish a pian
for improvement. The aim of job evaluation is to find the relative value/worth of a job and

136
determine what a fair wage for such a job should be. The aim of performance appraisal is to
determine incentives and rewards for superior performance.

12.4 Objectives of Job Evaluation

The major objectives of job evaluation are to help management achieve equitability of wage
structure within the firm, i.e. internal consistency· and consistency of firm's overall wage
structure with that of the industry in which the firm operates. Apart from these two major or
primary objectives, job evaluation serves many other objectives also such as:
I. Establishment of sound wage foundation for incentive and bonus programmes.
II. Maintenance of consistent wage policy.
III. Enable management to gauge and control its payroll costs more accurately.
IV. Provide a framework for periodic review of wages and salaries.
V. Classify functions, authority and responsibility which in turn aids in work simplification
and elimination of duplicate operations.
VI. Reduce grievances and labour turnover and, thereby, increase employee morale and
improve management - employee relationships.
VII. Serve as a basis for negotiation with the union.

12.5 Principles of Job Evaluation

In establishing the systematic approach to measuring job worth, there are certain principles
which must be followed. They are discussed below:
1. Consideration of Job: The job evaluators must rate the job and not the employee. In
deciding how much money a particular job is worth, there is always a temptation to be
influenced in one's judgment by the qualifications and caliber of the individual who is
presently performing the job. But he may be either over or under-qualified. So the job
evaluators should not commit the error of rating the individuals.
2. Clarity of Job Information: Job analysis must be done before job evaluation is initiated.
Clear and accurate job descriptions and specifications must be available to provide data
concerning the factors to be measured.
3. Pooling of Knowledge: As far as possible, the pooled or combined judgments of several
persons should be employed in evaluating jobs. Job evaluation is a systematic, orderly,
and logical way of setting the rates of wages within a firm. However, it is not exact
measurement, it is grading or rating. The decisions of a number of qualified persons will
reduce the likelihood of serious errors.
4. Grouping of Jobs: A decision must be made concerning what jobs are to be covered by a
single evaluation system. Only similar job should be grouped together for the purpose of
evaluation.
5. Selection of Job Factors: Job evaluation should involve the evaluation of various jobs in
tenns of certain factors. The important factors to be considered under job evaluation may
be grouped under the following heads: \\
► Skill: mental and manual, '
► Experience,
► Effort and initiative,
► Responsibility to be undertaken,
► Working environments, and
► Supervision needed.

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 There is no standard classification of factors to be considered under job evaluation. The
list of factors to be adopted for evaluation will generally depend upon the kinds of jobs to
be evaluated.

12.6 Process of Job Evaluation

The process of job evaluation involves the following steps:

I. Gaining Acceptance: Before undertaking job evaluation, top management must explain
the aims and uses of the programme to the employees and unions. To elaborate the
programme further, oral presentations could be made. Letters, booklets could be used to
classify all relevant aspects of the job evaluation programme.
2. Creating Job Evaluation Committee: It is not possible for a single person to evaluate
all the key jobs in an organization. Usually a job evaluation committee consisting of
experienced employees, union representative and experts is created to set the ball
rolling.
3. Finding the Jobs to be Evaluated: Every�job need not be evaluated. This may be too
taxing and costly. Certain key jobs in each department may be identified. While picking
up the jobs, care must be taken to ensure that they represent the type of work performed
in that department.
4. Analysing and Preparing Job Description: This requires the preparation of job
description and also an analysis of job needs for successful performance.
5. Selecting the Method of Evaluation: The most important method of evaluating the jobs
must be id�ntified now, keeping the job factors as well as successful performance.
6. Classifying Jobs: The relative worth of various jobs in an organization may be found out
after arranging jobs in order of importance using criteria such as skill requirements,
experience needed, under which conditions job is performed, type of responsibilities to be
shouldered, degree of supervision needed, the amount of stress caused by the job, etc.
Weights can be assigned to each such factor. When we finally add all the weights, the
worth of a job is determined. The points may then be converted into monetary values.
7. Installing the Programme: Once the evaluation process is over and a plan of action is
ready, management must explain it to employees and put it into operation.
8. Reviewing Periodically: In the light of changes in environmental conditions jobs need to
be examined closely. For example, the traditional clerical functions have undergone a
rapid change in sectors like banking, insurance and railways, after computerization. New
jobs descriptions need to be written and the skill needs of new jobs need to be duly
incorporated in the evaluation process.

12. 7 Significance of Job Evaluation

Job evaluation leads to the following benefits:

I. Job evaluation is a valuable technique in the hands of management by which a more
rational and consistent wage and salary structure can be solved. Internal consistency is
concerned with the maintenance of relative wages within the firm and external
consistency refers to a desired relativity of a firm's structure to that of the industry or
region.
IL Job evaluation helps in bringing or maintaining harmonious relations between labour and
management since it tends to eliminate wage inequalities within the organization and the
industry.

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 III. Because of increasing mechanization and automation in industry, it has become
unrealistic to pay workers primarily on the basis of their output. In many cases, it is the
machine that determines the rate of production, so job evaluation will be of much use in
fixing the wages.
IV. Job evaluation standardizes the process of determining the wage differentials for various
jobs. It means uniform standards will be applied to all jobs in the organization to know
their relative wmih.
V. Job differences should not be based on skill differences only. Job evaluation takes into
account various other factors like risks and working conditions also to determine the
worth of jobs. Jobs are no longer differentiated mainly by the degree of skills required as
differences in other job characteristics such as responsibility, effort required and nature of
work have assumed greater importance for such jobs. There is thus no justification for
paying wages according to skill requirements only. Job evaluation takes all relevant
factors into account to determine wages.
VI. · Job evaluation provides a rate for the job and not for the man. Because of division of
labour and specialization any large enterprise may have hundreds or thousands of
different jobs to be performed by a substantial number of workers. Many workers work
together on the same, similar or technically interdependent jobs. An attempt should be
made to precisely define the jobs and fix wages accordingly. This is possible only by job
evaluation.
VII. Job evaluation helps in keeping down the costs of recruitment and selection of workers. It
also assists in retaining the workers or, in other words, keeping down the rate of labour
turnover because workers' wages are determined systematically by the process of job
evaluation. Job evaluation involves job analysis which is of great use while recruiting
new employees. Selection can be made objective by matching the qualifications of the
candidate ;¥ith the job specifications.
'
12.8 Limitations of Job Evaluation

The limitations of job evaluation are as under:

I. There is no standard list of factors to be considered for job evaluation. Moreover all job
factors can't be measured accurately. Thus, job evaluation lacks scientific precision.
IL The wage fixed for a job on the basis of job evaluation might not retain workers who can
make much money else-where because of law of demand and supply.
III. There is a strong feeiing among the workers that individual merit should be rewarded as
some kind of merit rating scheme has to be superimposed upon evaluated wage rates.
IV. It presumes that jobs of equal worth will be equally attractive to the employees, but it is
not true in real life. If a job offers no prospects of a rise, while another job rated equal to
it has bright prospects, the latter will attract more people.
V. It tends to be inflexible in so far as it does not place right deal of emphasis on the wage
rates prevalent in the industry as a whole.
VI. Trade unions often regard job evaluation with suspicion because some of the methods are
not scientific and are difficult to understand. They fear that the job evaluation will do
away with collective bargaining for settlement of wages.

12.9 Essentials of Successful Job Evaluation

The following measures may be adopted to make the job evaluation programme successful:
I. The support of top management must be won for job evaluation programme.

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 IL Operating managers should be convinced about the need for and programme of job
evaluation. They should be given training in fixing and revising the wages on the basis of
job evaluation.
III. All the employees should be provided with complete information about the objectives,
programme and techniques of job evaluation.
IV. Clear and accurate job descriptions should be prepared and jobs should be standardized
before starting the evaluation process.
V. All groups and grades of jobs should be covered in the programme. Similar jobs should
be grouped together for this purpose.
VI. The techniques used should be simple to understand for employees.
VII.. The acceptance and support of the trade unions should be obtained.
VIII. The factors selected for evaluation should be measurable, and should represent the job
content. These factors should be clearly defined.
IX. The job evaluation programme should not involve unreasonably high costs of installation
and administration.
X. In the evaluation process, the knowledge, judgment and experience of human resource
department, line managers and outside experts should be pooled together.
XI. The focus should be on rating the job not the jobholder.
XII. Job evaiuation should be undertaken as an adjunct to collective bargaining.
XIII. Job evaluation should not adversely affect the terms and conditions of existing
employees.

12.10 Methods of Job Evaluation

Various methods of Job Evaluation may be grouped as under:

a) Ranking Method
b) Classification Method
c) Factor Comparison Method
d) Point Method
a) Ranking Method: It is simplest method of job evaluation. According to this method,
jobs are arranged from highest to lowest, in order of their value or merit to the
organization. Jobs can also be arranged according to the relative difficulty in performing
them. The jobs are examined as a whole rather than on the basis of important factors in
the job; the job at the top of the list has the highest value and obviously the job at the
bottom of the list will have the lowest value.
Jobs are usually ranked in each department and then the department rankings are
combined to develop an organizational ranking. The following table is a hypothetical
illustration of ranking of jobs:._"__ ..
Table 13.1
Array ofJobs .Accordmg. to the Rank"mg M.etho d /

Rank Monthly Salaries .

I .Accountant Rs. 5000
2.Accounts clerk Rs. 3200
3. Purchase assistant Rs. 3000
4. Machine-operator Rs. 2500
5. Typist Rs. 1500
6. Office boy Rs.1000

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 The variation in payment of salaries depends on the variation of the nature of the job
performed by the employees. The ranking method is simple to understand and practice
and it is best suited for a small organization.
Advantages: Ranking method has the following advantages:
I. • It is the simplest and the oldest method.
II. It is very economical and less time consuming.
III. It involves little paper work.
Disadvantages: This method suffers from the following limitations:
I. It does not indicate the degree of difference between different jobs. It merely
reveals that one job is more important than others.
IL It invoives subjective judgment because a job is not analysed and key factors are
not compared. Therefore, it is less accurate and is not fully reliable.
III. The rater is required to be thoroughly familiar with all the jnbs to be rated.
Ranking method is appropriate for small organizations in which there are few and simple jobs.
It is also useful for ranking managerial jobs wherein the work content cannot be measured in
quantitative terms. Ranking method can be used as a first step in the initial stages of job
evaluation programme.
b) Classification Method: According to this method, a predetermined number of job groups
or job classes are established and jobs are assigned to these classifications. This method
places groups of jobs into job ci2sses or job grades. Separate classes may include office,
clerical, managerial, perscmnd, etc. Following is a brief description of such a
classification in c1n office.
Class I - Executives; Further classification under this category may be Office Manager, Deputy
office manager, Office sHperintendent, Departmental supervisor, etc.
Ckiss II - Skmed Viorkf;r5: Under this category may come the Purchasing assistant, Cashier,
Rec.e!pts cierk, etc.
Class III - SemiskiHed 'Workers: Under this category may come steno typists, Machine­
operators, Switchboard operator etc.
Class IV - SerniskiHed Workers: This category comprises Daftaries, File Clerks, Office boys,
etc.
The job classification method is less subjective when compared to the earlier ranking method.
The system is very easy to understand and acceptable to almost all employees without hesitation.
One strong point in favour of the method is that it takes into account all the factors that a job
comprises. This system can be effectively used for a variety of jobs.
Job Grading method has the following advantages:
I. This method is easy to understand and simple to operate.
IL It is more accurate and systematic than the ranking method.
m. It is economical and therefore suitable for small concerns.
IV. Pay grades can be compared with those of other concerns. Grouping of jobs into grade
simplifies wage administration.
V. This method is used in Government offices.
Disadvantages: This method suffers from the following limitations:
I. It is very difficult to write accurate and precise descriptions of job grades.
II. Some jobs may involve tasks which overlap more than one grade. It is difficult to classify
such jobs in a particular grade.
III. The system is rigid and personal judgment is involved in deciding job classes and·
assigning jobs to specific classes.
c) Point Method: This is the most widely used method of job evaluation. It, alongwith
factor comparison system, involves a more detailed, quantitative and analytical approach

141
 to the measurement of job worth. Under this method, a quantitative evaluation of
different jobs in terms of various factors is made. Maximum point values are assigned to
each of the job factors required to be concerned. Then each job is awarded points for each
of the factors. The wage level appropriate for each job is fixed on the basis of total points
scored by it.
In contrast to the ranking and grading methods, which measure jobs as whole jobs,
the point system is a more analytical approach and deals with job factors. A job factor is a
specific requirement levied upon the job-holder. which he must contribute, assume or
endure. The major factors are: skill, effort responsibility and working conditions. These
factors or points are later converted into money value. The procedure for the design of
'point method' is discussed below:
I. List the type of jobs to be evaluated.
II. Determine the factors to be used in. this method like skill efforts, initiative, etc.
and define them properly.
III. Determine the number of degrees to be allocated to each factors and prepare a
suitable definition of each.
IV. Assign points to each degree of each factor.
V. Select a certain number of key jobs, say 10-15 and evaluate each in terms of scale
so constructed.
VI. Design the wage structure.
I. Listing of Jobs: The jobs in any organization range from the top executive down to
watchman, each involving different skills like conceptual, human and technical. There
may be some unskilled jobs also. There should be separate evaluation programme for
executives, professionals skilled, semi-skilled and unskilled employees. Executive and
other responsible jobs are more liable to be influenced by the ambition, character,
personality, dependability and other less tangible traits and they make it difficult to write
adequate job descriptions and specifications. But such qualities are not so important in
case of clerical and shop floor jobs. So there is a psychological disadvantage in using the
method to evaluate the jobs of both groups since the former group requires manual skills
in greater degree.
II. Number of Factors: It is very difficult to lay down the exact number of factors which
should be used for evaluating a job. But there should be sufficient number of factors to
evaluate all aspects of the jobs. The number of factors will depend upon the nature of the
jobs. If too many factors are used, the plan will become burdensome and clumsy. But if
too fewer factors are used, the evaluation will not be fair because some phase of a job
may be ignored. So, sufficient number of factors relating to the job under review should
be considered according to the needs of the organization and the type of job.
III. Definition of factors: After the selection of factors to be used, they should be properly
defined and definition of each should be put in writing so that the persons using these
may have the clear idea. The definitions should be positive statements and expressed in
simple and unambiguous language.
IV. Determination of Degrees: Each factor of job evaluation should fmiher be subdivided
into degrees. The point method generally uses from four to six degrees for each factor. It
is advisable to use an even number of degrees in the development of point method and
the same number of degrees should be used foe each factor in order to maintain
consistency in the job evaluation plan.
V. Allocation of points to Degrees: For assigning points to the degrees determined, a
committee may be appointed to determine the weights of the factors in terms of
percentage and estimating what percentage should be allocated to each factor. The

142
 committee will determine how hundred percent can be apportioned amnng the various
factors. The percentage that is assigned to each factor will become the number of points
for the first degree of each factor. In order to determine the number of points to be
allocated to succeeding degrees of each factor, it is necessary to extend the points
assigned to the first degree in an arithmetic progression.
VI. Evaluation of Jobs: After the construction of scales, the task of evaluation can be
stmied. The job analysis information should be studied carefully and compared it with
degree definitions. The next step is to decide at which degree the job falls and obtain the
points. This should be done with each factor and the points so obtained should be totaled.
This will give worth of job in terms of points.
VII. Design the Wages Structure: Management takes a decision about the kind of wage
structure it wishes to have. There are tvvo kinds of \Vage structures in vogue:
I. The same amount of vvages is paid to each job failing in any particular job class. The
rates do not vary within a particular job class.
II. The wages change not only bet\veen different job classes but also within job classes.
VIII. Adjusting the Existing Wage Structure: The wage structure designed in· the preceding
step is the one to which the existing structure must confirm. Those who are getting less
than what they should as per the new wage structure should get a wage raise. But those
who are getting more should not have their wages reduced. Instead such jobs should be
"Red Circled" so that when the occupant ieaves the organizatiorr, the job in question is
either eliminated or changed or when the new person occupies it, he is given
"appropriate"
To sum up, point method of job evaluation is more effective because even the major factors are
sub-divided which ensures accuracy of evaluation. The possibility of inaccuracy of job
evaluation is likely to arise if the predetermined point values do not exhibit true values. If this is
so, this initial determination of point values may lead to further inaccuracies.
Advantages: Point me1-hod has the following advantages:
1. Point method is the most comprehensive and accurate method of job evaluation. Factors
are divided into subfactors and different degrees of a factor are considered.
2. Assignment of point scores and money values is consistent thereby minimizing bias and
human judgement.
3. Systematic wage differentials according to content of the job can be determined.
Disadvantages: This method suffers from the following limitations:
1. Point method is complicated and an average \Vorker cannot understand it easiiy.
2. It is time consuming and expensive.
3. Errors may occur if assigned point values are not realistic. It is difficult to determine
factor levels and assign point values.
4. It is difficult to apply this method to managerial jobs wherein the work content is not
measurable in quantitative terms.
d) Factor Comparison Method: Thoman E. Bitten was the first to originate factor_
comparison method of job evaluation. This method determines the relative rank of the
jobs to be evaluated in relation to monetary scale., It is often used for evaluating vihite
collar, professional and managerial positions, although it is equally suitable for grading
other jobs as well. lt is essentially a combination of the ranking and point systems. Like
rank order method, it rates jobs by comparing one job with another and, like the point
system, it is more anaiytical in the sense of subdividing jobs into compensable factors.
Final ratings are expressed in terms of number.
In this method, five factors are generally evaluated for each job. These arc
comparatively fewer than the point system but are nevertheless sufficient, because each

143
 factor is defined broadly. The number of factors may be more than five also. The five
factors which are customarily used arc mental requirements, skills, physical
requirements, responsibilities and working conditions. The evaluation of job under this
method consists of following steps:
1. Select the factors and define them clearly.
2. Select the key jobs which \Vould serve as standard against which all other jobs are
compared. A key job is one whose content has become stabilized over a period of
time and whose wage rate is considered to be presently correct by the
management and the union.
3. Allocate wage for each key job to different factors.
4. Develop a job comparison scale and insert key jobs in them. When aH of th(: key
jobs have been evaluated and wages allocated in this manner, a job cornparison
scale can be constructed.
5. Evaluate the job in question factor by factor in relation to key jobs on job
comparison scale. Then each job is to be evaluated and compared to other jobs in
terms of each factor.
6. Design, adjust and operate the wage structure.
Advantages : Factor comparison method has the following advantages:
1. It is a relative more analytical and objective method.
2. As few factors are utilized the chances of overlap are less.
3. The procedure involved is logical.
4. The method is flexible as there is no upper limit on the rating of a factor.
5. It is more reliable and valid as each job is compared with all other jobs in terms of key
factors.
6. Money values are assigned in a fair and objective manner depending on factor rankings.
Disadvantages: This method suffers from the following limitations:
1. It is difficult to understand and operate.
2. It is a time consuming and expensive method.
3. The use of present wage rates for key jobs may lead to error in the beginning. As the
contents and value of key jobs change over time, errors may arise in future.

12.11 Comparative Study of Job Evaluation Systems

The comparative study of different job evaluation methods described above is expiained be!mv:

Attributes Simple Ranking Job Grading Point System Factor

Comparisons
l. Popularity Least Popular 2 n° or 3ra Most pooular 211a or 3 ra
2. Type of Job to job Job to category Job to category Job to job
Comparison definition definition
3. No. of factors None None Average of 11 Not more than 7 i
evaluated I
4. Evaluation None Single scale of Multiple scales Multiple scales I
technique job class of points and of points and 1
used description factor deoree key job titles
I

t,

definition
5. Relation to Crude form of Crude form of Refinement of Refinement of
other job factor point system job grading simple ranking
evaluation comparison

144
 systems
Similarity to Corresponds to Corresponds to Corresponds to Corresponds to
performance ranking system grading system graphic scales man to man
, appraisal s� stem
1
of appraisal system
---------------------------------------
13.12 Summary

Job evaluation is the systematic process of determining the relative worth of jobs in order to
establish which jobs should be paid more than others within the organization. Job evaluation
helps to est<!blish internal equity between various jobs. The four basic approaches to job
evaluation are: the ranking method, the classification method, the factor comparison method, and
the point method. Job evaluation does not provide the complete answer to wage and salary
problems. Several conditions are required to make job evaluation successful.

12.13 Test Question

Q 1. Define Job Evaluation. How docs it differ from job analysis?

Q2. Explain the procedure involved in the job evaluation.
Q3. How can a job evaluation programme be made more effective?
Q4. Distinguish between Factor comparison method.and Point method ofjob evaluation.

12.14 Further Readings

Robert L. Mathis and John H. Jackson, "Human Resource Management", ThomsonLearning.

Storey, "Human Resurce Management", Thomson Learning, 2001.
Singh, A.K., and B.R Duggal,., "Human Resources Management", SunrisePublication, New Delhi, 2003.
Saiyalaim, M.S., "Human Resource Management", Tata McGraw-Hill, New Delhi,1999.

145
 Unit V
LESSON 13

13.1
13.2
13.3
13.4
13.5
13.6
13.7
13.8
13.9
13.10
13.11
13.12
13.13
13.14
13.15

13.1

146
conditions.. lighting, v;:;n!iiation, cleanliness, temperature, space, etc. are proper workers cannot
cor,::;l�ntrnte on '>'-''Jrk. They do riot feel working hard continuously for long time. As a result
productiv'.i.y wiii be iow. Secondly, ill health will force workers to be absent from work. There
wiii he high rate of <ibsenteeism and labour turnover. The quality of work will suffer and the
firm's resources \Vil! be \Nasted. In addition, industrial discontent and indiscipline will arise.
Thus, h.Jm:lrial hed�h is essential for the following reasons:
I. To maintain and improve productivity and quality of work.
To minimize ai.:is�nte,;ism a:1d labour turnover.
HL To reduce industrial :.mrest, indiscipline and accidents.
To improve employee rn.otivation and morale.
fo reduce spoilage and cost of operations.
To preseP/e the physical and mental health of employees.
recent years, increasing attention is being paid to industrial health and safety due to pressun�
frnm trnde unions, labour laws and enlightened attitudes of employers. National commission on
Lsbour anJ ot:·,er committees have stressed the creation and maintenance of as healthy an
C'nvironment as poss;bie both at the \vork place and in the homes of workers. According to the
reccmr:1cndat;o11 l i 2 ;.:..f ILO. ''Occupational health services should be established in or near a
piacc of employm�i·tt for the purpose of (a) protecting the workers against any health hazards
arising orn. of �-,<' conditions in which it is carried on, (b) contributing towards worker's
physical and ff,s:;ntal adjustment, and (c) contributing to establishment and maintenance of the
highest possible degree of physical and mental well-being of the workers.

13.2 V'Jorkhig: Condiito:ns Affecting Health

The rnah, physic.al factors influencing workers' health are as follows:

1. Cleanfo1ess: Hygien� is essential to health. Dirt should be removed daily from the
workpia,.:e, fiFniture, staircase etc. Properly cleaned and disinfected spittoons must be
provided at convenient piaces. Arrangements should be made for proper disposal of
industrial waste. Rats, pests and insects should be destroyed as these are worst carriers of
<iisea-�es. Drii:king 1,. ater, toilets, restaurant and canteen facilities should be provided for
worke:.·s.
2. Lighting: Ad,::quate and proper lighting is essential for higher efficiency and. good
quality of ,vor:.::. Poot lighting on the other hand causes eye strain, mental fatigue,
accidents snd spoilage of materials. A good lighting system should provide (a) the right
degree of intensity of light depending upon the nature of work, (b) well diffused and
uniformiy sprrnd light all over the work place, and (c) protection from any glare.
3 .. Temperature anu Venmatfon: Flow of fresh air with right temperature and humidity is
necessary for protection of health. Stale air causes headache to workers. In hot and humid
climate, empioyees feel tired and sleepy ventilators, fans, coolers/heaters, air conditioners
help to maintain right temperature and humidity. These also keep the air free from dust,
smoke, fomes etc.
4. Freedom from Noise: Too much noise inside and· outside the work place causes
disturbance. It does not allow workers to concentrate on the work and their efficiency
declines. Incernal noise occurs due to conversations, movement of workers and machines,
tekphone calis, etc. Use of sound absorbent materials in walls and ceilings, carpets on the
floors, installation of noise producing machines in a separate room, etc. help to minimize
such noise. External noise is caused by the movement of persons and vehicles near the

147
 work place. Proper location of factory/office, sound proof walls, double doors and gla�s
panels may be used to avoid external noise.
5. Dust Control: At some work places, there is higher ratio of dust. For example, w0rk
areas in cotton and jute industries are laden with dust. Dust affects v1orkers' health as
well as the life of machinery. Therefore, it is necessary to keep the work place fror,1 dust.
Several measures can be taken for this purpose. Regular cleaning of doors, windows,
walls and ceilings is necessary. Floors should be washed daily to avoid accumulation of
dust. Electrical installations should be regularly cleaned to maintain the level of lighting,
machines, furniture and records should be cleaned regularly.
6. Working Space and Seating Arrangements: Adequate space should be provided for
free movement of persons, machines, etc. Proper seating arrangements are essential for
comfort and health of employees. Over-crowding should be avoided as it spoils health
and efficiency.

13.3 Occupational Hazards and Diseases

In certain industries workers are exposed to health hazards and disease. These arise due to the
following:
i. Chemical Substances: Carbon dixodie, sulphuric acid, limes and alkalies cause ir•Jury
when they are absorbed through skin and inhaling. Workers may suffer from skin disease,
neurological disorders and cancer. Their effect is slow but cumulative. These are difficult
to diagnose and may became chronic and uncurable. Gas, fumes and dust in stone
quarries, mines, stone crushing, lead or zinc smelting, etc. cause diseases.
11. Biological Hazards: Bacteria, fungi, viruses, insects, malnutrition excessive drinking
and job stress affect employee health.
111. Environmental Hazards: These include radiation, noise, vibrations shocks, etc. X-rays
or radio active exposure may cause eye strain, genetic disorders and cancer. High noise of
machinery may cause hearing loss vibrations and shocks may cause nerve injury and
inflammation of tissues in the body.
iv. Atmospheric Conditions: Inadequate ventilation, improper lighting, extrerne
temperature, etc. affect health and efficiency of employees.
Under the Factories Act, 1948 hazardous process is defined as "any process or activity in relation
to an industry specified in the First Schedule where, unless special care is taken raw materials
used therein or the intermediate or finished products, wastes or effluents therefore wouid:
1. cause material impairment of the health of the persons engaged in or connected there\vith,
or
n. result in the pollution of the general environment.

13.4

Two types of measures can be taken to protect employee health against e,ccupational hazards:
0 Preventive Measures
• Curative Measures
The former category includes (a) pre-employment and periodic medical <.:xam.inaticn, lb)
Removal of health hazards to the maximum possible extent, (iii) .,;heck over \VOrnc:n: and
worker exposed to special risk, (iv) training of first aid staff: and (e) e<lucv.ting workers in hc:\l.th
and hygiene etc.

148
 The curative measures consist of treatment for the affected workers. Ofcourse prevention is
always better than cure. Use of less toxic materials, providing protection devices, controlling
noise, dust fumes, gases, etc. are some of the convenient and inexpensive measures that can be
taken by employers to prevent health hazards.

13.5 Industrial Health r_og=r_a_m_m _e ________________________

Jl'___
·

Every industrial establishment should formulate and implement a positive policy and programme
to maintain the good health of its employees. Such a programme should consist of the following
steps:
I. Ivfaintenance and supervision of satisfactory sanitation and hygiene in the factory/office.
II. Inoculation and after programmes for the prevention of communicable disease.
III. Active cooperation with public health agencies and accident prevention authorities.
IV. Maintenance of adequate and confidential medical records.
V. Health education and information services for employees.
VI. Proper medical examination of every new employee.
VIL ;\mm:i.l medical check up of those exposed to occupational hazards/ disease.
vm. Employment of professional physicians and nurses.
Proper first and treatment for occupational injuries and diseases.
X. Re::tsonable first aid treatment for non-occupational ailments, e.g. cold, sore throat, skin
disorders. etc.
XI. Adequate emergency care and hospitalization facilities.

13.6 Statutory Provisions Concerning Health

The Factories Act, 1948 lays down the following provisions concerning employee health:
t) CkanJiness: (a) Every factory shall be kept clean and free from effluvia arising from any
drain, privy or other nuisance. (b) AccumtJlation of dirt and refuse shall be removed daily
by some effective method. (c) The floor of every work room shall be cleaned at least
once in every week by washing, using disinfectant where necessary, or by some effective
rnetbod.(<l) Where a floor is likely to become wet in course of any manufacturing process
to such as extent as. is capable of being drained, effective means of drainage shall be
provided. (c) Walls, partition, ceilings, doors, windows, etc. shall be painted, varnished,
\>.>hite colour washed in the prescribed manner.
2) Dhposai of vVastes and Effluents: Effective arrangements shall be made in every
factory for the treatment of wastes and effluents due to manufacturing process carried on
therein, so as to render them innocuous and for their disposal.
3) Ventiiation and Temperature: (a) Effective and suitable provision shall be mad� in
every factory for securing and maintaining in every workroom the circulation of fresnair
and :,;ucb a temperature as will secure to workers therein reasonable conditions of comfort
and prevent injury to health. (b) The walls and roofs shall not be exceeded but kept as
low as practicable. (c) The process which produces high temperatures shall be separated
from the workro,xn by insulating the hot parts or by other effective means.
4) Dust and Fttmes: (a) Where dust or fumes or impurity of such a nature as is likely to be
injurious or offensive to the workers is given off as a result of the manufacturing process
b 1�ing carried on in a factory, effective measures shall be taken in the factory for
prevention of inhalation or accumulation of dust and fumes in workrooms. If for such a
puc�ose any exhaust ap;,!iance is necessary it shall be applied as near as possible to the

149
 point of origin of the dust, fumes or other impurity and such point shall be enclosed so far
as possible. (b) A stationary internal combustion engine shall not be operated unless the
exhaust i� conducted into the open air. Other internal combustion engines shall not be
operated in any room unless effective measures have been taken to prevent accumulation
of fumes there from which are injurious.
5) Artificial Humidification: In any factory in which the humidity of the air is artificially
increased, the water used for the purpose shall be taken from a public supply or other
source of drinking water or shall be effectively purified before it is so used.
6) Over Crowding: There shall be in every workroom of a factory at least 9.9 cubic meters
(for the factories existing before this Act) and 14.2 cubic meters (for factories built after
this Act) and 14.2 cubic meters (for factories built after this Act) of space for every
worker. In calculating such space, no account shall be taken of any space which is more
than 4.2 meters above the level of the room's floor.
7) Lighting: (a) In every part of the factory where workers are working or passing there
shall be provided and maintained sufficient and suitable lighting, natural or artificial or
both. (b) All glazed windows and sky lights used for lighting shall be kept clean and free
from obstruction. (c) Effective provision shall be made to prevent glaze and the formation
of shadows.
8) Drinking Water: (a) In every factory, effective arrangements shall be made to provide
and maintain at suitable points conveniently situated for aH workers employed therein a
sufficient supply of wholesome drinking water, (b) All such points shall be legibly marked
'drinking water' in a language understood by a majority of the workers employed in the
factory. No such points shall be situated within six meters of any washing place, urinal,
latrine, spittoon, open drain carrying sullagar or effluent or any other source of contamination
unless a shorter distance is approved in writing by the Chief Inspectof. (c) 1n every factory
wherein more than 250 workers or effluent or any other source of contamination unless a
shorter distance is approved in writing by the Chief Inspector. (c) In every factory wherein
more than 250 workers are ordinarily employed, provision shall be made f<)r cooling drinking
water during hot weather by effective means and for distribution thereof.
9) Latrines and Urinals: (a) In every factory:
I. Sufficient latrine and urinal accommodation of prescribed types shall be provided
conveniently situated and accessible to workers at the time while they are at the factory;
II. Separate enclosed accommodation shall be provided for male and female workers;
III. Such accommod�tion shall be adequately lighted and ventilated and no latrine or urinal
shall unless specially exempted in writing by the chief inspector, communicate with
workroom except through an intervening open space or ·ventilated passage;
IV. All such accommodations shall be maintained in a clean and sanitary condition at all
times.
V. Sweepers shall be employed whose primary duty would be to keep clean latrines, urinals
and washing places.
(b) In every factory wherein more than two hundred and fifty workers are ordinarily employed:
I. All latrine and urinal accommodation shall be of prescribed sanitary types;
II. The floors and internal walks, up to a height of 90 centimeters, of the latrines and urinals
and the sanitary block shall be laid in glazed tiles or otherwise finished to provide a
smooth polished impervious surface;
Ill. The floors, portions of the walls or blocks so laid or finished and the sanitary pans
latrines and urinals shall be thoroughly washed and cleaned at least once in every sev(�n
days with suitable detergents and disinfectants or with both.

150
10) Spittoons: (a) In every factory, there shall be provided a sufficient number of spittoor.s at
convenient places and they shall be maintained in a clean and hygienic condition. (b) No person
shall spit within the premises of a factory except in the spittoons provided for the purpose. A
,,nic containing the provision of spittoons in the factory and the penalty for spitting any where
except in the �;p:ttoons shall be prominently displayed at suitable places in the premise.s.

13.7

It is the responsibility of every management to ensure workers' safety while they are at work.
Industrial safety and efficiency are directly related to a great extent Safety measures not only
result iE n:duced industrial accidents but also raise industrial efficiency. Therefore, employers
should lay emphasis on safety measures in their plants. Moreover, rules and regulations, as laid
dovvn in the labour laws, make it obligatory on the part of industrialists to provide certain
minimum measures of safety for their employees. Such measures are intended to ensure
protection to vvorkers, avoid industrial accidents and raise overall efficiency of the enterprise.
Industrial safety measures include precautionary steps to be taken by the management of
an enterprise 111 order to prevent accidents. Thus, accident prevention is the main objective of any
safoty programm�. Accidents in an industry cause damage to property and life. It must be
pointed out that the rate of industrial accidents has been on the increase inspite of several
statutory rt:gulations imposed by the government.

13.8 What
--------- -is----------------------------------
rm Industrial Accident?

An indm:tria! accident is an unexpected occurrence in an industrial establishment causing bodily

injury to one or more persons. Under the Factories Act, 1948, an industrial accident has been
defined as ·'an occurrence in an ]ndustrial establishment causing bodily injury to a person which
rnake him unfit to resun1e his duties in the next 48 hours." In other words, it is an unexpected
eveni 2nd is alv;ays sudden. Moreover, the event or occurrence should be something to which a
detiilit�: (iJP'\ date and place can be assigned. It must arise in the course of employment in a
focto;·y ·::1· an industrial establishment. However, self inflicted injuries or injuries inflicted with
ihc wnseni of a person cannot be regarded as accidents.
/\ccidcnts are undesirable because of both humanitarian and economic reasons. Even a
mine,· accidtmt may bring down the morale of the workers. Whenever an accident occurs, it leads
to vvestagc of rime cf the employees involved in the accident and that of the organization. If the
acciden t is st•rions in nature, it might lead to dislocation of production in the organization.
/\!:cordiag to T.V/. Harell, "Accidents are not only expensive, but they also lower the morale of
the wofk,c;•·s and in addition resu!t in lower production."

13.9 Measm·rment and Records of Accidents

Twc 111al!1 ratios used to measure accidents are frequency rate and severity rate. Accidents
frequency n:\te is the number of time-lost accidents or injuries per employee per 10,00,000 man
h011cc; worked. Accident severity rate means the total number of days charged or lost because of
accidents oer J 0,00,000 man hours worked.
,l, ,. ,

No. of injuries x 10,00,000

=
Total No. of man hours worked

151
 No. of man day lost x 10,00,000
Accident Severity Rate ==
. Total No. of man hours worked

Systematic and up-to-date records of industrial accidents and steps taken to prevent them should
be maintained in an industrial undertaking. These records will be helpful in identifying the areas
where further action is required to ensure employee safety. It is also obligatory to maintain such
records under the Workmen's Compensation Act. Accident records should contain the following
information:
I. the total number of employees in the unit who are exposed to different types of accidents;
II. the severity of the accident- whether it resulted in a broken bone, a deep cut and the time
that was lost as a result of it;
III. the date, time and the shift during which the accident occurred;
IV.. the total number of years during which the employee was engaged on that particular job
when the accident occurred;
V. personal data, including the age and health of the injured employee; and
VI. the immediate cause of the accident whether it was the result of a malfunctioning of a
machine, or whether the employee failed to sue the safety devices provided for the
purpose of preventing accidents, etc.

13.10 Causes of Industrial Accidents

Industrial accidents take place due to several reasons arising from people, working conditions,
and other factors. These causes may be classified as follows:
1. Unsafe Conditions: These refer to work related or technical causes. These are the
biggest cause of accident in industry. Work related causes are as follows:
a) The job Itself: Some jobs are inherently more dangerous than others. For example, the
job of a craneman as compared to that of a supervisor is more risky.
b) Work Schedules: Night shift is more accident prone than day shift due to fatigue and
sleepiness.
c) Psychological Conditions: Emotional disturbance and mental preoccupation often cause
accidents. Over-work, monotony, boredom, anxiety, fatigue and frustration disturb
concentration and mental alertness leading to accidents.
d) Machinery and Equipment: Defective equipment, unguarded machinery, breakdown of
machines, hazardous arrangement of machines and equipment inadequate safety/control
devices, overloading improper illumination, insufficient ventilation, poor house-keeping,
poor maintenance and supervision are common causes of accidents in industry. Safety
experts point out that there are some high danger zones like handlift trucks, wheal
barrows, gear and pulleys, saws and hand rails, etc.
2. Unsafe Acts: These arise due to lack of knowledge and skills, bodily defects and faulty
attitude. Some examples are given below:
I. Operating without authority.
II. Failure to use safety devices.
III. Failure to listen to warning.
IV. Careless throwing of materials on the floor.
V. Operating unsafe speeds.
VI. Using unsafe equipment.
VII. Removing or disconnecting safety devices.

152
VIII. Lifting things improperly.
IX. Taking unsafe positions under suspended loads.
X. Using unsafe procedure in loading and unloading.
XI. Cleaning, oiling, repairing or adjusting moving machines.
XII. Teasing, quarreling, day dreaming or horseplay.
XIII. Personality and behavior which make some people more accident prone.
3.Miscellaneous Causes: Young, untrained and inexperienced workers cause more
accidents than old, trained and experienced workers. Alcoholic and drug addicted prone.
Workers having disturbed family life are likely to cause accidents due to stress.
Unsatisfactory behavior of supervisions may also cause accidents on the part of workers.
The main steps that can be taken to ensure safety and security of employees, are as follows:
1. Safety Policy: Every industrial establishment should formulate and implement a safety
policy. Once the safety policy has been spelt out, the establishment should formulate a
safety programme. The main aim of the programme should be to reduce the number of
hazardous factors which are likely to cause accidents, and to develop safe working habits
among its. employees. The safety programme must have top management support and
active cooperation of employees. Safety must be an integral part of all phases of
planning, supervision and control. The job should be engineered for safety, employees
should be educated in safe procedures and safety rules should be properly enforced.
2. Safot-y Committee: A safety committee should be constituted in every large factory. It
should consist of the representatives· of both the employer and the employees. The
committee should be constituted under the chairmanship of a safety director/manager.
The committee should educate and impress upon the line managers about the safety
measures required in the establishment. The safety programme should be formulated and
implemented through the safety committee.
3. Safety Engineering: Proper engineering procedures must be adopted to eliminate or
minimize work hazards. Full attention should be paid to safety in the design, layout and
installation of plant and machinery. Safety engineering helps to minimize unsafe
conditions. The main elements of safety engineering are as follows:
a) Guarding of Machines: The machinery which pose danger to the employee working on
it, should be properly covered or fenced. According to Rule 82 of the I.L.O. Model Safety
Code, guards should be properly designed, constructed and used so that they will provide
positive protection, prevent access to the danger zone, cause no inconvenience to the
operator and protect against unforeseen operational contingencies.
b) Mettles Handling Equipment: Materials handling is the common source of accidents.
Therefore, the flow of materials during all stages of production should be properly
planned to eliminate hazards. Proper equipment, adequate space and aisles should be
provided to ensure risk free and smooth flow of materials. In addition, there should be a
well-designed system for the detection, prevention and control of fires. Inflammable
liquids and materials expose workers to great risks. Therefore, utmost care should be
exercised in handling and storage of such materials.
c) Safety Devices: Safety glasses to protect the eyes from hazards of fire, glare, dust and
fumes should be provided to workers. Hard protective caps may be provided head
injuries. Gas masks may be given to prevent the inhalation of poisonous fumes. Gloves to
protect hands against acids, safety shoes, overalls, skin guards, and safety apparel, etc.
may be provided for use by workers.
d) Ergonomics: It deals with physiological and anatomical aspects of man and his
interactions with the working environment. It is being increasingly used to improve

153
 man-machine system. For example, equipment, machinery and work procedures should
be redesigned to minimize accidents.
e) Plan Maintenance: All equipments and machines should be kept in perfect working
order through regular cleaning, oiling, repairing, etc. There should be periodic
inspections of machines, equipment, electrical installations and cables.
l) General House-keeping: All passages meant for movement of employees should be
kept free all obstructions. Tools and parts should be stored safety after use. There should
be solid and even flooring. All floors should be kept clean and dry. Waste cans and sand
pails should be safely stored.
4. Safety Education and Training: Safety education and training should be provided to
workers, supervisors and executives to develop safety consciousness and safe working
habits. Workers should be trained in the proper use of safety devices. The need for good
house-keeping and safe materials handling should be stressed. Principles of first aid and
precautions required in case of fire and the accidents may be explained. Posters, bulletin
boards, house organs, displays, cartoons, slogans, signs and safety films, may be used for
safety education, training and safety publicity campaign, Safety contests may
organized and prizes awarded to the most safe employee/ work group/ department to
develop safety competition. Disciplinary actions/punishments may be used for breach of
safety regulations.
5. Role of Government: The Government of India established the Factory advice Service
and labour Institute, Mumbai. The institute renders advice on safety matters and enforces
safety laws. A 'National Programme for Coordinated Action Plan' for control of hazards
and protection of health and safety of workers in dangerous manufacturing process has
been launched. Model scheme for setting up full safety control system cell in hazardous
industries and 'Safety and Health' Accidents Reduction Plan (SAHARA) in all industries
are in operation.

13.12 Safety Provisions Under the Factories Act

The Factories Act, 1948 lays down the following safety provisions:
1. Fencing of Machinery (Sec. 21): In every factory the dat:1gerous parts of any machine
shall be securely fenced.
2. Work on or Near Machinery in Motion (Sec 22): For examining and lubricating
machines while in motion, specially trained workers wearing tight clothes be sent. Such a
worker should not be allowed to handle belts of machines in motion without proper
precautions. Women and young children should be prohibited from handling such
dangerous machines.
3. Employment of Young Persons (Sec 23): No young person be allowed to work on
dangerous machines unless he is fully instructed about possible dangers and precautions
to be followed. Sufficient training be provided in advance and he should be allowed to
operate such machines under the guidance of an experienced supervisor.
4. Striking Gear and Devices for Cutting Off Power (Sec 24): In every factory suitable
striking gear has to be used to move driving belts. Steps should be taken to ensure
prevention of the belt from creeping back on to the fast pulleys. Driving belts, when not
in use, shall not be allowed to rest or ride on a shaft in motion. Suitable devices for
cutting off power in an emergency shall be maintained in every room. When a device
which can inadvertently shift from 'off' to 'on' position is provided in a factory to cut off
power, arrangements shall be made to lock it in a safe position with a view to nr,,,""'''" the

154
 accidental starting of the transmission machinery or any other machines to which the
device is fitted.
5. Self acting machines (Sec 25): No traversing part of a self acting machine in any factory
and no material carried thereon shall be allowed to run on its outward or inward traverse
within a distance of 18 inches from any fixed structure which is not a part of the machine,
if a person is liable to pass through the space over which it operates.
6. Casing of New Machine (Sec26): All machinery, driven by power and installed after 1-
4-1949, must be encased or otherwise effectively guarded to eliminate danger to those
working in the factory.
7. Employment of Women, Children Near Cotton Opener (Sec 27): No woman or child be
employed in any part of a factory to press cotton when a cotton opener is working. But if
the feed-end of a cotton opener is in a room which is separated from the delivery-end by
partition extending to the roof or to such height as the factory inspector may express in
writing, vvomen and children may be employed in that part of the room where the feed­
end is kept.
8. Hoists and Lifts (Sec 28): In every factory hoists and lifts shall be of a good mechanical
construction, sound material and adequate strength and shall be properly protected by
enclosures fitted with gates. Once in every six months, it shall. be thoroughly examined
by a competent person. The maximum safe working load shalf be thoroughly examined
by a competent person. The maximum safe working load shall be clearly indicated on
every hoist or lift. A heavier load shall not be allowed to be carried on that hoist or lift.
9. Lifting Machines, Chains and Ropes (Sec 29): The lifting machines, tackles, chains
and ropes used in factory should be of good construction, sound material and strong
enough to carry the necessary loads.
10. Revolving Machinery (Sec 30): In �very room where grinding jobs are performed, a
notice showing the maximum working speed of the machine shall be fixed near it. Safe
working peripheral speed of every revolving vessel, pulley, basket, flywheel, and disc has
to be observed and steps should be taken to see that the safe working speed is not
exceeded.
11. Pressure Plant (Sec 31): If in any factory operations are carried out at a pressure above
the atmospheric pressure, proper measures shall be taken to see that the safe working
pressure is not exceeded.
12. Floors Stairs and Means of Access (Sec 32): All doors, steps, stairs, passages and
gangways shall be of sound construction and maintained in a state of good repair; they
shall be free from obstructions likely to cause persons to slip and hand rails shall be
provided wherever required. As far as possible, safe means of access to the place of work
shall be provided and maintained.
13. Pits, Sumps, Openings in Floors (Sec 33): Every pit, tank, sump, fixed vessel, opening
in the ground or in a floor which is a source of danger, shall be either properly covered or
securely fenced.
14. Excessive Weights (Sec 34): No person shall be employed in any factory to lift, carry or
move any load which is so heavy as to cause him a possible injury.
Protection of Eyes (Sec 35): Effective screens or suitable goggles be given to workers
while scrutinizing a manufacturing process involving risk of injury to eyes.
16. Dangerous Fumes and Gases (Sec 36): No person shall be allowed to enter any
chamber, tank, vat, pit or other confined space in which any gas, fume, vapor or dust is
likely to be present to a dangerous extent. A person can enter such a place only when it is
p1:ovided with a manhole of adequate size or other effective means of egress. In case of

155
 any emergency, suitable breathing apparnt!!s, reviving apparatus, belts and ropes be kept
ready.
17. Precautions with Regard to Portable Electrical Light (Sec 3(i A..):,No portable electric
light or any other electric appliance of voltage exceeding 25 volts sball be permitted for
use inside any chamber, tank, vat, pit, flue or confined place. If any inflammable gas,
fume or dust is likely to be present in such chamber, tank, vat, pipe flue or any other
confined space, no lamp or light, other than the one which is flame� proof shall be
permitted to be used inside the factory.
18. Explosive or Inflammable Gas or Dust (Sec 37): In the manufacturing process if any
dust, gas or fume is likely to explode on ignition, preventive steps should be taken to:
• Enclose plant or machinery used in process.
• Remove or prevent the accumulation of such dust, gas, fume or vapor.
• Enclose all possible sources of ignition.
Steps should also be taken to restrict the spread or effects of the explosion. When such explosive
items need to be opened, the flow of gas or vapor should be stopped through a stop valve, reduce
the atmospheric pressure through all practical steps and put the loosened or removed parts in
respective locations in a proper way.
19. Precautions in Case of Fire (Sec 38): AH practicable steps should be taken to prevent
the outbreak of fire inside the factory. In case of fire, safe escape routes should there.
The exit routes should be marked in an understandable language. Clearly audible warning
signals should be given in case of fire. Equipment for extinguishing fire should also be
available. Workers should be familiar with the means of escape in case of fire and they
should be adequately trained, in advance, in the procedure to be followed in such a case.
20. Power to Require Specification of Defective Part or Tests of Stability (Sec 39): If it
appears to the Inspector that any building or part of a/building or any part of the ways,
machinery or plant in a factory is in such a conditior(that it may be dangerous to human
life or safety, he may serve on the occupier or ma�ager or both of the factory an order in
writing requiring him before a specified date:
a) To furnish such drawings, specifications and other particulars as may be necessary to
determine whether such building, ways, machinery or plant be used with safety, or
b) To carry out such tests in such manner as may be specified in the order, and to inform the
Inspector of the results thereof.
21. Safety Officers (Sec 40): A safety officer shall be appointed in every factory employing
1000 or more workers. He should (i) formulate a safety policy to be followed (ii)
investigate causes of injuries and circumstances leading to accidents (iii) organize safety
education, training and publicity at various levels and (iv) act as a technicians, planner,
organizer and stimulator of safety.

13.13 Summary

Health is a general state of physical mental and emotional well-being. Safety involves protecting
the physical well being of people. Health promotion covers areas such as healthy living, physical
fitness, smoking cessation, stress management etc. The main purpose of effective safety
programmes in an organization is to prevent work-related injuries and accidents. Safety members
in factories cover slipping and falling hazards, collision and obstruction hazards, equipment
hazards, fire hazards, hazards from falling objects etc. Supervisors play a great role in reducing
unsafe conditions and unsafe acts.

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13.14 Test Question

QI. Explain the significance of industrial health and safety in effective management of human
resources.
Q2. How would you measure and record industrial accidents? Explain the causes of such
accidents.
Q3. Discuss the provisions of the Factories Act, 1948 relating to safety of industrial workers.
Q4. What measures should be taken to protect employee health in industries.

13.15 Further Readings

Decenzo, D.A. and S.P. Robbins, "Personnel/Human Resource 1\1anagement",Prentice Hall of India,
New Delhi, 2003.
Dessler," Human Resource Manag{;!ment", Prentice Hall oflndia, New Delhi.
French, W., "the Personnel management Process", .Haughten Miffin, Boston.
Ivanecevich, John M., "Human Resource Jdanagement", McGraw Hill.
Wreather and Davis, "Human Resource ,\fanagement", Prentice Hall, New Jersey.

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 LESSON 14

EMPLOYEE WELFARE AND REDRESSAL OF GRIEVANCES

Dr. Pooja Goel
Shaheed Bhagat Singh College
University ofDelhi

Objectives
After going through this lesson you should be able to:
e Define Labour Welfare
e Describe the Agencies Extending Welfare Work
• Explain Statutory Provisions Governing Labour Welfare
• Understand the Handling of Grievances

Structure

14.1 Concept of Employee Welfare

14.2 Scope of Labour Welfare
14.3 Significance of Labour Welfare
14.4 Agencies of Labour Welfare
14.5 Types of Welfare Facilities
14.6 Statutory Provisions Concerning Employees Welfare
14.7 Provisions regarding Labour Welfare under Other Acts
14.8 Labour Welfare Officer
14.9 Concept of Employee Grievance
14.10 Sources of Grievances
14 .11 Handling of Grievances
14.12 Grievance Procedure
14.13 Essentials of a Good Grievance Procedure
14.14 Summary
14.15 Test Question
14.16 Further Readings

Rapid industrialization and urbanization have made employees dependent on capitalists. Inflation
has made their lot poor and they find it difficult to maintain their standard of life. In such
situation employee welfare facilities enable workers to live a richer and more satisfactory life.

14.1 Concept of Employee Welfare

Employee or labour welfare is a comprehensive term including various services, benefits and
facilities offered to employees by the employer. Through such generous fringe benefits the
employer makes life worth living for employees. The welfare amenities are extended in addition
to normal wages and other economic rewards available to employees as per the legal provisions.
According to Dr. Parandikar, "Labour welfare work is work for improving the health, safety and
general well being and the industrial efficiency of the workers beyond the minimum standard lay
down by labour legisla�ion." Welfare measures may also be provided by the government, trade

158
 unions and non-government agencies in addition to the employer. According to a I.L.O. report,
"workers" welfare may be understood as including such services facilities and amenities which
may be established in, or in the vicinity of undertakings to perform their work in healthy and
congenial surroundings and to avail of facilities which improve their health and bring high
morale." The basic purpose of labour welfare is to enrich the life of employees and keep them
happy and contented. Welfare measures may be both statutory and voluntary. Labour laws
require the employer to extend certain benefits to emplnyees in addition to wages. Voluntary
benefits are the result of employer's generosity, enlightenment and philanthropic feelings. On the
basis of these definitions, the following features of employee welfare can be identified:
I. Employee welfare is a comprehensive term including various services, facilities and
amenities provided to employees for their betterment
IL Employee welfare is a dynamic concept varying from country to country and from region
to region within same country. It is a flexible and ever changing concept as new welfare
measure is added to the existing measures from time to time.
III. Welfare measures are in addition. to regular wages and other economic benefits available
to employees under legal provisions and collective bargaining.
IV. Welfare measures may be provided not only by employers but by the government, trade
unions and other age11cies too.
V. The basic purpose of employee welfare is to improve the lot of the working class and
thereby make a worker a good employee and a happy citizen.
VI. Employee welfare is an essential part of social welfare. It involves adjustment of an
employee's work life and family life to the community or social life.
VII. Welfare mcrsures may be both voluntary and statutory. Voluntary measures are the result
of paternalistic arid philanthropic feelings of employer. These may also be provided due
to customs or traditions in the particular industry or region. Statutory measures are
prescribed under labour laws.
VIII. Employee welfare measures are also known as fringe benefits and services.

14.2 Scope of Labour Welfare

The Labour Investigation Committee preferred to inciude under labour welfare "any thing done
for intellectual, physical, moral and economic betterment of the workers, whether by employers,
by Government or by other agencies, over and above what is laid down by law, or what is
normally expected on the part of the contracted benefits for which workers may have bargained."
According to the Committee on Labour Welfare, welfare services should mean 'such services,
facilities and amenities as adequate canteens, rest and recreation facilities, sanitary and medical
facilities, arrangements for recreation facilities, sanitary and medical facilities, arrangements for
travel to and from the accommodations of workers employed at a distance from their homes and
such other services, amenities and facilities including social security measures, which contribute
under which workers are employed.
Labour welfare includes both statutory as well as non-statutory activities undertaken by any of
the three agencies-employers, trade· unions or the Government for the physical and mental
development of workers, both as a compensation for wear and tear that he undergoes as a part of
production process and also to enable him to sustain and improve upon the basic capacity of
contribution to the process of production. It is a very broad term covering from social security to
such activities as medical aid, creche, recreation, hou.�ing; 'adult education,' arrangeme�1t for
transport of labour to and from work place to re�i.dence,' etc.

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 14.3 Significance of Labour Welfare

Employee welfare is in the interest of the employee, the employer and the society as a whole. For
the employee, welfare measures help to counteract the negative effects of the factory system.
These measures enable the employee and his family to lead a good life. Welfare facilities like
housing, medical and children's education, recreation, etc. help to improve the family life of
employees. For the employer, welfare measures lead to higher morale .and productivity of labour.
Employee welfare is also in the interest of the larger society because the health, happiness and
efficiency of each individual represent the general well-being of all. Well-housed, weH-fed and
well-looked after, labour is not only on asset to the employer but serves to raise the standards of
industry and labour in the country. The important benefits of welfare services are given below:
I. Welfare facilities provide better physical and mental health to the workers and make
them happy.
II. Such services facilities like housing scheme, medical benefits, and education and
recreation facilities for the workers' families. This will help them to devote greater
attention towards their work. The gain in terms of productivity and quality of work will
be large indeed.
III. Employees services serve to maintain some degree of peace with the employees' unions
in as much as these constitute a considerable part of the bargaining package. The
harmony and the good relations that result are the kingpin of higher productivity.
IV. Employers get stable labour force due to the provision of welfare facilities. Workers take
active interest in their jobs and work with a feeling of involvement and satisfaction. They
also find their work interesting.
V. Employers secure the benefits of high efficiency, cordial industrial relations and low
labour absenteeism and turnover.
VI. Labour welfare measures raise labour productivity and bring industrial peace and cordial
labour-management relations.
VII. An employer is able to attract talented workers from the labour market by providing
attractive welfare facilities.
VIII. The social evils prevalent in the labour-force such as gambling, drinking, etc. are
reduced. Welfare activities by the employer bring improvement in the health of the
workers and keep them cheerful.

14.4 Agencies of Labour Welfare

In India, the main agencies engaged in labour welfare inclu<le: (a) Central Government (b) State
Government (c) Employer's and (d) Worker's organizations. The contribution of these agencies
is discussed below:
a) Central Government: The Central Government has passed a number of Acts for .the
welfare .of different types of workers. It also administers the implementation of industrial
and labour laws. The important Acts which incorporate measures for the welfare of the
workers are: Factories Act, Indian Mines Act, Employment of Children Act, Maternity
Benefits Act, Plantation Labour Act, etc. Under these Acts, employers have to provide
certain basic welfare facilities to the workers. For example, under the Factories Act,
1948, employer has to provide canteen, rest and lunch rooms, creches, medical aid,
proper lighting, ventilation, drinking water, etc. at the work place. Appointment of
Welfare Officer is also made compulsory. In the case of coal mines, the provision of
welfare fund has been made. It is called Coal Mines Labour Welfare Fund. This fund is to

160
 be utilized for providing housing, m.edicu!, educ2.tional and recreation facilities to the
workers in mines. Mica mines Labour 'Ne!fare Fund has been constituted under the Mica
Mines Labour Welfare Fund, 1946. The Government also provides housing, medical
care, canteens, educational aid etc. to the workers employed in public sector enterprises.
b) State Governments: The implementation of many provisions of various labour laws
rests vvith the State Governments. The State Governments run health centers, educational
centers, etc. for the welfare of the workers. They also keep a vigil on the employers that
they are operating the welfare schemes made obligatory by the Central or State
Government. The State Gov,:rmnents have been empowered to prescribe rules for the
welfare of workers and appoint appropriate authorities for the enforcement of welfare
provisions under various laws. In Assam, a statutory welfare fund is created for offering
medical, educational, recreational and other facilities to plantations workers. In Gujrat,
1Vfaharashtra, Punjab, and Karnatka, Labour Welfare Centers are administered by welfare
boards. Hov,ever, the number of these welfare centers is not inadequate to serve the
growing needs of workers at various places. These centers do not have adequate fonds
and dedicated staff to carry out welfare work.
c) Empfoyers: Many employers provide voluntarily welfare facilities along with the
st?tutory wdfare facilities. These i:r.dude residential accommodation to employees,
1ncdicai and transport facilities, reading rooms, scholarships to children of workers,
patronize teams of employees for hockey, football, etc. Employers can provide welfare
facilities individually or collectively, i.e. through their associations. Employers have to
play a major role in providing welfare facilities to industrial workers. The welfare
facilities oftired by the employers on their own are called voluntary weifare facilities.
Some associations of employers also provide welfare facilities collectively. Enlightened
employers like TJSCO, Hindustan Lever, Godrej, L&T Siemens, Valtas, Bajaj, Birlas,
Sandoz,, Philips, HMT, LJC, BHEL etc. have unde1taken v,elfare activities in the interest
of workers. The management of TISCO runs a well equipped hospital in Jamshedpur,
supported by hea!th ctnters and dispensaries in different residential • localities. Family
planning clinics, credit societies, gymnasiums, club, creches, canteens, schools arc also
set up by TISCO for the benefit of workers. Empioyet";S Associations have also joined
hands with employers in doing sorne welfare work for their workers,
d) Trad� Un�,ms: Trade unions ?.re supposc;d to raise the welfare of workers and naturally
the.: are ::xpected to provide certain welfare facilities to their members. Unions can
ptovide educational, cultural and other fadlities to their mt;mbers. In Bcrnbay, some
unio11s provide sp0rts and ecu.cafo:mr.i focilities. Co,.operative stQres are also run by some
unions. Som() trade unions like tht Rashtdya Mill Mazdoor Sangh are doing good work
in the field of labour welfare. In addition, Textile Labour Association, Ahemdabad
provides certain. facilities like school, soda! centers, libraries, legal aid, etc. to the textile
v,rorkers. Thus, Textile Labour Associ�ltion of Ahemdabad is doing good work in the
field of labor v.r,�lfare. On the whole, the role of trade unions in the field of labour welfare
is insignificant as they face the problem of shortage of funds in providing welfare
services to their members.
e) Chadtabl!; Organisations: Charitable organizations conduct social welfare activities
which are uscfol to ail sections· of the society including industrial workers. These
agencies provide medical :.)id, ed!.!c;;;tional facilities, scholarships, etc. However, the
contribution of such organizations in labour welfare is not so significant.
The overall pictnre regarding labour welfare work in India is somewhat distressing. Welfare
amen�ties have not been properly provided, except in units managed by progressiYe

161
 employers or in modem units where the latest technology demands maintenance of adequate
standards. The latter of the law has also not been strictly observed in most units, owing to
poor supervision. Employers, however, argue that welfare work would eat into the finances
of the organization and where the facilities have been provided these have either remained
unutilized or improperly used by the workers. The need of the hour, to sum up, is to extend
the coverage of statutory welfare amenities to all units employing a minimum number of
employees and create a proper administrative network to oversee the implementation strictly.

14.5 Types of Welfare Facilities

Welfare services relate to physical and social well-being of the employees both within and
outside the organizati�n. Within the organization, these include provision of medical
benefits, recreational facilities, libraries, canteens, rest rooms etc. They may also include
meals and refreshments supplied free of cost or at subsidized rates to the employees. But
outside the organization, welfare arrangements include provision of QOUsing accommodation,
education of children of employees, sports fields, medical advice for the family, etc. On the
whole, these services may be basically of three types: (1) Economic; (2) Recreational; and
(3) Facilitative. These are discussed below:
(1) Economic Services: These provide some additional economic security over and above
wage or salaries, such as pension, life assurance, credit facilities, etc. Establishing a
proper pension programme will reduce dissatisfaction in the area of economic security.
Pension is a kind of deferred payment to meet the needs of the employees in their old age.
Generally, the amount of pension is related to the last pay drawn and the total number of
years of service put in by the employee. Some organizations have a scheme of family
members, in case of demise of employee. Similarly, the employer may contribute towards
the premium of life insurance of each employee. Some organizations also help the
employees to start co-operative credit societies to meet the urgent financial needs of the
employees or consumers' co-operative stores to provide the workers with consumers'
goods at 'no profit-no-loss' basis.
The employees often need ,money for purchase of cycle, scooter, T.V.,
sewing machine, fan, etc. to raise their standard of living. In such cases and at other times
(e.g., marriage and other religious '�ctivities), there should he some provision to meet
their requirements. The employer may advance them the money which is paid back by
the employees in the form of monthly installments to be deducted from their salaries. The
employees may also be induced to build up their own funds for future contingencies.
(2) Recreational Services: The employees are in need of occasional diversion. Their attitude
improves when the routine of everyday living is broken occasionally. For this purpose,
management may provide for recreational facilities. More agreeable informal atmosphere
is promoted through the contacts and relationships built up in the recreational events. The
management·may provide for indoor games like Table Tennis in the common room for
employees. In case of big organizations, management may also arrange for playgrounds
for outdoor games and induce the workers to-prepare a team to play matches with other
similar teams. Co-operations and understanding among the employees will increase.
Management may also provide for reading rooms, libraries, radios, T.V. etc. for the
recreation of the employees.
(3) Facilitative Services: These are conveniences which the employees ordinarily require
such as:

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 1. • Canteen, rest roorn� and lunch room: Eating is naturally a very impmiant thing for
nn employee to maintain his health and efficiency. Unless proper facilities for food,
tea and rest rooms are available, heaith and consequential efficien1.:y of the workers
will go dovvn. Hence, almost all factories are required to provide canteens \Vhere food
can be obtained either at a fair price or at subsidized rates. Similarly, lunch rooms
may be provided when: workers may take their food which they bring from their
homes. Workers elso need some place or shelter for taking rest during leisure hours.
This is also a necessity for proper upkeep of health and eff!ciency.
IL Housing facilities; Some org,mization.s construct flats for their employees and
provide the same eith;;r rent free or at a nominal rent · In some cases, cash
compensations are giveii while in other cases, loans at cheaper rates of interest are
advanced to the employees to tmable them to construct or purchase their own houses
or fiats.
III. Medical facilities: Health is one of the foremost things for the employees and it is
but nntnrnl that there may be injuries because of accidents while working. So first-aid
facilities must be provided for within the factory premises. In addition, medical
scheme is generally in operation under which reimbursement of medical expenses
actually incurred is aliowed. The organization may also prescribe doctors from whom
the tmployees may get services in ..:ase of need.
IV. \V:ashing facilities: It is necessary to provide for wash basins and washing facilities
to be conveniently accessible to all ,vorkers which should be clean, properly
separated and screened for the use of male and female employees.
V. Educatiomd facilities: Educational facilities may be provided by the organization to
the employees' children by starting a school for them.
VI. Leave travel concession: Many organizations reimburse actual fares incurred by the
employee in undertaking a tour along with his or her spouse and dependent children
once during a spedfied number of yt:ars.

14.6 Statutory Proviskms Concerning ltrnpioyees \Velfare

Sections 42 to 4;; of the Factorks Act, J9,�.g contain specific provisions relating to welfare of
la.bour in faclvrics. Sections 42 o 45 applies to all factories irrespective of the number of workers
cmpk,yd. Scct:ous 46 to 49 are applicable to factories employing more than a specified number
of workers. These provisions an, discussed below:
1. Washing �'aidlity (Section 42): In every factory: (a) adequate and suitable facilities for
washing shaH be provided and maintained for the use of the workers therein; (b) separate
and adequately screened facilities sha!l be provided for the use of male and femaie
workers: (c) sw�h facilities shall be conveniently acces:.;ibie and shall be kept dean.
2. f'aciHtks fnr Storing and Dryhkg Clothing (Section 43); The State Government may,
in rcsp1;;ct of any factory or clas:; or description of factcri.:is, make rules r�quiring the
provisions therein of suitable pla<.;,es for keeping clothing not worn during working hours
and for the drying of wet clothing.
3. Faciiities for Sitting (Secfom 44): In .;Vt:ry factory, suitable arrangements for sitting
shail be provided and maintained for all vvorkers obliged to work in a standing position,
in order that they may take advantage of any opportunities for rest which may occur in
the course of their work.
4. First Aid Appliances (Section 45); There shall in every factory be provided and
maintained so as to be readily accessible dming all working hours' first-aid boxes or

163
 cupboards equipped with the prescribed contents, and the number of such boxes or '"'-..._
cupboards to be provided and maintained shall not be less than one for every one hundred
and fifty workers ordinarily employed at any one time in the factory.
In every factory wherein more than five hundred workers are ordinarily employed,
there shall be provided and maintained an ambulance room of the prescribed size,
containing the prescribed equipment and in the charge of such medical and nursing staff
as may be prescribed and those facilities shall always be made readily available during
the working hours of the factory.
5. Canteens (Section 46): The State Government may make rules requiring that in any
specified factory wherein more than two hundred and fifty workers are ordinarily
employed, a canteen or canteens shall be provided and maintained by the occupier for the
use of the workers. Such rules may provide for:
► The date by which such canteen shall be opened;
► The standards in respect of construction, accommodation, furniture and other equipments
of the canteen;
► The food stuff to be served therein and the charges which may be made thereof;
► The constitution of a managing committee for the canteen and representation of the
workers in the management of canteen;
► The items of expenditure in running of canteen which are not to be taken into account in
fixing the cost of food stuffs and which shall be borne by the employer.
6. Shelters, Rest Rooms and Lunch Rooms (Section 47): In every factory wherein more
than one hundred and fifty workers are ordinarily employed, adequate and suitabk
shelters, rest rooms and a suitable lunch room, with provision for drinking water, where
workers can eat meals brought by them, shall be provided and maintained for the use uf
the workers.
7. Creches (Section 48): In every factory wherein more than 30 women workers are
ordinarily employed, there shall be provided a.t1d maintained a suitable room or rooms for
the use of children under the age of six years of such women. Such rooms shall provide
adequate accommodation, shall be adequately lighted and ventilated, shall be maintained
in a clean and sanitary condition and shall be under the charge of womi:;n trained in
care of children and infants. The State Government may make rules for providing
additional facilities for the care of children for washing their clothing and providing them
free milk and to feed them by the mothers at the necessary intervals in any factory.
8. Welfare Officers (Section 49): In every factory wherein five hundred or more workers
are ordinarily employed, the occupier shall employ in the factory such number of welfare
officers as may be prescribed. The State Government may prescribe the duties,
qualifications and conditions of service of Welfare Officers appointed under the
provision of the Factories Act.

14.7 Provisions regarding Labour Welfare under Other Acts

The Plantations Labour Act, 1951

The Act provides for the following:
• A canteen if 150 or more workers are employed.
• Creche if 50 or more women workers are employed.
• Recreational facilities for workers and their children.
• Educational arrangements in the estate if there are 25 or more children of workers,
between the age of 6 and 12.

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 @ Housing facilities for every worker and his family residing in the estate.
e Medical aid to workers and their families; sickness and maternity allowance.
• �roviding umbrellas, blankets, raincoats to workers as a protection against rain or cold­
- -as prescribed by the State Government.
@ Welfare officer, if 300 or more workers are employed.

The Mines Act, 1951

The Act provides for the following:
® Shelters for taking food and rest if 50 or more workers are employed.
® First aid boxes and first aid rooms if 150 or more workers are employed.
@ A canteen if employing 250 er more workers.
A creche if employing 50 or more females.
Pit-head baths equipped with showers, sanitary latrines.
Welfare officer if 500 or more workers are employed.
Transport �workers Act, 1961
The Act contains the following provisions:
First aid equipment in each transport vehicle.
Medical facilities at the operating and halting centers.
e Canteen if employing 100 or more workers.
® Comfortable, clean, ventilated and well-lighted rest rooms at every place where motor
transport workers are required to halt at night.
e Uniforms, rain coats to conductors, drivers, and line checking staff for protection against
cold and rain.
Prescribed amount of washing allowance to the above staff members.

The Contract Labour (Regulation and Abolition) Act, 1970

The Act requires the contractor to extend the following benefits to workers:
Canteen, if employing l 00 or more workers.
@ Rest rooms or other suitable alternatives accommodation where contract labour 1s
required to halt at night in connection with the work of an establishment.
o Washing Facilities
111 First aid boxes equipped with prescribed contents.

14.8 Labour Welfare Officer

The Factories Act, 1948, the plantation Labour Act, 1951 and the Mines Act, 1951 provide for
the appointment of a Labour Welfare Officer if the number of workers employed within a unit
exceeds 500. The post has been created specifically to (i) eliminate the malpractices of the jobber
system i!n the recruitment of labour (ii) improve labour administration in factories, (iii) serve as
liaison with the State Labour Commissioner. The Labour Welfare Officer was also expected to
discharge the functions of a policeman, with respect to law and order situation within an
organization. In each case the respective state governments may prescribe duties, qualifications
and conditions of service of such officers.
The Labour Welfare Officer should possess a university degree, degree or diploma in
social service/social work from a recognized institution and adequate knowledge of local
language of the area where the factory is situated.
The duties and responsibilities of a Labour Welfare Officer may be summarized thus:

165
 Advisory: He can advise and suggest the formulation of company labour policies; promote
training programmes, promote welfare schemes, secure housing, recreational and educational
facilities for workers etc.
Service Oriented: He can offer help to workers in solving family and personal problems, in
adjusting to work environment, in understanding their rights and privileges, in forw::1rding
application for leave etc. He can offer help to management by making workers understand
various problems.
Supervisory: He can supervise, inspect and regulate welfare, health and safety programmes,
working ofjoint committees and paid vacations.
Functional: He .can oversee the implementation oflabour laws for the benefit ofworkers.
Policing: He can forward workers' grievances to management, can influence industrial relations
climate when disputes arise, can restrain workers and management from resorting to illegal
strikes and lockouts.
Mediation: He can mediate and build harmony between labour and management, secure speedy
redressal of worker's grievances, settle disputes through persuasive efforts, maintain a neutral
stance during strikes and lockouts and thereby help in resolving troubling issues peaceful!y.

·14.9 Concept of Employee Grievance

There are many factors in industry which make a worker unhappy and dejected. May be his
fellow worker are non-co-operative or his foreman's sarcastic or harsh remarks or his own
personal problems outside the factory or domestic matters. Poverty, undernourishment, debts,
unemployed dependents, etc. may be working adversely in his mind, He is aggrieved and wants
to ventilate his feelings and reactions. A wen defined grievance procedure is an important
element of sound industrial relations. machinery. Prompt and effective disposal of workers
grievance is the key to industrial peace. The grievance procedure set up by agreement with a
union provides a medium for t.1-ie workers to transmit his grievance to management io an orderly
manner and get the answer in writing. Keith Davis has defined grievance as "any re,) or
imagined feeling of personal . injustice which an employee has concerning his emp.!oymef�,
relationship." A grievance represents a situation in which an employee feels that something
unfavorable to him has happened or is going to happen. In an industrial enterprise, grievance
may arise because of several factors such as:
Violation ofmanagement's responsibility such as poor working conditions;
11!,l,

@ Violation of company's rules and practices;

@ Violation ofcollective bargaining agreement;
® Violation oflabour laws;
e Violation ofnatural rules ofjustice such as unfair treatment in promotion;
The essentials ofa grievance in an organization are as under:
► The Discontentment Arises out of Something Connected with the Organization: The
sources of grievances lie within the company such as unfair treatment by the supervisor,
violation of company rules, etc. Personal reasons such as illness in the family, conflict
with a neighbor, etc. do not constitute a grievance. Such outside sources are beyond the
control ofthe employer.
► A Grievance may be Expressed or Implied: It is comparatively easier to identify
express grievances. They are manifested in several ways, e.g. gossiping, active criticism,
augmentation, increased labour turnover, carelessness in the use of tools, materials and
poor workmanship, etc. Grievances are also implied by indifference to work, day

166
 dreaming, absenteeism, tardiness, etc. It is not wise tc;> recognize only expressed
grievances and overlook the unexpressed ones.
► The Disconent may be Rational or Irrationa�: Rational grievance is a genuine one
which must be removed by the rfumagement. On the other hand, there are grievances
which are emotional in nature and are based on. sentiments, distorted perception, lack of
proper thinking, etc. These are totally irrational or psychological. It is difficult to handle
such grievances.

14.10 Sources of Grievances

The causes of grievances may be grouped under three heads, viz., (i) management policies; (ii)
working conditions; (iii) personal factors.
(i) Grievances Resulting from Management Policies:
a) Wage rates or scale of pay
b) Overtime
c) Leave
d) Transfer-improper matching of the worker with the job
e) Seniority, promotion, and discharge
f) Lack of career planning and employee development plan
g) Lack of role clarity
(ii) Grievances Resulting from Working Conditions:
a) Unrealistic
b) Non-availability of proper tools, machines and equipment for doing the job.
c) Tight production standards.
d) Bad physical conditions of workplace.
e) Negative approach to discipline.
(iii)Grievances Resulting from Personal Factors:
a) Narrow attitude
b) Over-ambition
c) Egoistic personality

14.11 Handling of Grievances

Grievances are symptoms of conflicts in enterprise. So they should be handled very promptly
and efficiently. Coping with grievances forms an important part of manager's job. The manner in
which he deals with grievances determines his efficiency in dealing with the subordinates. A
manager is successful if he is able to build a team of satisfied workers by removing their
grievances. While dealing with grievances of subordinates, it is necessary to keep in mind the
following points:
I. A grievance may or may not be real.
IL Grievances may arise out of not one cause, but multifarious causes.
III. Every individual does not give expression to his grievances.
For the purpose of handling grievances efficiently, it is necessary to find and analyze the
grievances of the subordinates. If a grievance is found to be genuine or real, the corrective action
should be taken immediately. But if the grievance arises due to imagination or disturbed frame of
mind of the worker, then it is necessary to explain and clear up the matter. Before dealing with
the grievances, their causes must be diagnosed. But when the grievances are not given expression
by the subordinates, it is manager's job to detect the possible grievances and their causes. While

167
dealing with grievances, a manager cannot depend upon any readymade solutions. Every case
has to be dealt with on its merit. The following guidelines may be followed to deal effectively
with the grievances:
I. The complainant should be given a patient hearing. He should be allowed to express
himself completely.
IL Attempts should be made to get at the root of the problem.
III. The management must show its anxiety to remove the grievances of the workers.
IV. If the grievances are real and their causes are known, attempts should be made to remove
the causes.
V. If the grievances are imaginary or unfounded, attempts should be made to counsel the
workers.

14.12 Grievance Procedure

A grievance is the embryo of more serious trouble to come because accumulation of minor
grievances may lead to major explosions. Therefore, prompt and effective handling of grievances
is the key to industrial peace. This calls for a systematic procedure of handling grievances for the
just and speedy disposal of grievances. There are h-'10 types of grievance procedures for
redressing the grievances of the employees. These include: {i) open door procedure, (ii) step­
ladder procedure.
(i) Open Door Policy: Under this procedure, the employees are free to meet the top
executive of the organization and get their grievances redressed. Such a policy may
work well in the small organizations, but in big organizations this may not be
practicable because the top executive will be too busy other matters. Another
disadvantage of open door policy is that lower level feel bypassed. This
may complicate the human relations problems. Moreover, 17'.:-magement is not too
familiar with the working conditions of the open1tive empioyees. It may be difficult
for it to attend to employee grievances sufficient infonnation.
Lastly, it is also said that the open door policy is suitable for executives to w.1lk
through and not the operative employees. The employees may even hesitate to go to
top executives with their grievances. Because of these difficulties, step ladder
procedure may be adopted.
(ii) Step-ladder Procedure: Under this procedure, the aggrieved employee has to proceed
step by step in getting his grievance heard and redressed. Firstly, he has to present his
grievance in writing to his supervisor or foreman. If he is not satisfied with his
decision, he may go to the head of the department. There may by a joint grievance
committee after the decision of the head of the department is not acceptable to the
employee. If the committee also fails to redress his grievances, the matter may be
referred to the chief executive. The grievance procedure will be said to be exhausted
if the chief executive is also not able to redress the grievance. The workers should not
take any action against the management until the whole grievance procedure has been
exhausted. The grievance assumes the form of a conflict after the worker is not
satisfied with the decision of the chief executive. For maintaining industrial peace in
the plant, it is advisable to refer such grievance to the voluntary arbitration. The
award of the arbitrator should be binding on both the parties.

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 14.13 Essentials of a Good Grievance Procedure

It is advisable to set up an effective grievance procedure in the oreanization. The procedurn

should be flexible enough to meet the requirements of the organization. It should be simple
so that an average employee is able to understand it. Though s�ich a procedure will vary in
different organizations, yet the following principles shmild be observed while laying down a
grievance procedure:
I. A grievance shou!d be dealt with in the first instc:,rice at the lowest levd; that is to say,
an empioyee should raise his grievance with his imrnediate superior. It may be simple
to settle it on the spot and that will be the end of it. Even if it cannot be settled at that
level, the man's superior will k.YJ.ow what is happening. This is necessary not only to
maintain. his authority, but alsn to prevent him from being aggrieved as he will
certainly be, if he is by-passed and later hears of the compiaint from his ov,rn superior.
II. It must be made clear to the employee what line of appeal is, so that if he cannot g-et
satisfaction from his immediate superior, he rrn:iy know the next higher authority tc
whom he can go.
IIL Since delay cause::: frustration and tempers may fr;c; rnd rnmours sp1ead urc.,md the
V\/Ork it is e"s,�ritial th�tt crri.•"v:F1,�es ·:houtd b"' de;,Jt -;_.-,;iti1 ;:;,,redilv
• . 5 -. ,..., ....,... I, ,. ..,..._,._. '>- �:,.._ , _ ...,,, � • • ,,- • .,,,_,. • ,, , .,_. • • •·- • '-' l., .,,
,J •

IV. It must be dearly understood in estaiJ!ishing a gricvani.'.e procedare that if the

grievance is against an instruction gi"cm by '1 superir,r, it is in the interest of discipline
that instruction must be carried out Only then CH!J the e.:1pioyee register his pr0test
and set in motion the procedure.
V. The grievance procedure should be set up with the particip::,.ticn of the employet::s and
it should be applicable to aH in the organization. It should b,: agreed that there wiII be
no recourse to the official ma;-;hine1y of ccn,�iiiation urJ:::ss �lie proc�dure has been
carried out and there is sti1! dissatisfaction. �fk,reowr, there must be '10 direct 2.ction
on either side which might prejudice the case or raise t�mpcrs while the gr�evaricc is
being inve:.;tigated.
A good grievance procedure should be simple so thr;.t an average empioyPe is cibie to
understand it. Second1y, it should lay down the time limit which should not be exc�eded r;.t every
step of the grievance procedure, ami lastly, the grievance procedure should l:::e developed ·vlth the
participation ofthe !eaders of the employees p_qd must be applicable to aH.

14.14 Summary

Labour welfare is a wise investment that helps a firm attract, 1,vJtivate and retain peo1:-1e both in
times of prosperity and adversity. Welfare services may be broadly ct:i.ssLii:'d into two categories:
intramural and extramuraL The labour welfare officer supr.:rvises t'.-ie provision of w��lfa.re
facilities in respect of the law covering areas such as safoty, hcdth, hom:ing, n::c ·ec1tion facilities 0

1;tc. There are many factors in industry which make a \VCHic(;r unhuppy 2nd dejected. May b� his
fellow worker are nori-co-operative or his forem�;n's sarcasi!!.) ,,,· ha1:sb remarks or his ovm
personal problems outside the factory or domestic. matters. r-o,;erty_ ":Vie.mourishment, debts,
unemp1oyea'dependents, etc. may loe wor.l,ong
1
auverseiy
J
m tns mm<L J:'.tor rne pnrpose o f'!:mndl'mg 1 • •L
0 0

• • •

grievances efficiently, it is necessary to find and anaiyze th� gri:wc:mces 0f the sul)ordinates. A,
grievance is the embryo of more serious trouble to come because accu,.1.ulntion of minor
grievances may lead to major explosions. Therefore: prompt and ::ffo,-:tive hmdiing of grievances

169
is the key to industrial peace. This calls for a systematic procedure of handling grievances for the
just and speedy disposal of grievances. There are two types of grievance procedures for
redressing the grievances of the employees. These include: (i) open door procedure, (ii) step­
ladder procedure.

14.15 Test Question ·

Q 1. Explain the legal provisions rdating to labour welfare in India.
Q2. Explain the qualifications, duties and responsibilities of a labour welfare officer.
Q3. State the concept and nature of grievance. What are the sources of grievances in industry?
Q4. What are the essentials of a good grievance procedure? piscuss in brief.

14.16 Further Readings

Robert L. Mathis and John H. Jackson, "Human Resource Management", Thomson Leaming.
Storey, "Human Resource Management", Thomson Leaming, 2001.
Singh, A.K., and B.R Duggal,., "Human Resources Management", Sunrise Publication, New Delhi,
· 2003.
Saiyalaim, M.S., "Human Resource Management", Tata McGraw-Hill, New De!lii, 1999.

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 LESSON 15

SOCIAL SECURITY
Dr. Pr,oja Goel
Shaheed Bhagot Singh College
r Tniversity of Delhi
Objectives
After going through this lesson you should be able to:
• Understand the Need for Social Security
111 List the Social Security Benefits Offered in India

111 Appreciate the Social Security Provisions in Workmen's

Structure
l5.1 Concept of Social Security
15.2 Scope of Social Security
15.3 Social Security in India
15.4 The Workman's Compensation Act, 1923
15.5 The Employees' State Insurance Act, 1948
15.6 The Employee's Provident Funds tnid Miscellaneous Provisions Act, 1952
15.7 The Maternity Benefits Art, i 96 l
15.8 Social Security Measures in India: A Review
15.9 Summary
15.10 Test Question
15.11 Further Readings

The tenn 'social security' originated in U.SA. In 1935, the Soc�ial Security Act was passed there
and the Social Security Board was establish,�d to govern and administf':r the scheme of
unempioyment, sickness and old age insurance. In 1938, the same terrn was adopted by New .
Zealand when it created for the first time a comprehensive social security system- 1 measure Gf
income secu1ity for all citizens. Later the term was used "in several countries though conveying
different meanings.

15.1

Socia! security is the protection given by soc;ety to its members against contingencies of modern
life such as sickness, unemployment, old age, inval.idity, industrial accidents, etc. The bask
purpose of social security is to protect people of small means from risks which impair a person's,.
ability to support himself and his family, .The security measures are generally specified by law.
They offer some kind of cash payment to individuals to repia,:-,e at least a part of lost income that
occurs due to mishaps such as sickness,. i!}juries, death etc. During periods of economic and
physical distress, the poor workers can at ieast su.rvive on compensatory payments offered by the
state or employers. Social Security is "an attack on five giants that affect worker:-:- wants disease,
ignorance, ��qualor and idleness. It is not a burden but a kind .of wise investrne:1t that offers good
social dividends in the long run." According to LL.O., "social security is the protection YV hich
society provides for its members through a series of public measures, against tl1e economic and
social distress that othenvise would be caused by the stoppage or substantial reduction of

171
 earnings resulting from sickness, maternity, employment, injury, unemployment, invalidity, old
age, and death, the provision of subsidies for families with children." On the basis of these
definitions the following features of social security can be listed:
I. Social security is a measure of ensuring social justice.
II. It is an essential part of public policy in a welfare state like India.
rn. Social security is a dynamic concept. Its contents change with the social and economic
conditions obtaining in a particular country at a given point of time.
IV. The basic purpose of social security is to protect people of small means from risks or
contingencies.
V. These contingencies· include sickness, maternity, old age, invalidity, unemployment,
death, etc. which impair a person's ability to support himself and his family.
VI. Social security measures are generally prescribed by law.
VII. These measures provide for cash payment to affected persons to partly compensate for
the loss of income due to cenain contingencies.
VIII. Social security is essential for the protection and stability of the labour force. Social
security is not a burden but a wise investment which yields good "social dividends in
long run."

15.2 Scope of Social Security

The scope of social security is very wide. Social security schemes include health insurance,
maternity. benefits, compensation for employment injury, worker's family pension-cum
insurance schemes, compulsory and voluntary social insurance, provident fund schemes, as also
public health services. Though social insurance, provident fund schemes, as also public health
services. Though social security programmes differ from country to country, they have three
characteristics in common, viz. (i) they are established by law; (ii) they provide some form of
cash payment to individuals to compensate at least a part of the lost income that occurs due to
such contingencies as unemployment, maternity, work injury, invalidism, industrial disease, old
age, burial, widowhood, orphanhood, and (iii) the benefits or services are provided in three ways:
social insurance, social insurance, social assistance, or public service.
Social Insurance: It is a mechanism through which benefits are provided to the contributories
necessary for satisfying wants during old age, sickness, unemployment and other contingencies
of life.
Social Assistance: It is a programme through which the Government attempts to ameliorate the
distress caused by contingencies of life. No contributions are made, for getting the benefit, by the
workers. In other words, maintenance of children, mothers, invalids, the aged, the disabled and
others like the unemployment." Benefits are provided to persons of small means in sufficient
quantity so that their minimum standards of needs could be satisfied.
Public Service: Such programmes are usually financed directly by the Government from its
general revenue in the form of cash payments or services to every member of the community
falling within a defined category. The examples of such programmes are National Health Service
providing medical care for every person, old age pension, pension for invalids, survivors pension
to widow or orphan, and so on.

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 15.3 Social Security in India

India is a Welfare State as envisaged in her constitution. Article 41 of the Indian constitution lays
down, "The State shall within the limits of its economic capacity and development make
effective provision securing the right to work, to education and to public assistance in case of
unemployment, old age, sickness, and disablement and other cases of unserved wants.' Thus,
social security constitutes an important step towards the goal of Welfare State, by improving
living and working conditions and affording people protection against the various kinds of
hazards. The social security measures also contribute to industrial development through making
workers efficient and reducing waste arising from industrial disputes, because with these
measures a worker feels social and economic security and, therefore, puts his heart and soul in
increasing production.
Several laws have been enacted since independence to provide for social security to the
workers. For instance, Employee's State Insurance Act was passed in 1948 and Employee's
Provident Fund Act in 1952. Some measures of social security existed even before these acts
were passed. But these measures were in the nature of social assistance and not social insurance.
Moreover, they covered only a minor part of the distress of the industrial workers. Again
payment was the sole responsibility of the employer and the worker was not liable, in any way,
to pay any contribution.

15.4 The Workman's Compensation Act, 1923

' A beginning in social security in India was made when Workmen's Compensation Act was
passed in 1923 providing for the payment of compensation to workmen and their families in case
of industrial accidents and of certain occupational diseases arising out of and in the course of
:employment and resulting in death or disablement. The Act prescribes separate scales of
compensation for death, permanent disablement and temporary disablement. It covers workers
employed in certain specified hazardous occupations except those who are covered under the
Employee's State Insurance Act, 1948.
The object of the Act is to impose an obligation upon employers to pay compensation·
to workers for accidents arising out of and in the course of employment. The purpose is not to
compensate the workman in lieu of wages but to pay compensation for the injury caused.
Broad Features of the Act: The important features of the Act are as under:
1. The Act provides social security to the workers. The compensation to be paid to the
workers is not for the negligence on the part of the employer, but it is rather in the nature
of insurance of the workers against certain risks of accidents.
2. The definition of the workman given in Sec. 2(l)(n) does not cover persons employed in
administrative or clerical capacity drawing more than Rs. 3,500 p.m., but persons
employed through sub-contractors by a person fulfilling a contract with the railway are
also entitled to benefit under this Act.
3. The compensation under this Act is payable if the injury has been caused by accident
arising out of or in the course of employment. The workman loses the right of
compensation if such accident can be attributed to workman, having been at the time of
accident, under the influence of drink or drugs or if it is caused by his willful disoblience
or rules or orders or disregard of safety measures.
4. The term 'wage' as defined in the Act includes overtime pay and the value of concessions
or benefits in the form of food, clothing, accommodation, etc.

173
 5. The amount of compensation payable to a workman or his dependents depends on the
nature and exterit of disablement and his average monthly wages. The rates of
compensation have been given in Schedule IV of the Act.
6. Minimum rates of cornpensation for permanent total disablement and death have been
fixed at Rs. 60,000 and Rs. 50,000 respectively. Maximum amount for death and
permanent total disablement can go up to Rs. 2.28 lakh and Rs. 2.74 lakh respectively
depending on age and wages of workmen.
7. In- order to protect the interest of dependents in case of fatal accidents, it is provided in
the Act that:
(i) AH cases of fatal accidents are to be brought to the notice of Commissioner of labour.
(ii) In case of admission of liability by the employer, the amount of compensation is to be
deposited with the Commissioner within 30 days.
(iii)Ifthe employer denies his liability, the Commissioner must decide whether or not there is
a ground for claim. The Commissioner may inform the dependents and it is open to them
to prefer a claim, if they feel so.
Applicability of the Act: The Act covers all workmen employed on railways, factories, mines,
etc. The Act applies to all factories engaged in an industry specified in Schedule II of the Act.
The Act also applies to seamen and shipmasters of power driven ships or of non-power driven
ships of 50 or more tons. It applies generally to organized industries and hazardous occupations
including building and loading or unloading operations.
The Act does not apply to persons:
• Employed in administrative or clerical capacity;
• Employed in casual work;
• Employed in the Armed Forces;
• Receiving wages exceeding Rs. 3,500 per month;
• Claiming compensation wider the Employee's State Insurance Act, 1948.

15.5 The Employees' State Insurance Act, 1948 ------------------

This Act Was passed in I 948 in order to provide various welfare facilities to industrial
workers through one agency. It is a compulsory and contributory health insurance scheme. This
Act proyides medical facilities and unemployment insurance to industrial workers during their
Hlness. Its object is to provide sociai insurance for workers. It is a compulsory and contributory
health insurance scheme. The main features of the Act are as under:
Coverage: The Act is applicable to ail factories employing 20 or more workers. It covers all
types of workers, whose remuneration does not exceed the specified salary per month. The State
Government is empowered to extend the Act to cover other establishments with the approval of
the Central Government. - ,
Administration: The administration of the Act has been given to the Employees' State
Insurance Corporation (ESIC). It is an autonomous body set up by an act of the Central
Government. The ESIC Board has representatives from state governments, employers,
employees, medical profession and Parliament.
Funds: The ESl scheme is a compulsory health insurance scheme. Under the scheme, the
employer contributes four percent of the wage bill and the employee contributes 1.5 percent of
his own wages. The scheme is operated through the_ ESI Fund, with grants and contributions
from Central, State Governments and local authorities.·
Benefits: The insured workers and their families are giv1;:n the following benefits under the
scheme:

174
 Sickness Benefit: Sickness benefit consists of cash payment for maximum period of 91 days.
The daily rate of siekness benefit is calculated at half of average daily wages. The insured
worker who is getting sickness benefit should be under the medical treatment at a dispensary or
hospital maintained by the�Cooperation. It is not payable for more than 91 days in the aggregate
in any continuous period of 365 days. The benefit is useful to a worker who is unable to attend
-his work. due_ to sickness. Here, he gets medical aid and also some financial support. Insured
persons suffering from long-term diseases are entitled to get extended sickness benefit upto an
additional 309 days and the rate of payment in such cases is about 63 percent of the wages.
Medical Benefits: Medical benefit is available to the worker claiming other benefits like
sickness, maternity or disablement. It is in the form of free medical treatment in case of sickness,
maternity and injury. This benefit is available at ESI hospital or dispensary of the doctor to
whom the worker is attached. The medical benefit is available to the whole family of an insured
worker. Special facilities are also provided to workers suffering from T.B., Cancer, Leprosy and
mental diseases.
Maternity Benefit: Maternity benefit is in the form of cash payment to the insured woman for
confinement, miscarriage or sickness arising out of pregnancy or out of confinement and is
calculated at half of average daily wages. Out of 12 weeks, 6 weeks should precede the expected
date of confinement. If the insured woman dies during the period of confinement, the nominee
will receive the benefit for the whole of the period.
Disablement Benefit: Disablement benefit is given in the case of temporary as well as
permanent disablement. Such benefit is payable when a worker is caught in an industrial accident
within t� factory premises. The ann_ual benefit is given as per the nature of disablement. In case
of temporary disabl_ement, full pay is paid during the period of disablement. In case of permanent
disablement,. the injured worker is entitled for cash benefit for life to be paid at a percentage of
the full rate. In case of permanent total disablement, cash payment at the full rate will be made to
the worker for life.
Dependents' Benefit: This benefit is given to the dependents of a deceased insured worker. It is
given in case of death of a worker in an industrial accident. The widow and children are entitled
for cash benefit under the scheme. The widow will receive pension for her whole life or until her
remarriage. The ·actual amount of cash payment will be calculated as per the rult:s framed for this
purpose.
Funeral Benefits: It is in the form of cash assistance upto Rs. 1000 for funeral of an insured
person. It is paid to the eldest member of the family or to the person who actually incurs the
-expenditure at the time of funt:ral.

Working of the Scheme: The ESIS is in operation since 1948. The scheme covers the whole
country and all categories vf i11dustriai vvorkers. In1996, 1.52 lakh factories and 66 lakh
employees in the factories were covered by the ESIS scheme. The scheme is working fairly well.
However, it is criticized on various grounds. It is pointed out that the quality of medical
treatment given to insured workers is not upto the mark. Similarly, there is delay in providing
benefits to insured workers. The employees and employers criticize the scheme on various
grounds. However, in general, the scheme is working in a satisfactory manner.
The scheme provided for medical care through dispensary system. Seriously ill or injured
employees are treated in ESI hospitals. During sickness, an employee gets medical care as well
as cash sickness benefit, which is roughly half of the actual wages of the person concerned. In
case of nt:ed, even artificial limbs, dentures, spectacles are provided free or at nominal cost. Even
pathological and radiological facilities are available in ESI hospitals and dispensaries. Women
employees are entitled to maternity b1mefit also, which is given for 12 weeks in case of child

175
 births. Cash benefit for maternity is payable at a rate which is almost equal to the actual wages of
female employee concerned.

15.6 The Employee's Provident Funds and Miscellaneous Provisions Act, 1952

This Act provides for retirement benefits in the form of provident fund, pension and deposit
linked insurance. The main features of the Act are given below:
Coverage: The Act is applicable to a factory in any industry specified in Schedule I and in 20 or
more persons are employed or which the Central Government notifies in the official Gazette. The
Act does not apply to cooperative societies employing less than 50 persons and working without
the aid of power. It also does not apply to new establishments for 3 years from the date of
establishment. The appropriate Government is empowered to grant exemption from the operation
of this Act to any class of establishments under certain conditions.
Administration: The schemes under the Act are administered by a Tripartite Central Board of
Trustees, consisting of representatives of employers, employees and the Government.
Retirement benefits in the form of provident fund, family pension and deposit linked insurance
are available to the employees under the Employees Provident Fund Act, 1952. As on 31st
December 1985, it covered 173 classes of establishments employing 20 or more persons all over
India except Jammu and Kashmir. The Act does not apply to establishments registered under the
Co-operative Societies Act, 1912 or under any other law relating to co-operative societies
employing less than 50 persons and working without the aid of power. The scheme is applicable
to those drawing wages up to Rs. 5,000 per month.
The employees contribute 8.33 percent of the basic wages and dearness allowances
including cash value of food concessions and retaining allowflnces payable to the employees.
The employers make a matching contribution. The government has enhanced the rate of
contribution to 10 percent in respect of 177 industries/classes of establishments employing 20 or
more persons.
There are a number of provident fund schemes. But contributory provident fund scheme
has gained more popularity. Under this, the employer contributes a portion of the basic salary of
the employees and the equivalent amount is deducted from the salary of the employee. The total
of the provident fund contributions is either deposited with the Provident Fund Commissioner or
a trust may be created to look after the provident fund amount under the provisions of the
Provident Fund Act. The employee gets the provident fund also carries interest which generally
varies from 8% to 12%.
Pension: Pension may be defined as a deferred wage payment to meet the needs of an employee
in his old age. The amount of pension is dependent on the total number of years of service of the
employee and last pay drawn by him. The employee receives pension until his death. Many
employers have also started scheme of 'family pension' under which pension is paid to the
specified family members for a number of years, in case of the death of the employee.
Family Pension: To provide long-term financial security to the families of industrial employees
in the event of their premature death, the Employees' Family Pension Scheme was introduced
from 1 March 1971 by diverting a portion of the employers' and employees' contribution to the
Employees' Provident Fund with an additional contribution by the government. The amount of
family pension payable ranges from a minimum of Rs. 225 to maximum of Rs. 750 per month. In
addition, ad-hoc increases are also allowed by the Government from time to time.
Employees' Pension Scheme, 1995: This scheme was introduced for the industrial workers with
effect from 19th November 1995. Under the Scheme, pension at the rate of 50 percent pay is
payable to the employees on retirement/superannuation on completion of 33 years' contributory

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service. A minim�m 10 years' service is required for entitlement to pension. Depending upon the
salary and service of the �rnp{oyee at the time of death, the scheme also provides for grant of
family pension ranging from Rs 4�0 per month to Rs. 2500 per month. In addition, children­
pension at the rate of 25 percent of wicl;_;"i pension subject to a minimum of Rs. 115 per child is
also payable up to two children. The scheme is financ2d by diverting the employer's share of
provident fund representing 8.33 percent of the monthly wage to the pension fund. In addition,
the Central Government also contributes to the scheme at the rate of 1.16 percent of the wage.
Death Relief: A Death Relief Fund was set up under Employees' Provident Fund scheme in
January 1964, with a view to affording financial assistance to the nominees or heirs of deceased
members of unexempted establishments whose pay(including basic pay, DA, etc.) does not
exceed· Rs. 1000 per month at the time of death. The quantum of benefit is restricted to the
amount by which amount payable on account of provident fund falls short of Rs. 1250.
Gratuity Scheme: The payment of Gratuity Act, 1972 is applicable to factories, mines, oil
fields, plantations, ports, railways, motor transpo1t undertakings, companies, shops and other
establishments. The coverage under the Act is restricted to employees drawing wages not
exceeding Rs. 3500 per month. The Act provides for payment of gratuity at the rate of 15 days'
wages for each completed year of service, subject to a maximum of Rs. 2,50,000. In the case of
seasonal establishment, the gratuity is payable at the rate of seven days' wages for each season.
The Act does not affect the right of an employee to receive better terms of gratuity under any
award or agreement or contract with the employer.
Employees' Deposit-Linked Insurance Scheme: Another important social security measure,
the Employees' Deposit Linked Insurance Scheme, 1976 was introduced for the members of the
Employer's Provident Fund and the exempted Provident Funds with effect from 1 st August 197 6.
On the death of the member, the person entitled to receive the provident fund accumulation
would be paid an additional amount equal to the average balance in the provident fund account
of the deceased during the preceding three years, if such average balance was not below Rs.
1,000 during the said period. The maximum amount of benefit payabie under this scheme is Rs.
35,000 ana the employees do not have to make any contribution for it.
Group Life Insurance: Group life insurance has gained popularity these days. For persons in
the lower income group, it may be the only insurance cover available. For others, the low cost
group life insurance is supplement to the individual life insurance cover. Group life insurance
may be defined as a plan which provides coverage for risks on the lives of a number of persons
under one contract. However, the insurance on each life is independent of that on the other lives.
Group life insurance facility is provided to the employees working with an employer without
evidence of insurability. The basic feature of group life insurance is the coverage of a number of
persons under one contract. The other features of group life insurar:s·:· '."'."" listec; oelow:
Insurance is provided to all employees without any evidence of insurability.
I. The contracting parties are the insurance company and the employer. The policy is issued
to the employer which is known as Master Contract. Each participating employee gets a
certificate which stipulates the amount of insurance coverage and the rights he has under
the group life insurance plan.
II. It is a yearly renewable insurance plan. It provides risk coverage to the employees as long
as they remain in the service of the employer because group life insurance is basically a
contract between the insurance company and the employer.
III. If some injury or death is caused to an employee, the claim received by the employer
from the insurance company is paid to him or his nominee.
IV. The premium is paid either by the employer or by the employer and the employees
jointly.

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 Group life insurance proves to be very cheap because of economy in mass administration. It is a
welcome relief for the employees as they get insurance cover by paying a very small amount of
premium. It may be noted that group insurance is generally contributory in nature. The
employees pay premia through pay-roll deductions. The amount of premium has to be paid at a
flat rate without any regard of the age and salary of the employees.

15.7 The Maternity Benefits Act, 1961

Maternity benefit is "an indemnity for the loss of wages incurred by a woman who voluntarily
before child-birth and compulsorily thereafter abstains from work in the interest of the health of
her child and herself." The I.L.O. Maternity Protection Convention 1919 was revised in various
details in 1952. Its purposes are to: •
I. enable the woman employee to abstain from work during the 6 weeks preceding the
expected date of her confinement;
II. oblige her to abstain from work during the 6 weeks following her confinement;
III. provide her, with free attendance by a doctor or ce1iified mid-life;
IV. provide her out of public funds or by means of insurance, with a cash benefit for the full
and healthy maintenance of herself and child during the said period of abstention from
work;
V. prohibit her dismissal during the said periods or a subsequent period of sickness; and
VI. enable her to suckle her baby twice a day during working hours.
In India, several provinces had their laws to provide maternity benefit to working women after
the Bombay Maternity Benefit Act was passed in 1929. The qualifying period and the rates ot
benefit varied from state to state. Three Central Acts- the Mines Maternity Benefit Act, 1941; the
Employees' State Insurance Act, 1948; and the Plantation Labour Act, 1951- were passed to
regulate payment of maternity benefit. The Maternity Benefit Act, 1961 was enacted to provide
uniform standards for maternity protection. It applied in the first instances to all factories, mines
and plantations, except those to which the Employees' State Insurance Act applied. This Act was
amended in 1976 to extend the benefit to all women covered by the ESI Act.
The main purposes of the Maternjty Benefit Act, 1961 are:
I. To regulate the employment of women employees in certain establishments for certain
specified periods before and after child-birth.
II. To provide for the payment of maternity benefits to women workers at the rate of average
daily wages calculated on the basis of wages payable to her for the days on which she has
worked during the three calendar months(now 6 calendar months) immediately preceding
the date from which she absented herself on account of maternity.
III. To provide for certain benefits in case of miscarriage, premature birth, or illness arising
out of pregnancy.

The maximum period for which a woman gets maternity leave is 24 weeks- 12 weeks prior to the
date of delivery and 12 weeks immediately following that date. To avail of the 12 weeks' leave
before expected delivery, a notice must be given to the employer in writing stating the date of
absence from work and also a certificate of pregnancy. Another notice has ,k) be given for the 6
weeks' leave from the date of delivery. Failure to give notice will disentitle a woman from
maternity benefits.
The amount of maternity benefit for the period preceding the date of he.r expected delivery
shall be paid in advance by the employer to the woman on production of such proof as may be
prescribed that the woman is pregnant, and the amount due for the subsequent period shall be

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paid by the employer to the woman within forty-eight hours of production of su_ch- proof as may
be prescribed that thewoman
_ has been delivered �fa child.

15.8 Social Security Measur_es in India: A Review

Since independence, several la.ws have been enacted to provide a social security cover to
industrial workers, especially irfthe organized sector. Millions of workers in the unorganized
sector (agricultural labourers, cobblers, rural artisans, rickshaw-pullers, etc.) have remained
outside the ambit of social security schemes. Due to paucity of funds, the government has not
been able to come out with any comprehensive scheme to provide for unemployment insurance
to the jobless. Most existing schemes have several in-built weaknesses- such as overcrowding in
ESI hospitals, non-availability of medicines, legal hurdles in the way of compensation claims,
etc. As things stand now, the various schemes are somewhat fragmented, and resulting in
wastage of critical resources. There is considerable overlapping -as - as similar benefits are
being disbursed under various schemes-leading to wastage of critical resources at various places.
The government on its part has not undertaken any concentrate measures to integrate the various
social security schemes. One oft-repeated complaint from employers is that they have to make
separate contributions for various schemes, maintain separate accounts and remain accountable
to different authorities for compliance, inspection, etc. They would, given a choice, prefer to
make contribution to only one authority. This would benefit workers, too, because they need not
run from pillar to post to collect different amounts from different people under various schemes.
To cut short a long argument, the government so far has only been able to scratch as far as social
security measures are concerned. These measures have, more or less, been in the nature of social
assistance and not social insurance. They have not been able to mitigate the distress levels of
workers even iri the organized sector, due to shortage of funds. Making the employer entirely
responsible for making social security contribution is also not a healthy sign. Of course,
extending benefits to the unorganized sector, introduction of unemployment insurance, making
the workers contribute a small amount towards social security, bringing various schemes under a
common roof and many more steps are required to improve the lot of workers in a capital-hungry
and labour-surplus country like India.

15.9 Summary

Social security is a programme of protection offered by society against the contingencies _ of

modern life- sickness, unemployment, old age, dependency, and acciden�::;, Social security
measures seek to relieve workers of their tension and anxiety as to what they would do in case of
loss or stoppage of income. Social security benefits fall into two categories: social insurance and
social assistance. In India, social security is provided under the Workmen's Compensation Act,
The Employees' State Insurance Act, The Employees' Provident Funds a11d Miscellaneous
Provisions Act, The Maternity Benefit Act, The Payment of Gratuity Act, Group Life Insurance,
etc.

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15.10 Test Question

Q 1. Explain social security and describe its significance in Indian Industry.

Q2. Discuss in brief the social security measures available to workers in India under the
Workmen's Compensation Act.
Q3. Write a short note on Group Life Insurance.
Q4. Explain the retirement benefits available to employees in India.

15.11 Further Readings

Decenzo, D.A. and S.P. Robbins, "Personnel/Human Resource Managemenf',.Prentice Hall of India,
New Delhi, 2003.
Dessler," Human Resource Management", Prentice Hall oflndia, New Delhi.
French, W., "the Personnel management Process", Haughten Miffin, Boston.
Ivanecevich, John M., "Human Resource Management", McGraw Hill.
Wreather and Davis, "Human Resource Management", Prentice Hall, New Jersey.

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 LESSON 16

EMERGING HORIZONS IN HUMAN RESOURCE MANAGEMENT

Dr. Pooja Goel
Shaheed Bhagat Singh College
University ofDelhi
Objectives
After going through this lesson you should be able to:
@ Explain the Concept of Vi1iual Organisation
111 Analyse Human Resource Management Issues in a Viliual Organisation
e Understand the Concept of Globalisation
@ Describe International Training and Development

Structure
16. I Concept of Virtual Organisation
16.2 Distinction between Traditional Organisation and Virtual Organisation
16.3 Types of Virtual Organisation
16.4 Technology of Virtual Organisation
16.5 Advantages of Vi1tual Organisations
16.6 Disadvantages of Virtual Organisations
16.7 Human Resource Issues in Virtual Organisation
16.8 Concept of Globalisation
16.9 Impact of Globalisation
16.10 Model of International HRM
16.11 Distinction between Domestic and International HRM
16.12 International Recruitment
16.13 International Selection
16.14 International Training and Development
16. I 5 International Performance Management
16.16 International Compensation Management
16.17 Comparison between Balance Sheet Approach and Market Rate Approach
16.18 Repatriation
16.17 Summary
16.18 Test Question
16.19 Further Readings

In the modern era of economic liberalisation and globalization, business environment has
become highly competitive and turbulent. In other to survive and grow in a fact changing and
highly uncertain environment, business organizations have to become more flexible and adaptive
and highly responsive. In order to build flexibility and responsiveness in organisation, several
work practices, e.g. flexitime, job-sharing, home based working, are being used. Another option
is a virtual organisation.

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 16.1 Concept of Virtual Organisation

Virtual organisation is a new form of organisation that emerged in 1990. It is also known as
network organisation, modular organisation or digital organisation. Simply stated, a virtual
organisation is a network or corporations made possible by, what is known as Information and
Communication Technology which is flexible and is created to meet the dynamics ofthe market.
In 9ther words, the virtual organisation is a social network in which all the horizontal and
vertical boundaries are removed. In this sense, virtual organisation is a boundaryless
organisation. It consists ofindividuals working out of physically dispersed work places, or even
individuals working out ofmobile devices and not tied to any particular workplace. In the virtual
organisation, ICT coordinates the activities and combines the skills of workers and resoUGces in
order to achieve the common goal. The network of relationships permits contracting,
manufacturing, distribution, marketing and other business functions. A small group of managers
oversee directly any activities that are done in-house. They coordinate and control external
relations with the help of computer network links. Nike, Reebok, Dell Computers, Hindustan
Lever are some of the companies which are working virtually. Thus, a virtual organisation .is
loose web of individuals, capital and technologies which operate without time and space
constraints. It operates without a fixed structure and its boundaries keep on changing.

16.2 Distinction between Traditional Organisation and Virtual Organisation

Every organisation requires a team to carry out its activities in an orderly manner. In a virtual
organisation, the driving force is the viriual team. In a virtual team, members interact primarily
through some combination of electronic communication system to tie up with dispersed members
who never or rarely come face-to-face. Members communicate on-line using links e-mail, video
conferencing and WAN (Wide Area Network).
The main factors that differentiate virtual teams from face-to.:.face teams are as follows:
I. Absence of para verbal and non-verbal cues (e.g. facial expression, eye movement, body
language)
II. Limited social contracts.
III. Ability to overcome constraints of time and space.
The need for virtual teams is increasing particularly in global organizations. But virtual teams
cannot work successfully without personalized trust relationships. Such relationships are
normally established through face-to-face interaction and socialization. Information and
communication technologies appear to be inadequate for establishing personalised trust
relationships due to the absence offace-to--face interaction.

16.3 Types of Virtual Organisation

According to the degree ofvirtually, there are three types ofvirtual organizations:
1. Telecommuters: In telecommuting companies, employees work from their homes. They
interact with the workplace via personal computers connected with a modem to the phone
lines. Dow Chemicals, Xerox, Coherent Technologies Inc. is some examples of
companies using some form oftelecommunicating.
2. Outsourcing Employees: These organizations outsource most or all core competencies.
Marketing and sales, human resources, finance, research and development, engineering,

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 manufacturing, information systems, etc. are the areas of outsourcing. Such a virtual
organisation performs one or two areas of core competence with excellence and other
functions are outsourced. For instance, Nike does product design and marketing very well
and depends on outsources for information technology as a means for maintaining inter­
organisational coordination.
3. Completely Virtual: This type of vi1iual organisation is tightly linked to a large network
of suppliers, distributors, retailers and customers as well as to strategic and joint venture
partners. INM's development effort of the PC and Atlanta Committee for the Olympic
Games (ACOG) in 1996 are examples of completely virtual organizations.

16.4 Technology of Virtual Organisation

Employees in a virtual organisation will become emasculate and ineffective in the absence of
information and knowledge. Therefore, virtual organizations use a seamless web of electronic
communication media. The main components of this web are as follows:
1. Technology: The traditional ways of working has been transformed through new
technology. Combination of computing and telephony is opening up new possibilities.
Computer Telephony Integration (CTI) will create a new revolution to the desktop. The
CTI has traditionally been used in call centre applications.
2. E-mail Integration: The whole organisation can take advantage of SMS products such
as "Express Way" by integrating SMS into the existing e-mail infrastructure.
3. Office Systems Integration: SMS technology can greatly enhance the existing or new
office systems. For example, phone messages can be sent via SMS rather than returning it
in a message book.
4. Voice Mail Alert: Addition of SMS technology to the existing voice mail system builds
an effective method of receiving voice mail alerts.
5. Mobile Data: This enables a laptop to retrieve information anywhere through the mobile
phone network. In the past corporate information has been inaccessible from many places
where it is needed. One can keep connected to his/her virtual organizations from
anywhere by linking laptop to mobile phone. Mobile data communications can
revolutionize where and how work is done.

16.5 Advantages of Virtual Organisations

I. Saves time and travel expenses.

II. Provides excess to outside experts, without down time and travel or logging expenses.
III. Ability to organize in teams even if members are not in reasonable proximity to each
other.
IV. Firms can expand their potential labour markets. They can hire and retain the best people
irrespective of their physical locations.
V. Employees can accommodate both personal and professional lives.
VI. Employees can be assigned to multiple, concurrent teams.
VII. Dynamic team membership allows people to move from one project to another.
VIII. Team communications and work reports are available on-line to facilitate swift responses
to the demands of a global market.
IX. Virtual teams are able to work even when they are miles apart. People who never get a
chance to meet each other face-to-face can also work in virtual teams.

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 16.6 Disadvantages of Virtual Organisations

I. Lackofphysical interactions.
II. Lack ofsynergies arising from face-to-face interaction.
III. Non-availability of verbal and non-verbal cues such as voice, eye movement, facial
expression and body language which make communication more effective.

16.7 Human Resource Issues in Virtual Organisation

Recruitment, development and socialization processes are designed to ensure right person for
right job. These processes also regulate and control the antecedent conditions of job
performance. A virtual organisation is staffed by knowledge workers who are brought together
under short-term market relationships. These highly proficient employees are left to do their own
things in order· to provide world class products and services. Jobs in virtual organizations are
knowledge-based. Such jobs are assumed to require greater skills, have greater variety and offer
better quality ofworking life.
Virtual organisation has both positive and negative implications for human resources.
Positive implications include greater job autonomy and more financial stability due to reduced
commuting, launches and clothing costs. In addition, there are a perceived increase in
performance, reduced job stress and better social relationships owing to dissolution of barriers
between the home and work interface. Negative implications consist of longer working hours,
increased work demands, poor physical working conditions, less social support from work, poor
social position and fewer career opportunities. Jobs are variable and short-term. People with
multiskills are required to share and assimiliate information easily for quick decision-making.
The main human resource issues in a virtual organisation are as follows:
1. Recruitment is conducted under time pressure and requires high performance
expectations.
2. Both human capital and social capital become extricably linked.
3. Social relationships do not require much stability.
4. Workplace is variable because there is high need for readiness to be mobilized at any
moment.
5. Value ofidleness is shown in terms ofleaming by watching what others do.
6. Master apprentice relationships and craft based learning become significant.
7. Job status and project feedback is short-term. Therefore, virtual organizations require a
heavy investment to create systems and staffing structures.
Employee selection and performance management are the two critical human resource problems
in virtual organisation. People who are to work in a virtual organisation require the following
traits:
a) Selfguided and selfmotivated.
b) Familiarity and comJortability with the job.
c) Effective communication skills- both oral and written.
d) Adaptability.
e) Technical selfsufficiency.
f) Result orientation.
Performance management is the most difficult problem in virtual organizations. It requires daily
attention on three principles due to physical separation ofworkers and managers:
' I. Define performance goal ofeach member or team clearly.
II. Facilitate performaf!Ce by eliminating all obstacles and providing necessary resources.

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 III. Encourage performance by providing rewards.
To conclude, human resource management in virtual organizations requires shift from person-job
fit to person-role fit.

16.8 Concept of Globalisation

In recent years, international business has grown rapidly. There has been increasing inflow of
foreign direct investment and a large number of multinationals have set up shop in India. Several
Indian companies have become multinationals by acquiring firms abroad. Such internationalism
of business requires management of companies globally. World has become a global village. The
grovvth of international business places new responsibilities on human resource managers. For
example, human resource managers must ensure that the appropriate mix of employees in terms
of knowledge, skills and cultural adaptability is available to handle global assignments.
Globalisation means the tendency of business firms to extend their sales and manufacturing
operations to foreign countries. In recent years the rate of globalization has been phenomenal
leading to increased competition in international business. For example, firms that formerly
completed only with local firms now have to compete with foreign fim1s. The growing
integration of the national economies into a single huge market place is increasing the intensity
of competition in a wide range of manufacturing and service industries.

16.9 Impact of Globalisation

Globalisation has wide ranging effects on different aspects of human resource management.
Impact on Employment: Entry of multinationals and expansion ofindian finns since 1991 have
led to increase in employment opportunities. At the same tirne closure of several firms which
could not survive in a highly competitive market has resulted in loss of employment. The
Government of India has created a National Renewal Fund to cornpensate workers thrown out of
jobs.
Impact on Human Resource Development: Under global competition, more qualified staff is
required to satisfy and delight customers. Therefore, globalization and liberalisation has positive
impact on HRD. Proactive and continuous learning has become necessary. Along with
competency building, building of positive attitudes and values are being stressed upon.
Impact of Compensation: Globalisation has resulted in higher salaries and benefits for highly
skilled and committed employees but low wages for the unskilled and indifferent.
Impact on Trade Unions: Initially trade unions in India resisted the policy of economic
liberalisation, globalization and privatization. But gradually they have accepted the realities. In
some cases unions are cooperating with management to ensure the survival of their organizations
which is at stake in a competitive environment.
Other Effects: Globalisation has improved professional human resource practices such as
·employee empowerrnent, quality circles, employee counseling, flexitime.

16.10 Mode) ofintenrntional HRM

Morgan has presented a model to highlight the broad functions of international HRM. This
model consists of the following three dimensions:
Human Resource Activities -- procurement, allocation ar1d utilization.

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Country of Operation - the host country where a subsidiary may be located, the home country in
which the firm's headquarters are located, and a third country which may be the source of labour,
finance, etc.
Thus international HRM is the interplay between three important dimensions namely human
resource activities, the country of operation and the types of employees. International i-IRM
differs from domestic HRM due to the complexities of operating in different countries and
employing workers belonging to different nations.

16.11 Distinction between Domestic and International HRM

The major factors that differentiate international HRM and domestic HRM are as follows:
1. Cultural Factors: Culture means belief, values, norms and moral shared by the people.
Wide ranging cultural differences from country to country require corresponding
differences in human resource practices among a company's foreign subsidiaries. For
example, Eastern culture is characterized by collectivism whereas, Western culture
emphasizes individualism. Therefore, incentive plan in Japan tend to focus on the work
group while individual work incentive are more common in Western countries. Another
study reveals that US managers tend to be concerned more with getting the job done
while Chinese managers were more concerned with maintaining harmonious
environment.
People travelling abroad and those working in different cultures face cultural shock
before they acclimatize themselves with alien culture. They have to make considerable
adjustments in terms of habits, values, food, clothes and language. For example, Indians working
abroad miss the family bondage and lifestyle and develop home sickness. Human resource
professionals must expose, counsel and assist people in the acclimatization process so as to
reduce cultural shock and home sickness.
Inter country cultural differences have several implications for HRM. First, HR practices
such as employee testing and pay plans need to be adapted to local cultural norms. Secondly,
while selecting employees for overseas operations a high degree of sensitivity and empathy for
the attitudinal demands of co-workers is necessary. Third, HR staff in a foreign subsidiary should
be from host country citizens so that it can be sensitive to the needs and expectations in
workplace.
2. Economic Factors: Different countries have differenteconomic systems. Differences in
economic conditions also require inten:;ountry differences in HR practices. For example,
in a country having free enterprise system, the need for efficiency requires HR policies
that value productivity, efficient workers and downsizing. On the other hand, in socialist
economies, HR practices tend to shift towards preventing unemployment even at the
expense of sacrificing efficiency.
3. Labour Cost Factors: Differences in labour cost existing in different countries also
cause differences in HR practices. Higher labour costs require focus on efficiency on HR
practices that help in improving labour performance. For example, labour costs are quite
higher in USA and UK than in India. Wide gaps in working hours also exist among the
countries. These affect HR practices such as paid vacations, pay for performance,
severance pay, etc.
4. Industrial Relations Factors: Relations between the worker, the union and the employer
vary significantly from country to country, and have a tremendous impact on HR
practices. For example, in Germany, codetermination is the rule. Here, the employees

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 have the legal right to have their voice in setting company policies. On the other hand, in
India, the state plays a major role in employer employee relations. Here, HR policies on
wages, benefits, etc. are regulated by law.
HR managers must consider the potential impact of intercountry differences on HR operations
conducted at the global level. Otherwise, overseas assignments are likely to fail. Dowling has
identified the following complexities in international HRM:
I. Need for a Broader Perspective: In International business, the HR managers require a
broader view of various international issues such as expatriates' benefits, cross-cultural
work dynamics in managing people, etc.
II. More HR Activities: HR department in an international firm has to undertake additional
activities such as international relocation and orientation, administrative services for
expatriates, international taxation, language translation services, and host government
regulations. International relocation and orientation activities include predeparfure
training, immigration and travel details, housing, shopping, schooling and housing
information. International taxation involves working out tax equalization policies to
reduce tax burden on expatriates.
III. Greater Involvement in Personal Lives of Employees: HR professionals have to make
employees understand their housing, health care and other personal problems so that they
feel comfortable at the new place. Many multinational corporations maintain their own
international HR service section to undertake such activities.

16.12 International Recruitment

Recruitment and selection practices in an international firm depend on its staffing policy, host
government's constraints on hiring policies and the firm's ability to attract the right candidates.
Multinational firms may adopt one or more of the following staffing policies on key executive
positions:
1. Ethnocentric Approach: Under this policy, all key positions are filled with the home
country nationals. This approach is common for multinational firms in the early stages of
internationalization. Other reasons for use of this approach are: (a) lack of qualified host
country managers, (b) desire to maintain a unified corporate culture and tight control, (c)
desire to transfer quickly the parent firm's core competencies to foreign subsidiaries.
Ethnocentric approach, however, suffers from the following disadvantages:
a) The approach may lead to low productivity and high labour turnover due to limited
promotion opportunities for host country nationals.
b) The parent company nationals may take a lot of time in understanding the host country
culture leading to faulty decisions.
c) Since the compens3;tion paid to parent company nationals is greater and is paid in home
country's currency, host country nationals working in the same firm may feel
discriminated and frustrated.
d) It is quite expensive to employ expatriates in foreign subsidiaries.
2. Polycentric Approach: Under this approach, foreign subsidiaries are staffed with host
country nationals. Parent company nationals are employed only at the headquarters. This
approach of offers the following advantages:
a) This is less expensive than the ethnocentric approach.
b) The local managers can easily take care of the local dynamics. There is no language
barrier and no hassles of cultural adjustment.
c) Local politics and administration can be managed easily.

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Polycentric approach, however suffers from the following disadvantages:
a) Host country managers may find it difficult to imbibe the parent company's culture.
b) There may be lack of understanding between parent firm and its foreign subsidiaries.
c) Parent company nationals do not get exposure and experience to foreign jobs. As a result
their career growth may remain restricted to their country.
3. Geocentric Approach: Under this approach, the best people are employed in all key
positions throughout the organisation regardless of their nationality. The global firm can
use its human resources most efficiently by transferring the best person to the open job. It
can be helpful in building a stronger and more consistent culture among the entire global
management team due to continuous interaction and networking among the team
members.
Geocentric approach, however, has some drawbacks. Greater paperwork is involved in
hiring foreign nationals. There are hassles of obtaining work permit for dependents of the
employee. Training and compensation costs of foreign nationals are higher. The employment
policy of a foreign country may be a constraint.
4. Regiocentric Approach: Under this approach, operations of th� global firm are divided
into a few geographical regions (e.g. Europe, America, etc.) and senior managers are
transferred within a particular region from one subsidiary to another. This approach
offers the following advantages:
I. There is better interaction between executives from parent country and those from host
countries.
II. It facilitates shift from a purely ethnocentric approach to geocentric approach.
III. The approach reflects some sensitivity to local conditions.
Regiocentric approach, however, suffers from some disadvantages:
a) There may be 'federalism' at regional rather than on country basis.
b) Career prospects at regional level are hampered.

16.13 International Selection

Managers in both domestic and overseas assignments require technical knowledge and skills to
do the job and the intelligence and people skills. However, foreign assignments make additional
demands on expatriate managers. These managers and their families have to adjust to foreign
culture and environment. Special care is needed in the selection of expatriates to avoid
'expatriate failure' which means premature return of an expatriate from a foreign assignment.
Expatriate failure has both direct costs ( salary, airfare, relocation expenses, training expenses,
etc.) and indirect costs. Quite often expatriate selections are made on the basis of technical
competence whereas most expatriate assignments fail due to lack of cultural skills and family
situation. Therefore, adaptability screening must be an integral part of expatriate selection
process. Such screening is conducted by a professional psychologist or psychiatrist to assess the
family's probable success in handling foreign transfer. Colgate Palmolive, Ciba Geigy and other
multinationals make use of such screening. There are also paper-and-pencil tests that can be used
to select employees for overseas assignments. Experts have developed and validated general
purpose tests that focus on the aptitudes and personality characteristics of successful overseas
candidates. The overseas assignment inventory is one such assessment technique.

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16.14 International Training and Development

In a multinational firm, employees require orientation and training in technical, business, social
and cultural aspects. One expert suggests that overseas employees need four-tier training.
Level 1: Training focuses on the impact of cultural differences, and on raising trainees'
awareness of such differences and their impact on business outcomes.
Level 2: Focuses on attitudes and aims at getting participants to understand how attitudes (both
positive and negative) are formed and how they influence behavior.
Level 3: Training provides factual knowledge about the target country.
Level 4: Provides skill building in areas like language, adjustment and adaptation skills.
In addition to these special training practices, traditional training is necessary for developing
overseas employees. At TBM, such training is imparted by rotating the assignments of employees
for their professional growth. IBM and other major multinational corporations have also
established their management development centers around the world where executives can COJT!e
to hone their skills. In addition to honing functional skills, international executive development
often seeks to foster improved control of global operations by building a unifying corporate
culture. The firm brings together managers from its far-flung subsidiaries and steeps them for a
week or two in the firm's cherished, values and current strategy and policies.

16.15 International Performance Management

Monitoring performance and ensuring adherence to agreed standards are significant elements of
international HRl\/L But several obstacles arise in appraising the performance of expatriates.
Local managers having some inputs can appraise the expatriate employee. But such appraisal is
likely to be distorted by cultural differences. For example, a US expatriate manager in India may
be appraised somewhat negatively by his host country bosses who find his use of participative
decision-making in appropriate in their culture. The expatriate may be appraised by objective
criteria such as profits and market share, but local events such as political instability may
undermine the manager's performance.
Two experts have suggested the following measures to improve performance appraisal of
expatriates:
I. Stipulate the difficulty level involved in assignments at the expatriate's workplace. For
example, working as expatriate in China is generally considered more difficult than
working in England.
U. Give more weight in evaluation towards the on-site manager's appraisal than towards the
home-site manager's appraisal which is based mainly on distant perceptions of the
employee's performance.
III. In case the home-site manager appraises the expatriate, background advice from a former
expatriate from the same overseas location should be taken to ensure that unique local
issues are considered in appraisal.
IV. The performance criteria used for a particular job should be modified to fit the overseas·
position and characteristics of that particular locale: For example, maintaining apd
improving labour relations might be more important in India than in the United States.
V. Appraise the expatriate not only in terms of quantitative criteria like profits on market
share but also qualitative criteria like insights of the expatriate into the functioning of
overseas operations.

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 16.16 International Compensation Management

International compensation management is a difficult issue due to two reasons. First, payment of
the same pay scale for all the employees of a particular rank meets the norms of equity and
simplifies the task of keeping track of disparate country-by-country compensation rates. But, it
may create more problems than it solves. The cost of living may vary significantly from one
country to another. For example, it is enormously more expensive to live in NewYork than in
New Delhi. Unless the cost of living differences are duly incorporated in compensation levels, it
tnay be highly difficult to make executives take up the high cost overseas assignments. Thus, one
of the most difficult problems in managing compensations in multinationals is establishing a
consistent compensation measure between countries that builds credibility and is fair and
equitable.
The most common approach to formulating expatriate compensation is to equalize
purchasing power across countries, a technique known as the Balance Sheet Approach. The basic
idea behind this approach is that each overseas employee should enjoy the same standard of
living he/she would hav� enjoyed in the home country. Four main groups of expenses-income
t"!x, housing, goods and services, are reserve are considered. In addition to base salary, relocation
allowance, housing allowance, education allowance for children, etc. ar·e paid. Multinationals
also use long-term incentives especially for overseas managers. Such performance based
incentives help to attract and retain overseas executives and create a sense of ownership.among
key local managers.
An alternate approach is the Market Rate approach. Under this approach base salary is
linked to the scale in the host country. The multinational obtains information from local
compensation surveys for this purpose. For example, a Japanese company may benchmark the
-.compensation paid by other multinationals in India.
Whatever approach is adopted, the compensation structure should fulfill the following main
objectives:
The compensation policy should be consistent with the overall strategy .and business
requirements of the enterprise.
It should help in attracting and retaining the needed talent.
It should enhance employee satisfaction and motivation.
It should be fair and equitable.
It should be convenient to administer,

16.17 Comparison between Balance Sheet Approach and Market Rate Approach

Advantages of Balance Sheet Approach:

1. Equity
2. Ease in repatriation
Disadvantages of Balance Sheet Approach:
1. Complexity in administration
2. Disparity between expatriates of different countries.
Advantages of Market Rate Approach:
1. Simplicity
2. Equality with locals
3: Identification with the host country
Disadvantages of Market Rate Approach:
1. Rivalry fot overseas assignments in a particular country

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 2. Difficulty in repatriation
3. Variation between assignments for the same employee

16.18 Repatriation

Repatriation refers to the process of returning back to the parent company and country from the
foreign assignment. Repatriation is quite often a bitter sweet experience for the returning
employee. Repatriates may come back either due to failure in adjusting to the foreign culture or
after the successful completion of the overseas assignment. The first provides a sense of failure
whereas the second gives a sense of achievement. But the readjustment and setting is needed in
both. The human resource department needs to provide the required support services to the
expatriate. On returning back the employee may lose some of the perks (e.g. a company car and
driver). He/she may discover that some of his/her former colleagues have been promoted.
His/her family may also undergo a reverse cultural shock. These problems should be anticipated
and avoided. The steps that may be taken for this purpose are as follows:
I. Make an agreement guaranteeing that the overseas assignment will be for a specific
period and on the employee will be given a mutually acceptable job.
II. Assign a sponsor that will look after the interests of the employee in his/her absence.
III. Provide career counseling to ensure that the employee's job assignments meet his/her
needs upon return.
IV. Keep in touch with the employee.
V. Other financial and support for finding accommodation and children's education.
VI. Organise re-orientation programme to facilitate adjustment back into the home culture.

16.17 Summary

A virtual organisation is a loose and flexible network of individuals connected through

information and communication technology created to meet the market dynamics. It is a
boundaryless organisation. According to the degree of virtuality telecommuters, outsourcing
competencies and completely virtual are three types of virtual organisation. Technology, e-mail
integration, office systems integration, voice mail alert, mobile data are the main components of
technology used in virtual organizations. A virtual organisation requires employees with special
traits. Performance management in a virtual organization requires focus on defining, facilitating
and encouraging performance. Globalization is the process of extending business activities to
foreign countries. Globalisation has significant implications for employment, HRD,
compensation, labour relations, etc. International HRM differs from domestic HRM in terms of
culture, economic system, labour cost, and industrial relation. There are four approaches to
international recruitment- ethnocentric, polycentric, geocentric and regiocentric. There are four
different levels of training in international HRM. Balance Sheet Approach or Market Value
Approach may be used for managing international compensation. Repatriation of expatriates
involves unique problems which need to be tackled by HR professionals.

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16.18 Test Question

Q 1. What do you understand by virtual organisation? State its main characteristics?

Q2. Distinguish between virtual organisation and traditional organisation.
Q3. Discuss the main human resource issues in virtual organmisations.
Q4. What do you understand by globalization? Explain its impact on human resource
management?
Q5. Suggest measures for managing and improving the performance of expatriates.

16.19 Further Readings

Decenzo, D.A. and S.P. Robbins, "Personnel/Human Resource Management",Prentice Hall of India,
New Delhi, 2003.
Dessler," Human Resource Management", Prentice Hall of India, New Delhi.
French, W., "the Personnel management Process", Haughten Miffin, Boston.
Ivanecevich, John M., "Human Resource Management", McGraw Hill.
Wreather and Davis, "Human Resource Management", Prentice Hall, New Jersey.

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 LESSON 17

HUMAN RESOURCE- MANAGEMENT IN A CHANGING

ENVIRONMENT
Dr. Pooja Goel
Shaheed Bhagat Singh College
University ofDelhi
Objectives
After going through this lesson you should be able to:
• Explain Workforce Diversity
• Understand Downsizing & VRS
• Describe Computerised HRIS
• Define Advantages & Uses ofHRIS

Structure
17.1 Economic Liberalisation and Human Resource Management
17.2 Workforce Diversity
17.3 Downsizing
17.4 Voluntary Retirement Scheme (VRS)
17.5 Changing Role of Human Resource Management
17.6 Human Resource Information System
17.7 Computerised Human Resource Information System
17.8 Need for HRIS
17.9 Objectives of HRIS
17.10 Functioning ofHRIS
17.11 Designing of HRIS
17.12 Applications of Computerised HRIS
17.13 Summary
17.14 Test Question
17.15 Further Readings

Significant changes are taking place, in the environment of human resource management.
Changing workforce, downsizing, corporate restructuring, globalization, knowledge economy are
some of these changes. As a result, human resource management which was once a dumping
ground for executive misfits is now emerging as a source of cninpetifr., · advantage. The
executive in charge of the human resource function is no longer despised as an outcast but is
· regarded as an heir apparent to the chief executive. In the changing world, human resource
management will have to face new challenges.

17.1 Economic Liberalisation and Human Resource Management

Economic liberalisation and globalization in India since 1991 is having a major impact on human
resource management. In their efforts to integrate themselves into the global economy,
companies in India are using human resources as a strategic tool for competitive advantage. A
large pool of qualified manpower is making India an outsourcing hub for the developed nations.
One survey of opportunities and challenges facing human resource management under
liberalisation reported the following:

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 I. Virtually all companies are putting emphasis on the upgradation of managerial and
professional skills.
II. Organisational restructuring has emerged as an important strategy. Companies are
adopting flatter structures and empowering employees to facilitate independent decision­
making and flexibility. This is leading to improved involvernent and motivation of
employees.
III. Middle level managers are becoming more participative and result oriented. Decision­
making is being increasingly handled at the group level.
IV. There is increasing emphasis on training and retraining talent. Companies have started
paying greater attention to career planning and career growth for employees.
V. Employee compensation is being linked with performance through benchmarking,
business process reengineering, etc.
VI. There is an emphasis on transparency and multi skilling.
VII. Companies are downsizing to shed redundant staff.
VIII. Networking of various functions and divisions is being adopted with a view to create a
responsive, goal-oriented and competitive organization.

17.2 Workforce Diversity

Workforce diversity means employees of an organization differ from each other in terms of age,
gender, education, language, values, cultural norms, ethnic origin, etc. As a result organizations
are becoming more heterogeneous. Various categories of employees bring their own skills,
attitudes, motives and other personal characteristics. The composition of workforce in India is
changing rapidly as more women, minority groups, etc. are joining the workforce. The number of
women entering the workforce is increasing due to several factors, e.g. education, economic
needs, equality of sexes, women's emancipation and so on. In addition, young, skilled and
knowledgeable people are increasingly occupying positions of importance. Employees now
prefer less secure but high paying jobs in multinationals and other p1:ivate sector concerns. The
percentage of old employees is also growing owing to improved medical and health care.
Technological revolution and better transport facilities have improved mobility of employees.
With the growth of trade unions, employees have improved mobility of employees. With the
growth of trade unions, employees have become more conscious of their rights in the workplace.
In Indian companies, differences in religions, cultures, social ethos and regional origins add to
workforce diversity. Under the constitution of India, certain sections of society enjoy a
preferential treatment in employment. In Government and public sector, Schedule Castes(SC),
Scheduled Tribes(ST), Displaced Persons(DP), Sons of the soil, Other Backward Classes(OBC),
ex-defence personnel and physically disabled are examples of these categories.
Implications for HRM: Workforce diversity has created new challenges for human resource
management. Some of these challenges are given below:
I. Increasing number of women in the workforce require more flexible work schedules,
child care facilities, maternity leave, transfer to husband's place of posting.
II. Aging workforce creates problems of better health care facilities and higher pensions
costs.
III. Paternalistic approach has to give way to employee empowerment.
IV. There is need to remove all unintended and intended discriminations on the basis of sex
so as to avoid cases of sexual harassment.
V. Organisations must understand and appreciate the changing values of young people. Life­
long employment, total loyalty to the organization and commitment to work can no

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 longer be taken for granted. Appropriate changes in human resource policies and
programmes are needed to attract and retain young talent.
VI. A centralized and uniform approach needs to be replaced by. a decentralized and plural
system. Focus has to be shifted from quantity to quality of life. Today employees seek a
greater balance between work life and personal life. Organisations are now expected to
accommodate personal and family activities like doctor's appointments, children's school
programmes, leisure trips, etc.
VII. Human resource professionals need to design and use new employee benefits grievance
redressal mechanisms and participation plans to overcome alienation, demotivation, poor
morale and other types of counter-productive behavior.
In order to deal with the problem of workforce diversity, management may create a truly cultural
organization where all members of diverse cultural and social groups are involved in shaping the
mission, potticies and programmes of the enterprise, Human resource managers should encourage
open communication with women, disabled, minorities, reserved categories and other employees
to learn more about their aspirations and values. Such feedback would help human resource
professionals in formulating appropriate strategies, policies and programmes. For example,
interactions with disabled may reveal that they do not want special attentions or treatment but
only equal employment opportunities. -e'.,

17.3 Downsizing

Downsizing means reducing the size of the organization through planned elimination of positions
and jobs. It is a restructuring process in which the organization disposes o.f its non-core activities.
In the context of human resource management, downsizing involves elimination of certain jobs
with a view to improve work efficiency. The organization reduces staff which is excess of its
needs. As a result some of the employees get separated from the organization.
Rationale: Downsizing may become necessary due to the following reasons:
I. An organization might suffer from overstaffing due to faulty human resource planning.
At one time, Steel Authority oflndia (SAIL) had 1,70,000 employees as against its actual
requirement of 1,00,000 employees.
II. A change in man-machine ratio may occur due to technological advances.
III. An organization may start outsourcing some of its business functions. As a result people
employed in these functions become surplus.
Pitfalls: Downsizing may, however, lead to following adverse consequences:
I. Downsizing may create a feeling of insecurity causing low morale and 1:--:gh stress among
employees. Employees may feel that they are paying the price iv; , 0"ismanagement.
II. When competent employees leave the organization, downsizing mRy erode the skill base.
III. Implementation of performance improvement practices become difficult due to a feeling
ofjob insecurity created by downsizing.
Role of HR in Downsizing: Human resource personnel have to perform the following functions
for.successful implementation of downsizing:
I. Before downsizing, alternatives such as work-sharing, down grading, redeployment, etc.
may be tried.
II. HR personnel must ensure proper communications to minimize the negative effects of
rumours and ensure that individuals are kept informed with factual data.
III. In order to sell the idea of downsizing to the employees, HR professionals have to
convince trade unions and win their support for downsizing.

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 IV. HR managers must also deal with the actual layoff. They must have programmes to assist
the laid off employees. When informed about layoff, employees face many uncertainties
about service pay, retirement benefits, search for alternative job, transition assistance, etc.
These uncertainties need to be anticipated and taken care off.
Rightsizing involves realigning an organisation's human resources for a closer fit with overall
strategy, goals, and financial resources. The intention is to become more competitive by
redesigning the organizational structure and redefining both line and staff positions to focus on
the most important activities and processes. However, some companies eliminate numerous
positions without first determining which and how many are needed to accomplish vital tasks for
organizational performance. The result is wrongsizing - the loss of key positions and personnel.

17.4 Voluntary Retirement Scheme (VRS)

In India downsizing is generally implemented through Voluntary Retirement Scheme. Under this
scheme, the organization and its employees enter into a mutual agreement. Under this agreement
employees agree to voluntarily retire on payment of agreed compensation by the employer.
During 1991 India adopted the policy of economic liberalisation, globalization and
privatization. Since then several organizations in both public sector and private sector have
downsized in order to reduce the surplus staff. VRS has been used to reduce the wage bill by
offering one time compensation. VRS has come to be known as 'Golden Hand Shake' in view of
its benefits for both employees and employers.
In the initial stage VRS appeared attractive and many organization successfully implemented
VRS. But in many cases VRS attempts have failed. Various issues involved in VRS need to be
tackled effectively in order to make the scheme successful. The main issues in VRS are as
follows:
1. Identifying the Need for VRS: First of all, the organization must check whether VRS is
really necessary or not. In case there is surplus manpower which cannot be utilized in
future, VRS may be required. The type of employees to be covered in the scheme and
those who opt for it also need to be identified.
2. Cost Benefit Analysis: Before deciding to launch a VRS, its implications for the
organization should be carefully considered. VRS is double-edged weapon and not a
panacea for all ills of human resource management. When targeted employees do not opt
for VRS, the morale of employees may go down. It is also possible that employees who
are unemployable elsewhere do not opt for the scheme. In such a case the organization
may lose talent and may be left with poor quality staff. If this happens the very purpose
of VRS will be defeated.
3. Designing the Scheme: The main issues involved in designing VRS are:
(a) The employees to be covered in the scheme. Logic lies in covering those employees who
are least required in future. SAIL prescribed the minimum age limit for different
categories of employees.
(b) The compensation package to be offered. In public sector, three months salary for each
completed year of service subject to a maximum of monthly salary multiplied by the
number of months left for retirement is the norm. In public sector banks 45 days of salary
for every year of service or salary for balance period of service whichever is less is
offered.
4. Convincing Trade Unions: Unless the trade union agrees VRS is likely to fail.
Therefore, management must convince the union(s) by explaining various pros and cons
and suggesting alternatives which employees can adopt after opting for VRS.

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 5. Rehabilitating Emp loyees� A firm or an association of firms may design a rehabilitation
package for the concerned employees. Such a package should include redeployment
through further training. When employees know that they have alternative means of
earning livelihood, they will opt for VRS. Government of India has set up five employee
assistance centres at Mumbai, Kolkata, Ahmedabad, Kanpur and Indore to provide
trainin.g to displaced workers.

17.5 Changing Role of Human Resource Management

Along with the environment of human resource management, the role of HRM is also changing.
In today's flattened, downsized and responsive organizations, highly trained and committed
workforce rather than machinery is the best competitive edge. Some examples of the new role of
human resource management are given below:
1. Productivity Improvement: In the globally competitive environment, boosting
productivity is of crucial importance. Human resource management plays a vital role in
boosting productivity and reducing labour costs. Screening tests used to select high
potential employees; training programmes for increasing labour productivity, etc. are
designed by the HR department. In a downsizing programme, human resource experts
help employees learn to prioritize tasks and reduce job stress.
2. Employee Commitment: Only involved and committed employees can make a
· difference, Building employee commitment involves synthesizing employer's and
employees' goals. Human resource management can improve employee commitment
through two way communications, grievance handling, fair treatment, and opportunities
for full of skllls, career-oriented performance appraisal, open job posting, etc. It is
necessary to convince employees that the company and all its managers care about them.
3. Responsiveness: Organisations need to be more responsive to technological change and
product innovations. Downsizing, employee empowerment, flattened structure, and team
work are all designed to enable the organization to respond quickly to customers' needs
and competitors' challenges. Human resource management plays a crucial role in team­
building through group incentives and flexible work hours. HR will have to be proactive
rather then reactive.
4. Service Sector: Success in service organizations such as banks, airlines, hostels, and
other depends largely on employee behavior. Human resource management can improve
attitudes, motivation and behavior of staff. Progressive practices such as career
advancement, orientation and socialization, employee counseling help to improve
employee behavior towards customers. Human resource service and generate profits.
5. Corporate Strateg-y: Human resource management is playing an increasing role in
developing and 'implementing corporate strategy. In a fast changing and globally
competitive environment, human resource provides a competitive advantage. Therefore,
strategy has become increasingly dependent on employee competence, motivation and
commitment. HR is going to play an increasingly significant role in corporate strategic
management
6. Human resource professionals will have to play an active role as change
agents as any programme of organizational change and development involves human
resource issues. They have to persuade, mobilize and negotitative people for change. For
this purpose human resource professionals require diagnostic and behavioral skills. They
must provide emotional support and reassurance to employees who feel stressed during
the change process and thereafter.

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 7. Outsourcing HRM: People are the most important asset of an organization. Leading
companies around the world are taking more strategic approach to managing their human
resources. They are outsourcing day-to-day human resoun;,e functions so. as to focus on
strategic HR issues that impact corporate performance and shareholder value. Generally,
those HR functions which are not critical and confidential are outsourced. Recruitment
and selection, payroll and compensation management, staff training, employee benefits
and service, job evaluation are examples of such functions. Outsourcing of HR functions
offers the following advantages:
a) It allows management to focus more time and attention on building its core business.
When HR tasks are outsourced, HR executives can spend more'of their time on planning
and executing HR strategy.
b) It offers cost effective solutions.
c) Employees can get more timely and accurate information due to greater administrative
efficiency.
d) The company needs not to invest in the latest technology and staff for routine HR
functions.
e) An integrated HR outsourcing model makes record-keeping more accurate, avoids
duplication and makes access to information easy and quick.
HR outsourcing is growing as HR programmes and services become more complex. Price
Waterhouse Coopers has developed a Total Human Resource Outsourcing Model which offers
companies end-to-end HR services and a single delivery capability.
8. Human Capital Management: A lot of automation is taking place in human resource
management. Human capital management solutions have automated the mundane HR
activities thereby enabling the HR department to play a more strategic role. For example,
ABB is making use of SAP, ERP, Cafe HR and People Net for managing its human
resources. Automation of HR provides the following benefits:
• Improved Corporate Performance: Align your workforce with business objectives, and
ensure that every employee understands and acts upon those objectives.
• Optimized Development and Use of Talent: Find the best people and leverage their
talent in the right place and right time. Identifying and track high-potential employees to
ensure future leaders are identified for key positions.
* Cost-effective Compliance and Administration: Reduce the cost and effort of
complying with local regulations through features and functions, support structures and
expertise.
e Global and Local Coverage: Enable flexible processes that balance global demands
with local needs.
ti Improved Employee Satisfaction: Build better relationships with employees through
personalized self-services, e-learning and e-recruiting applications, and more flexible
compensation and reward models.
@ Improved Decision Making: Integrate HCM information and processes into the core of
your business to provide line managers and executives with the means to make better
decisions.
* Scalability and Support that Lower Risk: Adapt your process quickly to changing
business needs with a flexible, scalable solution.
ti Proven Return on Investment: Transform your HR function, lower costs and improve
service.
e Opportunities for Value-Added Activities: Streamline all HCM processes and free
employees to concentrate on value-generating activities rather than on routine tasks.

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 17.6 Human Resource Information System

Human· Resource Information System (HRIS) is a system designed to supply information

required for effective management of an organization. Any organization is managed by taking
various decisions at the various levels of its management hierarchy. Information is needed to
take these decisions. Quality of decisions will largely depend upon the nature . and type·
information provided for taking the decisions. Therefore, designing of an effective information
system is vital for the efficient working of an organization. It can be built around electronic
computers in case of big organizations. Human Resource Management Information System is
designed to supply information required for effective management of human resources in an
organization.

17.7 Computerised Human Resource Information System

Computers can amplify the capabilities of human resource managers in their job of efficient
management of human resources. That is why; modern organizations use computerized Human
Resource Information Systems. A computerized HRIS is designed to monitor, control and
influence the movement of people from the time they join the organization till the time they
separate from the organization. Thus, the scope of computerized HRIS is very vast and it
includes information about the following sub-systems:
I. Recruitment Sub-system Information: It includes advertisement module, applicants'
profile, appointment and placement data.
II. Manpower Planning Sub-system Information: It includes information that could assist
human resource mobilization, career planning, succession planning and inputs for skill
development.
III. Personnel Administration Sub-system Information: It is intended to keep personal
records of each employee as regards leaves, transfer, promotion, increments, etc.
IV. Training Sub-system Information: It provides information for designing course
material system for need based training, appraisal of training programme, etc.
V. Maintenance Sub-system Information: It is designed to contain data about health,
safety and welfare of employees.
VI. Appraisal Sub-system Information: It contains information about performance rating
which serves as input for transfer, promotion, increment, succession planning and career
planning, etc.
VII. Payroll Sub-system Information: It consists of information concerning wages, salaries,
wage incentives, allowances, perquisites of fringe benefits, deductions for provident fund,
etc.
VIII. Personnel Research Sub-system Information: It is a bank of historic and current data
about employees' attitude, absenteeism, turnover, etc. which may be used for different
types of analysis.
IX. Job Analysis and Design Sub-system Information: Since individuals are employed for
various joos, it is essential to computerize job-related information about every job before
and after redesigning.
The computerized HRIS virtually integrates the information relating to various sub-systems of
human resource. management as discussed above. It, in fact, serves as a common database of
information on jobs, people and organization variables. The Integrated HRIS involves the
following elements:

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 • Automated Analysis Methods: Data on people, jobs and organisation are gathered by
the system through diagnostic questionnaires that query human respondents and analyse
thedata.
• Decision Support: This supports specific HRD decision making. The formats are
designed to answer specific questions.
• Multiple Applications: Various segments of the Human Resource Information System
are integrated so that data generated by or used by one HR sub-system can be accessed
and used in other sub-systems or functions.
• Easy Access and User Friendliness: The computerized HRIS facilitates easy access to
data whenever required. Whosoever knows the operations of a computer can retrieve the
required information.
Application of computers in modem organizations can help in processing Organisational data,
Job data and Personnel data. Organisational data include market or competitive information, e.g.,
the life cycle of a company's products, the mission, values and strategy of the company, its
structure and culture, management style, employee attitudes and its output results. Job data
include the proposed duties and responsibilities, performance standards, compensable factors and
competency requirements. People or personnel data may include current and potential
employees' demographic information, work history, education levels, training and development
history, competency assessments, performance appraisal data and career path.

17.8 Need for HRIS

In order to conduct human resource audit and human resource research, the human resource
manager requires considerable amount ofdata. Planning and control ofhuman resources need a
sound information base. The information required for various functions of human resource
management are as follows:
1. Procurement Function: (a) Inventory of present and future needs for manpower; (b)
Reliable performance standards; (c) Possible changes affecting skills; (d) Location and
matching ofrequired and available skills; (e) Valid measures for testing and selection; (f)
Costs ofrecruitment and replacement.
2. DevelopmenrFuriction: (a) Valid measures of employee performance; (b) Cost benefit
calculations of training and development; (c) Linkages between individual aspirations
and organizational needs; (d) Career and succession plans.
3. Compensation Function: (a) Linkage between wages and productivity; (b) Impact of
money on work motivation of employees; (c) Employee costs in terms of tumover; (d)
Effect of inflation and technology on wage levels and productivity; (e) Value of
collective bargaining, fringe benefits programmes, etc. to the company.
4. Maintenance Function: (a) Absenteeism, turnover, accidents, grievances, discipline,
Mondays lost and other indicators oforganizational health; (b) Environmental standards
for physical and mental health of employees; (c) Causes and costs of employee
separation; (d) Incentives for voluntary separation ifnecessary.
5. Integration Function: (a) Communication and leadership climate in the company; (b)
Adaptation to environmental changes; (c) Causes of changes in productivity level; (d)
Impact ofchanges in technology and markets.

17.9 Objectives of HRIS

Some ofthe common objectives ofHRIS in operation in various enterprises are as follows:

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 I. To make the desired information available in the right form to the right person and at the
right time.
IL To supply the required information at a reasonable cost.
III. To use the most efficient methods of processing data.
IV. To provide necessary security and secrecy for important and/or confidential information.
V. To keep the information up-to-date.

17.10 Functioning of HRIS

Human Resource Information System can be broadly classified into two processes:
(a) Data Collection: Who should collect what data and in what form and how often? The
nature and the form of data will vary from organisation to organisation depending upon
its objectives. The manner of data collection will depend upon the purpose for vvhich data
is required. After collection of data, irrelevanted data should be filtered out and the
relevant data should be properly classified and tabulated so that it can be used easily
when needed.
(b) Data Management: A good data management system involves following sub-functions:
I.Processing operations, viz., classifying, analyzing, summarizing and editing the data.
II.Storage of data viz., indexing, coding and filling of information.
III.Retrieval of data, whenever required.
IV.Evaluation, i.e. judging the usefulness of information in terms of its · relevance and
accuracy.
V.Dissemination, i.e. providing the required data in the right form at the right time.
The data management system should be capable of giving efficient service in terms of
day-to-day processing of information. At the same time, the system design should not be rigid.
With the changes in conditions, demand on the information system may change. The same
information may be needed.in different format or different levels of aggregation may be needed.
An efficient system should be able to quickly respond to these types of demands from different
sources.

17.11 Designing of HRIS

HR Information System is the linking mechanism which connects all decision-making

centers in an organisation. The development of an HRIS should be a well thought-out process. It
should consist of the following steps:
1. Planning of System: Planning of Human Resource Information System requires the
identification of objectives of the system. This further requires a clear formulation of
objectives of the organisation; spelling out of the activities required to be carried out;
work relationship, work patterns and their sequence; and above all the defining of
physical boundaries of the system. Thus, this step involves the description in
generalized terms of the course of action and the limitations within which the system
has to be designed.
2. Organising Flow of Information: The system designer should study what is the
prevailing flow of information and compare it with what should be flow of
information. He should also study how this gap could be removed. This study is based
on the following premises:

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 I. The critical deficiency under which most managers operate is the lack of
relevant information.
II. The manager needs the information he wants for decision-making.
III. If a manager has the information he needs, the decision-making will improve.
IV. Better communication between managers will improve organizational
performance.
V. A manager does not have to understand how his information system works,
only how to use it.
The system designer has to take the decision in respect of the number of files to be
maintained, the equipment to be used for processing of data such as manual, electronic or
automatic processing, etc. the personnel to be employed for this purpose and the ways of
processing, etc. the personnel to be employed for this purpose and the ways of processing and
storing the information required on an exceptional basis. Above all, a cost-benefit analysis of the
system is essential.
3. Implementation: This phase deals with the fitting in of HRIS into the organisation
structure. The various alternatives available. in this connection are: (i) the old
information flow may be allowed to continue as it is and new system may be installed
to meet the requirements of the new operation; (ii) the old system may be scrapped
completely and supplanted by the new one; and (iii) phasing the installation of the
new system and scrapping the old one.
It is important to appoint and train personnel for operating the HRIS. The procedures for
actual installation of the installation of the equipments to be used and development of the support
facilities is yet another major decision area. Obtaining the printed formats and reports is the next
task. The most difficult part of this phase is the amalgamation of the information system and the
organisation structure.
4. Feedback: The regular feedback regarding the actual functioning of the HRIS is a
must for the designer to fill up the gap between its planning and implementation. The
changes in the environment also need to be incorporated. If the HRIS is not corrected
for these deviations, it will lead to malfunctioning of the HRIS. Hence the system
should be continuously reviewed in the light of changes in the environment both
within the organisation and outside the organisation. Necessary steps will have to be
taken to modify the system in the wake of these changes.

17.12 Applications of Computerised HRIS

The specific applications of computerized human resource system are as follows:

1. Job Description: Produce printouts that describe jobs according to user specification and
information input into the system. As a minimum job description includes job title,
purpose, duties and responsibilities, the computer programme should allow the authorized
users to update and reformat job descriptions.
2. HR Planning: Forecast demand for key jobs as well as employee turnover and patterns of
inter-organisational mobility. It can be used to project future employee and competency
needs for staffing and development activities.
3. Staffing: Address recruitment, selection and placement functions and can include the
following modules:
a) Applicant Tracking: Track key information on job applicants and other relevant
selection process information.

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 b) Job Posting: Provides a listing of open jobs within the organisation. The listing typically
identifies title of the job, job location, primary responsibilities and job requirements.
c) Job Requirements Analysis: Anal:ise . job duties and responsibilities to identify
competencies that predict effective job performance.
d) Job person Matching: Compare competency assessments of candidates to job
competency requirements.
4. Succession Planning: Report information on the availability of competent candidates for
key positions. It will help in identifying candidates for each key position. It will help in
identifying candidates for each key position and the development needs of candidates
where they fall short of the requirements for a target job.
5. Training and. Development: Trac� recommended training for skill levels, training site
availability, course schedules, enrolments, attendance, completion of course, trainer and
trainee evaluation results. It includes the following:
a) Career Planning: Help employees understand alternative job options and compare their
competencies with the competency requirements for these jobs.
b) Development Needs Analysis: Identify employees and empioyee groups that will best
benefit from training and development.
c) Development Advisor: Provide feedback to employees by identifying gaps between an
employee's competencies and job competency requirements of his or her current job.
6. Performance Appraisal: Help managers direct employees to achieve organizational
goals and develop their competencies. Generate performance appraisal forms based on
the goals and standards and competencies required of a job and record appraisal ratings
for employees on goal accomplishment and competency asse:,sment.
a) Performance Assessments: Appraisals keep employees competency data upto date.
b) Goals Accomplishments: Record goals set for employees at the beginning of the
performance period and appraise employee performance against these goals.
c) Reward Management: Support compt�nsation benefit adrnm1stration benefit
administration ensuring that internal and externai pay equity is maintained and that pay
effectively motivates employee towards appropriate goals.
7. Job Evaluation: Computer assisted job evaluation system helps manager determine job
evaluation points or classification levels and job hierarchies.
8. Compensation: Track, analyse and report compensation information on pay grade
structures, merit guidelines, support salary budgeting e.g., by allocating increases
according to alternative criteria and tracking results in terms of ratios and other statistics.
9. Organisational Climate Analysis: Employee attitude survey data ·which provide
composite profiles of employee morale, concerns and values, help managers take
appropriate actions.

17.13 Summary

As the ,vorkforce ts becoming increasingly diverse, new and better HR practices become
necessary. When organizations downsize, HR professionals are expected to persuade, support
and negotiate with employees. Voluntary retirement scheme is a golden hand shake under which
employees agree to leave the organisation in exchange of an agreed compensatory package. A
computerized HRIS offers several advantages to an organisation. System analysis, design,
engineering, testing, impiementation and monitoring are the steps involved in the development of
HRIS. Human resource inventory contains the necessary data about employees in the
organisation.

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17.14 Test Question

Ql. The field of Human Resource Management has changed considerably over the years.
Explain with suitable examples how this change has taken place in Indian Industries and
what challenges do you foresee for th,;! human resource specialists in the 21 st Century?
Q2.Discuss the uses and advantages of human resource information system.

17.15 Further Readi.ngs

Decenzo, D.A. and S.P. Robbins, "Personnel/Human Resource Management", Prentice Hall of India,
New Delhi, 2003.
Dessler," Hurnan Resource Ivfanagement", Prentice Hall ofindia, New Delhi.
French, W., "the Personnel management Process", Haughten Miffin, Boston.
Ivanecevich, John M., "Human Resource Afanagement", McGraw Hill.
Wreather and Davis, "Human Resource .Management", Prentice Hall, New Jersey.

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