• Monappa, Arun and Saiyadain, Mirza S.: “Personnel Management” (1996), Tata McGraw- Hill, New Delhi. • Saiyadain, Mirza S.: “Human Resource Management” (3rd Ed.),2003, Tata McGraw Hill, New Delhi. • Tripathi, P.C.: “Human Resource Development”, 2003, Sultan Chand, New Delhi. • Philip, Tom: “Making Performance Appraisal Work”, 1983, McGraw Hill, U.K. • http://www.colgate.co.in/app/Colgate/IN/Corp/Careers/TrainingDevelopment.cvsp 97 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT –7 PERFORMANCE APPRAISAL Structure Learning Objectives Introduction Objectives Uses Process Methods Errors in Performance Appraisal. Summary Key Words/Abbreviations Learning Activity Unit End Questions (MCQ and Descriptive) References LEARNING OBJECTIVES After studying this unit, you will be able to: • State the objectives and uses of performance appraisal • Explain process of performance appraisal • Describe the methods of performance appraisal • Identify the errors in performance Appraisal INTRODUCTION In the organization context performance appraisal is an evaluation of personnel in a systematic way by superiors or others familiar with their performance. It is also described as merit rating in which one individual is ranked as better or worse in comparison to others. The basic purpose in this merit rating is to determine an employee’s eligibility for promotion. However, performance appraisal is a broad term and it may be used to ascertain the need for training and development, salary increase, transfer, discharge, etc. besides promotion. In simple terms, performance appraisal may be understood as the review of an individual’s performance in an orderly way, the performance is measured by considering factors like job knowledge, quality and quantity of output, initiative, leadership abilities, supervision, dependability, co-operation, judgment, versatility, health, and the like. Evaluation should not be restricted to past performance alone but, the future performances of the employee should also be assessed. 98 CU IDOL SELF LEARNING MATERIAL (SLM)
Meaning According to Flippo, a prominent personality in the field of Human resources, “performance appraisal is the systematic, periodic and an impartial rating of an employee’s excellence in the matters pertaining to his present job and his potential for a better job.” In the words of Yoder, “Performance appraisal refers to all formal procedures used in working organizations to evaluate personalities and contributions and potential of group members.” Thus, performance appraisal is a formal programme in an organization which is concerned with not only the contributions of the members who form part of the organization, but also aims at spotting the potential of the people.” Performance appraisal is a systematic and orderly evaluation of performance of employees of at work by their superiors or others who are familiar with the techniques of performance appraisal. Such appraisal relates quantitative and quantitative aspects of job performance. Performance is to be measured in terms of results and not in terms of efforts. Performance appraisal is one of the oldest and universal practices of management. Such appraisal is common in the case of blue collared employees as well as white collared employees (e.g. Bank employees, government servants, etc.). Performance appraisal indicates the position of an individual employee in relation to job expectations. Performance appraisal is widely used practice in society. It is used universally in different aspects of life. Teachers evaluate their students and even teachers are evaluated by their students. In the industrial sector, employers/managements evaluate the performance of their employees periodically for different purposes. Well-developed techniques are now used for performance evaluation/appraisal of technical, managerial and professional personnel. Performance appraisal is possible by using different methods. It offers many benefits to managements and employees. Performance appraisal is a lengthy process and needs to be completed properly. The process of performance appraisal helps the management and employee to know the level of employee’s performance as compared to expected or standard performance. Performance appraisal acts as the basis HRD as its facilities improvement in actual performance of employees through training and development programmes. OBJECTIVES Performance appraisal has a number of specific objectives. These are given below: 99 a) To review past performance; b) To assess training needs; c) To help develop individuals; d) To audit the skills within an organization; e) To set targets for future performance; CU IDOL SELF LEARNING MATERIAL (SLM)
f) To identify potential for promotion. Some employees may believe that performance appraisal is simply used by the organization to apportion blame and to provide a basis for disciplinary action. They see it as a stick that management has introduced with which to beat people. Under such situations a well thought out performance appraisal is doomed to failure. Even if the more positive objectives are built into the system, problems may still arise because they may not all be achievable and they may cause conflict. For Example, an appraise is less likely to be open about any shortcomings in past performance during a process that affects pay or promotion prospects, or which might be perceived as leading to disciplinary action. It is therefore important that performance appraisal should have specific objective. Not only should the objectives be clear but also, they should form part of the organization’s whole strategy. Thus, incorporating objectives into the appraisal system may highlight areas for improvement, new directions and opportunities USES OF PERFORMANCE APPRAISAL In many organizations, an appraisal system assists in achieving numerous goals. However, in few firm’s performance appraisal is used in measuring and improving individual as well as organizational performance. The most common issue with performance appraisal is that a lot is expected from one form of performance appraisal system plan. For instance, a plan that is strategically designed to improve and develop employee skills may not be used in deciding wage increases. Although, if an appraisal plan is well designed it can be used in accomplishing the set objectives as well as performance. 1. Human Resource Planning: It is important to record data/information of employees in a firm so that it is easy to identify the potentials of who deserves to be promoted or have any area to improve. Performance appraisal also helps in revealing if there is insufficient number of workers. An appraisal system should be designed and planned after considering the strengths and weaknesses of the HRM of the organization. 2. Recruitment and Selection: Through the process of performance analysis, organizations can determine the performance potential on an applicant. Studies show that successful employees display specific behavioral traits while performing tasks. The data processed through performance evaluation help in setting standards for behavioral interviews. In the process of selection, the employee rating can also be used as a variable against which test scores are compared. 3. Training and Development: Training and development is crucial for any employee as it acts as way to communicating what is expected and how. Performance appraisal helps in drawing attention to these specific needs of training. For example, if an employee’s job involves the skill of creative writing and by the process of evaluation it reveals that he or she lacks in it or has poor knowledge about it, the employee will need appropriate training sessions. When managers of a firm lack the capability of administering disciplinary action, they need the necessary training to deal with this problem. Hence, identifying deficiencies and obstacles can be overcome by training and 100 CU IDOL SELF LEARNING MATERIAL (SLM)
development sessions which develop and improve individual’s skills allowing them to perform better. An appraisal process does not train and develop individuals but determines the training needed by providing data. 4. Career Planning and Development: Career planning can be described as a never-ending cycle in which an individual sets profession goals and means to achieve them throughout his or her lifetime. However, career development is a more formal approach used by organizations. It involves recruiting suitable qualified and experienced people when required. Performance appraisal can determine an employee’s potential through assessing its weaknesses and strengths. The data is also useful to counsel junior staff member and assisting in career plans. 5. Compensation Programs: Performance appraisal evaluations help in making decisions dealing with wage or salary regulations. It is believed that organizations should reward employees with increase in pay when excellent performance is achieved. In order to increase performance, an organization should implement well planned and designed performance appraisal systems and award the efficient workers. This not only increases performance but also keeps employees motivated to achieve better in future. 6. Internal Employee Relations: Performance appraisal evaluation can provide crucial information used in making decision about the internal employee relations i.e. promotion, demotion, transfers and dismisses etc. For example, performance appraisal data are also used for decisions in several areas of internal employee relations, including promotion, demotion, termination, layoff, and transfer. Also, an employee’s performance in one job may be useful in determining his or her ability to perform another job on the same level, as is required in the consideration of transfers. When the performance level is unacceptable, demotion or even termination may be appropriate. 7. Assessment of Employee Potential: Some organizations attempt to assess an employee’s potential as they appraise his or her job performance. Although past behaviors may be a good predictor of future behaviors in some jobs, an employee’s past performance may not accurately indicate future performance in other jobs. The best salesperson in the company may not have what it takes to become a successful district sales manager, where the tasks are distinctly different. Similarly, the best systems analyst may, if promoted, be a disaster as an information technology manager. Overemphasizing technical skills and ignoring other equally important skills is a common error in promoting employees into management jobs. Recognition of this problem has led some firms to separate the appraisal of performance, which focuses on past behavior, from the assessment of potential, which is future-oriented. PROCESS OF PERFORMANCE APPRAISAL There are six steps in the process of performance appraisal which are as follow: 101 CU IDOL SELF LEARNING MATERIAL (SLM)
Establishing Performance Standards Communicating Standards and Expectations Measuring the actual performance Comparing with standards Discussing results (Providing feedback) Taking corrective actions Fig.7.1: Steps in the performance appraisal process Let us learn these steps in detail. • Establishing Performance Standards: The first step in the process of performance appraisal is the setting up of the standards which will be used to compare the actual performance of the employees against the standards set. This step requires setting the criteria to judge the performance of the employees as successful or unsuccessful and the degrees of their contribution to the Organizational goals and objectives. The standards set should be clear, easily understandable and measurable. In case the performance of the employee cannot be measured, great care should be taken to describe the standards. • Communicating the Standards: Once performance standards are set; it is the responsibility of the management to communicate the standards to all the employees of the Organization. The employees should be informed and the standards should be clearly explained to the employees. This will help them to understand their roles and to know what exactly is expected from them. The standards should also be communicated to the appraisers or the evaluators and if required, the standards can also be modified at this stage itself according to the relevant feedback from the employees or the evaluators. • Measuring the Actual Performance: The most difficult part of the Performance appraisal process is measuring the actual performance of the employees, that is, the work done by the 102 CU IDOL SELF LEARNING MATERIAL (SLM)
employees during the specified period of time. It is a continuous process which involves monitoring the performance throughout the year. This stage requires careful selection of appropriate techniques of measurement. It should be taken care that personal bias does not affect the outcome of the process. • Comparing the Actual with the Desired Performance: The actual performance is compared with the desired or the standard performance. The comparison tells the deviations in the performance of the employees from the standards set. The result can show the actual performance being more than the desired performance. On the other hand, the actual performance may be less than the desired performance depicting a negative deviation in the Organizational performance. This step includes recalling, evaluating and analysis of data related to the employees’ performance. • Discussing Results: The result of the appraisal is communicated and discussed with the employees on one-to-one basis. The focus of this discussion is on communication and listening. The results, the problems and the possible solutions are discussed with the aim of problem solving and reaching consensus. The feedback should be given with a positive attitude as this can have an effect on the employees’ future performance. The purpose of the meeting should be to solve the problems faced and motivate the employees to perform better. • Decision Making: The last step of the process is to take decisions which can be taken either to improve the performance of the employees, take the required corrective actions, or the related HR decisions like rewards, promotions, demotions, transfers etc. METHODS OF PERFORMANCE APPRAISAL So far, we have discussed the concept, objectives and significance of performance appraisal. Let us now discuss the methods of performance appraisal under two popular approaches that are available for performance appraisal. These are Traditional approach and Modern approach Traditional Approach This approach has been used as just a method for determining and justifying the salaries of the employees. It has been used as a tool for determining rewards and punishments for the past performance of the employees. This approach was a past oriented approach which focused only on the past performance of the employees i.e. during a past specified period of time. This approach did not consider the developmental aspects of the employee performance i.e. his training and development needs or career developmental possibilities. The primary concern of the traditional approach is to judge the performance of the Organization as a whole by the past performances of its employees. Therefore, it is also called as the overall approach. The following are some of the traditional performance appraisal methods that Organizations may follow: 1. Essay Appraisal Method: This traditional form of appraisal, also known as “Free Form method” involves a description of the performance of an employee by his/ her superior. The description is an 103 CU IDOL SELF LEARNING MATERIAL (SLM)
evaluation of the performance of any individual based on the facts and often includes examples and evidences to support the information. A major drawback of the method is that it may suffer from the bias of the evaluator. 2. Straight Ranking Method: This is one of the oldest and simplest techniques of performance appraisal. In this method, the appraiser ranks the employees from the best to the poorest on the basis of their overall performance. It is quite useful for a comparative evaluation. 3. Paired Comparison Method: In this method, comparison is made on each employee with all others in the group. On the basis of the overall comparisons, the employees are given the final rankings. 4. Critical Incidents Methods: In this method, the evaluator rates the employee on the basis of critical events and how the employee behaved during those incidents. It includes both negative and positive points. The drawback of this method is that the supervisor has to note down the critical incidents and the employee behavior as and when they occur. 5. Field Review Method: In this method, a senior member of the HR department or a training officer discusses and interviews the supervisors to evaluate and rate their respective subordinates. A major drawback of this method is that it is a very time-consuming method. This method helps to reduce the superiors’ personal bias. 6. Checklist Method: The rater is given a checklist of the descriptions of the behavior of the employees on the job. The checklist contains a list of statements on the basis of which the rater describes the job performance of the employees. 7. Graphical Rating Scale Method: In this method, an employee’s quality and quantity of work is assessed in a graphic scale indicating different degrees of a particular trait. The factors taken into consideration include both the personal characteristics and characteristics related to the on the job performance of the employees. For example, a trait like Job Knowledge may be judged on the range of average, above average, outstanding or unsatisfactory. 8. Rating Scales Method: Rating scales consists of several numerical scales representing job related performance criterion such as dependability, initiative, output, attendance, attitude, etc. Each scale ranges from excellent to poor. The total numerical score is compared and final conclusions are derived. Advantages of rating scales are: adaptability, ease to use, low cost, every type of job can be evaluated and final conclusions can be derived, no formal training is required. However, rater’s bias is considered as the major disadvantage of this method. Modern Approach The modern approach to performance development has made the performance appraisal process more formal and structured. It includes a feedback-process that helps to strengthen the relationships between superiors and subordinates and improve communication throughout the Organization. It is a 104 CU IDOL SELF LEARNING MATERIAL (SLM)
future oriented approach and is developmental in nature. This recognizes employees as individual and focuses on their development. The following are some of the modern performance appraisal methods that Organizations may follow: 1. Assessment Centre’s: An assessment entre typically involves the use of methods like social/informal events, tests and exercises, assignments being given to a group of employees, to assess their competencies to take higher responsibilities in the future. Generally, employees are given an assignment similar to the job they would be expected to perform if promoted. The trained evaluators observe and evaluate employees as they perform the assigned jobs and are evaluated on job related characteristics. The major competencies that are judged in assessment centers are interpersonal skills, intellectual capability, planning and organizing capabilities, motivation, career orientation etc. Assessment centers are also an effective way to determine the training and development needs of the targeted employees. For example: Assessment Centre at RBI An assessment centre is a place to evaluate an individual potentiality and performance, so as to position he/she in the core functional areas. Normally, organizations outsource assessment centre instead of making them by their own. [This method of performance appraisal is being opted by the RBI (Reserve Bank of India) for assessment of its officers] An assessment center typically involves the use of methods like social/informal events, tests and exercises, assignments being given to a group of employees to assess their competencies to take higher responsibilities in the future. Generally, employees are given an assignment similar to the job they would be expected to perform if promoted. The trained evaluators observe and evaluate employees as they perform the assigned jobs and are evaluated on job related characteristics. The major competencies that are judged in assessment centers are interpersonal skills, intellectual capability, planning and organizing capabilities, motivation, career orientation etc. assessment centers are also an effective way to determine the training and development needs of the targeted employees. 2. Human Resource Accounting Method: Human resources are valuable assets for every Organization. Human resource accounting method tries to find the relative worth of these assets in terms of money. In this method the Performance appraisal of the employees is judged in terms of cost and contribution of the employees. The cost of employees includes all the expenses incurred on them 105 CU IDOL SELF LEARNING MATERIAL (SLM)
like their compensation, recruitment and selection costs, induction and training costs etc. whereas their contribution includes the total value added (in monetary terms). The difference between the cost and the contribution will be the performance of the employees. Ideally, the contribution of the employees should be greater than the cost incurred on them For Example: HRA at Infosys Infosys used the Lev & Schwartz model to compute the value of human resources. The evaluation is based on the present value of future earnings of employees and on the following assumptions: (a) Employee compensation includes all direct and indirect benefits earned both in Indiaand overseas (b) The incremental earnings based on group / age have been considered (c) The future earnings have been discounted at the cost of capital of 11.21% (previous year 10.60%).in crore, unless stated otherwise 2011 2010 Employees (no.) Software professionals 1,23,811 1,06,864 Support 7,009 6,932 Total 1,30,820 1,13,796 Value of human resources Software professionals 1,22,539 1,06,173 Support 12,566 7,114 Total 1,35,105 1,13,287 Total income (1) 27,501 22,742 Total employee cost (1) 14,856 12,093 Value-added 25,031 20,935 Net profit (1) 6,823 6,219 Ratios Value of human resources per employee 1.03 1.00 Total income / human resources value (ratio) 0.20 0.20 Employee cost / human resources value (%) 11.0 10.7 Value-added / human resources value (ratio) 0.19 0.18 Return on human resources value (%) 5.1 5.5 106 CU IDOL SELF LEARNING MATERIAL (SLM)
3. Management by Objectives (MBO): MBO can be described a process whereby the employees and the superiors come together to identify common goals. The employees set their goals to be achieved, the standards to be taken as the criteria for measurement of their performance and contribution and deciding the course of action to be followed. The essence of MBO is participative goal setting, choosing course of actions and decision making. An important part of the MBO is the measurement and the comparison of the employee’s actual performance with the standards set. Ideally, when employees themselves have been involved with the goal setting and choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities. Example: MBO at ICICI Bank ICICI BANK performance appraisal environment The bank is using the Management by Objectives (MBO) method. In this method the subordinate in consultation with the supervisor chalks out short-term objectives followed by specific actions that he has to carry out. The goals are finally set and are action oriented. The goals set are specific, measurable, achievable, review able and time bound and most importantly they use to be aligned with the goal of the organization. At the end of a specified time period, the activities are jointly reviewed by both the subordinate and his supervisor. Depending on the performance of the subordinate, the goals are modified or redesigned for the next period of time. The MBO is thus a performance-oriented system. A well thought out MBO system provides multiple benefits. It establishes a link between the performance of the individual and the bank. It is easy to implement because those who carry out the plan also participates in setting it up. Each employee becomes aware of the task he has to perform in the bank. This leads to better utilization of capacity and talent. It promotes better communication and information sharing. It provides guidelines for self-evaluation as well as evaluation by the superior against set tasks and goals. It facilitates guidance and counselling. Effective components of ICICI PA system Performance Planning (includes employee goal setting / objective setting) On-going Performance Communication Data Gathering, Observation and Documentation Performance Appraisal Meetings Performance Diagnosis and Coaching Performance Appraisal system in ICICI bank emphasizes individual objectives, Bank objectives and also mutual objectives. From the viewpoint of individual objective, the Performance Appraisal talks about a) What task the individual is expected to do? 107 CU IDOL SELF LEARNING MATERIAL (SLM)
b) How well the individual has done the task? c) How can his performance be further improved? d) His reward for doing well. From the bank view point a Performance Appraisal should generate manpower information, improve efficiency and effectiveness serve as a mechanism of control and provide a rational compensation structure. In short, the appraisal system establishes and upholds the principle of accountability in the absence of which bank failure is the only possible outcome. Finally, talking about mutual goals, the emphasis is on growth and development, harmony, effectiveness and profitability of the bank. ICICI has adopted a “Performance Appraisal” model in which best-to-worst ranking methods are used to identify poor performers. The identified poor performers are then given a time period during which they have to show an improvement in their performance. In cases where the employee fails to improve his performance, he is asked to leave the organization gracefully and a severance package is offered to him. If the employee refuses to leave then his service is terminated and no compensation is offered. This system is called “rank and yank strategy”. Advocates of this system feel that it continually motivates employees to better their performance since nobody would like to be included in the poor performance band. But the flip side of this strategy is that employees become too competitive and team spirit is not nurtured. Effective banks are not built merely on investment and returns but more on the quality of the workforce, its commitment to the organizational goals and investments made to attract train and retain superior human capital. An integrated Performance Management system is essential to get the best out of its people. Employee performance is linked to the bank’s performance. This helps in achieving the organizational goal and creates a performance culture in the bank. Invention, creativity, diversity of perspectives is fostered. Employees act as one bank one brand. 4. Balance Score Card: The Balanced scorecard – an approach given by Kaplan and Norton provides a framework of various measures to ensure the complete and balanced view of the performance of the employees. Balanced scorecard focuses on the measures that drive performance. The balanced scorecard provides a list of measures that balance the Organizations internal and process measures with results, achievements and financial measures. Example: Balance Scorecard at TATA Motors TTM has an intact performance measurement system keeping in line with their strategy of offering innovation at a competitive price, as mentioned above – the Balanced Scorecard. After suffering their first loss in more than fifty years in 2000, TTM had to resort to stringent cost cutting across all business units, which poised a challenge. TATA Motors Commercial Vehicle Business Unit then 108 CU IDOL SELF LEARNING MATERIAL (SLM)
employed the balanced scorecard. With the process in progress, the genuine problem revealed itself. It turned out that the manual nature of the review procedures of such a huge structure was getting extremely difficult to implement and consuming valuable amount of time. To address this, the Balanced Scorecard Automation Tool was implemented that would centralise, assimilate and collate the data, providing rapid review and analytical functionality and a comprehensive single picture of organisational performance. Within two years of this, CVBU registered a profit of $ 2.3 Million from the loss of $ 2.5 Million, leading to 60% of TTMs inventory turnover. Initially, CVBU had started the balanced scorecard with only corporate level scorecard; but with its success, now it has expanded to six hierarchical levels with three hundred and thirty-one scorecards, additionally looking forward to proliferate it to the lowest level of organisational structure. 5. 360 Degree Feedback Appraisal: It is also known as ‘multi-rater feedback’, is the most comprehensive appraisal where the feedback about the employees’ performance comes from all the sources that come in contact with the employee on his job. 360-degree respondents for an employee can be his/her peers, managers (i.e. superior), subordinates, team members, customers, suppliers/ vendors. Anyone who comes into contact with the employee and can provide valuable insights and information or feedback regarding the “on-the-job” performance. The 360-degree appraisal has four integral components: Self appraisal, Superior’s appraisal, Subordinates’ appraisal and peer’s appraisal. Self-appraisal gives a chance to the employee to look at his/her strengths and weaknesses, his achievements, and judge his own performance. Superior’s appraisal forms the traditional part of the 360-degree performance appraisal where the employees’ responsibilities and actual performance is rated by the superior. Subordinates appraisal gives a chance to judge the employee on the parameters like communication and motivating abilities, superior’s ability to delegate the work, leadership qualities etc. The correct feedback given by peers can help to find employees’ abilities to work in a team, co-operation and sensitivity towards others. Example: 360-Degree Feedback in Alpha Technology Ltd. Alpha Technology Ltd use paper-based performance appraisal system which was too slow and cumbersome. There were concerns about whether the raters could be assured of the confidentiality to their ratings. Because of these concerns, the company wanted a better system for appraising and developing the performance of its IT managers. Company was in particular interested in enhancing these managers’ project management and project team leadership skills. The IT managers needed substantial improvement in their skills, and the company wanted a performance appraisal system that would provide feedback from the managers’ subordinates, peers and customers as well as their direct reporting bosses. 109 CU IDOL SELF LEARNING MATERIAL (SLM)
Due this concerns company decided to develop a 360-degree feedback system. The refreshing aspect of the company’s approach to the 360-degree system is that the company decided to base the system on the Internet and its own Intranet. An independent contractor, Transcend, developed the system and handles the collation and analysis of the feedback information. Transcend, chose a 50-item survey called LEAPS, which measures seven dimensions of leadership, for the 360-degree instrument. The instrument was loaded on a website so that all raters can pull up the information and complete the appraisal in approximately 30 minutes. After completing the appraisal, they simply submit the results via e-mail to Transcend, to process. Because the system is encrypted, the company is able to provide greater confidentiality and anonymity for the raters than with the previous paper-and- pencil system. In addition to the LEAPS items, the company included a fairly large set of other items to assess managers’ technical competency and their contributions to the business. Transcend, was able to provide appraisal profiles for the managers within 2 days after the last of the evaluators e-mailed their input for the manager. In addition, the profile of actual ratings for each manager from Transcend, also includes an ideal leadership profile developed by Alpha technology executives. By comparing his actual ratings with the ideal profile, managers can identify areas for future development. • Explain how was the 360-degree appraisal better than the traditional appraisal system in Alpha Technology? • According to you what challenges Alpha technology faced pre and post implementation of the 360-degree system on the Internet? ERRORS IN PERFORMANCE APPRAISAL While it is assumed that performance appraisal process and techniques present an objective system it would be naïve to assume, however, that all practicing managers impartially interpret and standardize the criteria upon which their subordinates will be appraised. In spite of our recognition that a completely error-free performance appraisal can only be idealized a number of errors that significantly impede objective evaluation. Some of these errors are discussed below: 1) Leniency Error: Every evaluator has his/her own value system that acts as a standard against which appraisals are made. Relative to the true or actual performance an individual exhibits, some evaluators mark high and others low. The former is referred to as positive leniency error, and the latter as negative leniency error. When evaluators are positively lenient in their appraisal, an individual’s performance becomes overstated; that is rated higher than it actually should. Similarly, a negative leniency error understates performance, giving the individuals as lower appraisal. 2) Halo Effect: The halo effect or error is a tendency to rate high or low on all factors due to the impression of a high or low rating on some specific factor. For example, if an employee tends to be conscientious and dependable, the supervisor might become biased toward that individual to the extent that he will rate him/her high on many desirable attributes. 110 CU IDOL SELF LEARNING MATERIAL (SLM)
3) Similarity Error: When evaluators rate other people in the same ways that the evaluators perceive themselves, they are making a similarity error. Based on the perception that evaluators have of themselves, they project those perceptions onto others. For example, the evaluator who perceives himself or herself as aggressive may evaluate others by looking for aggressiveness. Those who demonstrate this characteristic tend to benefit, while others are penalized. 4) Low Appraiser: Motivation What are the consequences of the appraisal? If the evaluator knows that a poor appraisal could significantly hurt the employee’s future particularly opportunities for promotion or a salary increase the evaluator may be reluctant to give a realistic appraisal. There is evidence that it is more difficult to obtain accurate appraisals when important rewards depend on the results. 5) Central Tendency: It is possible that regardless of whom the appraiser evaluates and what traits are used, the pattern of evaluation remains the same. It is also possible that the evaluator’s ability to appraise objectively and accurately has been impeded by a failure to use the extremes of the scale, that is, central tendency. Central tendency is the reluctance to make extreme ratings (in either directions); the inability to distinguish between and among ratees; a form of range restriction 6) Recency vs. Primacy Effect: Recency refers to the proximity or closeness to appraisal period. Generally, an employee takes it easy for the whole year and does little to get the punishment. However, comes appraisal time, he becomes very active. Suddenly there is an aura of efficiency, files move faster, tasks are taken seriously and the bosses are constantly appraised of the progress and problems. All this creates an illusion of high efficiency and plays a significant role in the appraisal decisions. The supervisor gets railroaded into believing that the employee is alert and hence, rates him high. In reality though it refers only to his two to three month’s performance. The opposite of recency is primacy effect. Here the initial impression influences the decision on year end appraisal irrespective of whether the employee has been able to keep up the initial impression or not. First impression is the last impression is perhaps the most befitting description of this error. SUMMARY • Performance Appraisal is the systematic evaluation of the performance of employees and to understand the abilities of a person for further growth and development. It also assesses the potential of candidates for further development. • The main objective of the performance appraisal is to reward those who are working efficiently and honestly in the Organization. At the same time, it also aims at eliminating those who are inefficient and unfit to carry out their responsibilities. • The system of performance appraisal is useful to the Organizations not only to identify and rate employees on performance levels but also to allocate human resources optimally and efficiently and develop the desired competencies in them. An Organization comes across various problems and challenges of performance appraisal in order to make a performance appraisal system effective and successful. There are six steps in the process of performance appraisal which are: Establishing Performance Standards, Communicating the Standards, 111 CU IDOL SELF LEARNING MATERIAL (SLM)
Measuring the Actual Performance, Comparing the Actual with the Desired Performance, Discussing Results and Decision Making. • Methods of performance appraisal have been discussed under traditional approach and modern approach. • Methods under traditional approach are: Essay Appraisal Method, Straight Ranking Method, Paired Comparison Method, Critical Incidents Methods, Field Review Method, Checklist Method, Graphical Rating Scale Method, and Rating Scales Method. • Methods under modern approach are: Assessment Centers, Human Resource Accounting Method, Management by Objectives (MBO), Balance Score Card and 360 Degree Feedback Appraisal. KEY WORDS/ABBREVIATIONS • Peers are persons or colleagues who have equal standing with another or others in terms of rank, designation or age. • Ranking is a relationship between a set of items such that, for any two items, the first is either ‘ranked higher than’, ‘ranked lower than’ or ‘ranked equal to’ the second. • Rating is a systematic estimation of the degree of some attribute based on a numerical or descriptive continuum. • Assessment center is a comprehensive standardized procedure in which multiple assessment techniques are used to evaluate individual employee for variety of manpower decisions. • Balance score card measures employee performance by making balance with Organization internal processes and measures the results achieved. MBO Involves setting specific measurable goals with each employee and then periodically reviewing the progress made. • Appraisal: An objective assessment, balanced judgement and unbiased evaluation of performance of the job by any performer. • Performance: Refers to both the quantity (volume of output) and quality (excellence of accomplishment) of work by the performer. • Behaviorally Anchored Ratios Scale: It is an absolute assessment technique wherein critical incidents are identified and a range of performance possibilities (from poor to good) are described for each dimension. • Central Tendency: The reluctance to use the extremes of a rating scale and to thereby fail to adequately differentiate employees being rated. • Checklist: Performance appraisal tool that uses a lot of statements or words that are checked by raters. • Contrast Error: Tendency to rate people relative to other people rather than to performance standards. • Halo Effect: Bias which occurs when the rater's personal opinion of a specific trait of employee influences the rater's overall assessment of performance. 112 CU IDOL SELF LEARNING MATERIAL (SLM)
• Rater Bias: Error that occurs when a rater's values or prejudices distort the rating. • Rating Scale: A method which requires the rater to provide a subjective performance evaluation along a scale from low to high. LEARNING ACTIVITY 1. What do you mean by Field Review Method of performance appraisal? ……………………………………………………………………………………………………….… ……………………………………………………………………………………………..................... 2. What is Rating Scale Method? ……………………………………………………………………………………………………….… ……………………………………………………………………………………………..................... UNIT END QUESTIONS (MCQ AND DESCRIPTIVE) A. Descriptive Types Question 1. What is performance appraisal? Explain the objectives of performance appraisal 2. Identify and discuss modern methods of performance appraisal. 3. State and explain process of performance appraisal? 4. Elaborate on various errors in performance appraisal. 5. \"Some of the so-called modern industries still follow traditional techniques of performance appraisal\". Justify your answer with relevant examples. 6. \"Performance appraisal is not merely for appraisal but is for accomplishment and improvement of performance\". Discuss. 7. List down methods of appraisal? Which method would you prefer as an employee? Why? B. Multiple Choice Questions 1) Aligning and evaluating the employee's performance with that of company's set goals is called a. appraisal management b. performance management c. hierarchy of management d. off-the-job training 2) When the ratings are collected from supervisors, customers and peers it is called 113 a. 350-degree feedback b. 320-degree feedback c. 360-degree feedback CU IDOL SELF LEARNING MATERIAL (SLM)
d. 380-degree feedback 3) Performance management should be seen as a process which is a: a. Once a year task b. Twice a year activity c. On-going process or cycle d. Is engaged in when the appraisals are carried out 4) A performance rating system is: a. A grade or score relating to overall performance b. Details of the extent to which work objectives were met c. Last year’s objectives d. Achievements during the year 5) Performance Appraisal is defined as product of ability & motivation. a. TRUE b. FALSE Answers: 1-b, 2-c, 3-c, 4-a, 5-a REFERENCES • Duari, Pravin. (2010). Human Resource Management. New York: Pearson Education. • Dessler, G. (2013). Human Resource Management. Delhi: Prentice-Hall. • Flippo, Edwin B. (1966). Personnel/Human Resource Management. New Delhi: Tata McGraw Hills. • Haldar, U.K. And Sarkar. (2012). Human Resource Management. New Delhi: Oxford & IBH. • Biswajit Pattanayak, Human Resource Management, New Delhi, Prentice Hall of India, 2006. • Armstrong Michael: A Handbook of Human Resource Management, Kogan Page Ltd., London. 91 Performance Appraisal • Wayne F. Cascio, Managing Human Resources, Tata McGraw-Hill Publishing Company Limited, New Delhi, 2005. • Srinivas R. Kandula, Human Resource Management in Practice – with 300 Models, Techniques and Tools, Prentice-Hall of India Private Limited, New Delhi, 2003. • https://www.yourarticlelibrary.com 114 CU IDOL SELF LEARNING MATERIAL (SLM)
• https://www.managementstudyguide.com • www.performancemanagementguide.com/ • http://en.wikipedia.org/wiki/Performance_appraisal • http://www.performance-appraisal.com/intro.htm 115 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT –8 COMPENSATION MANAGEMENT Structure Learning Objectives Introduction Rewards and incentives Objectives Types Concept of Wages Factors Influencing Compensation Steps in Compensation Administration Executive Compensation - Concept and Components Retention strategies. Summary Key Words/Abbreviations Learning Activity Unit End Questions (MCQ and Descriptive) References LEARNING OBJECTIVES After studying this unit, you will be able to: • State objectives and types of rewards and incentives • Discuss concept of wages • Explain factors influencing compensation • Outline steps in compensation administration • Study concept and components of executive compensation • Identify retention strategies INTRODUCTION One of the most difficult functions of human resource management is that of determining the rates of monetary compensation. It is not only complex, but significant both to the organisation and employees. Employee compensation decisions are crucial for the success of an organisation. From a cost perspective alone, effective management of employee compensation is critical because of the total operating costs. Another reason for studying compensation from the organisation’s perspective is to assess its impact on a wide range of employee attitudes and behaviours and, ultimately the effectiveness of the organisation and its units. Compensation may directly influence key outcomes like job satisfaction, attraction, retention, performance, skill acquisition, cooperation, and flexibility 116 CU IDOL SELF LEARNING MATERIAL (SLM)
REWARDS AND INCENTIVES OBJECTIVES Rewards and incentives in the workplace have benefits for both employees and employers. When recognized for stellar performance and productivity, employees have increased morale, job satisfaction and involvement in organizational functions. As a result, employers experience greater efficiency and an increase in sales and productivity. Through workplace rewards and incentives, employers and workers enjoy a positive and productive work environment. Monetary Incentives Motivate Monetary incentives reward workers for performance and productivity through money. These incentives include employee stock options, profit sharing plans, paid time off, bonuses and cash awards. Additional monetary incentives include annual or semi-annual bonuses, such as mid-year and end-of-year rewards. These incentives encourage friendly competition between associates when linked to job performance. Monetary rewards motivate employees to produce optimally. Non-Monetary Opportunities Non-monetary incentives reward employee performance through perks and opportunities. These rewards include flexible work hours, training opportunities and the ability to work independently. The rewards and incentives are valuable to an employee because they allow workers to learn new skills and pursue advancement opportunities. For example, a recent graduate may view an exemplary training program within an organization as more valuable than a higher base salary because he feels the learning opportunity will benefit his career. Employee Recognition Improves Morale Employees who receive recognition for their work accomplishments tend to have increased morale and positive workplace attitudes. Employee recognition is an incentive employer utilize to offer feedback and encouragement to employees. Recognition rewards can include award ceremonies and public announcements, her choice for the next assignment, and asking him to be a mentor to others. And don't underestimate the power of a simple, sincere thank-you for a job well done. Workplace recognition rewards occur frequently such as at the end of the day, week or at the conclusion of the sales month. Employee Assistance Adds Balance Many employers offer rewards and incentives through employee assistance programs. These programs help workers maintain a balance between work and home life by supporting workers' mental and physical well-being. For example, many programs provide counseling services to help cope with stress, family issues and substance abuse. 117 CU IDOL SELF LEARNING MATERIAL (SLM)
Employee assistance programs also offer discounts to join fitness centers to encourage an active and healthy lifestyle. Some programs help working parents find daycare and other activities for their children. The purpose of these programs is to support workers with their home responsibilities so they can remain focused on their jobs while they are at work. Small businesses can contract with an employee assistance firm to provide the services that workers need. TYPES OF COMPENSATION Compensation is what employees receive in exchange for the services rendered in an organization. The term ‘compensation’ refers to all forms of financial returns and tangible benefits that employees receive as part of the employment relationship. In the era of globalization, where the business environment has become increasingly complex and challenging, structuring an effective compensation package to attract and retain talent is an important function of organizational effectiveness. Compensation refers to as a wide range of financial and non-financial rewards given to employees for their services rendered to the organization. It is paid in the form of wages, salaries and employee benefits such as paid vacation, insurance, maternity leave, free traveling facility, retirement benefits, etc. Compensation can be classified into two categories: 1. Financial Compensation 2. Non-Financial Compensation Financial Compensation: Financial compensation is most popular and important compensation that is given in the form of money. It is the most important motivational factor that satisfies employees’ basic needs like food, clothing, etc. It is further categorized into two parts: I. Direct Compensation: Direct compensation means compensating employees by paying them money in the following forms: a. Wages-Wages means remuneration paid in cash for the work performed by an employee. b. Bonus- Bonus means extra cash paid to an employee for exceeding his performance or on completion of specified project or target. Other financial incentives that are directly given to employees in the form of cash. II. Indirect Compensation (Fringe Benefits): Dessler refers to indirect compensation as the indirect financial and non- financial payments employees receive for continuing their employment with the company which are an important part of every employee’s compensation. Other terms such as fringe benefits, employee services, supplementary compensation and supplementary pay are used. 118 CU IDOL SELF LEARNING MATERIAL (SLM)
Armstrong says indirect compensation or employee benefits are elements of remuneration given in addition to the various forms of cash pay. They also include items that are not strictly remuneration such as annual holidays. Management uses it ostensibly to facilitate its recruitment effort or influence the potential of employees coming to work for a company, influence their stay or create greater commitment, raise morale, reduce absenteeism in general and improve the strength of the organization by instituting a comprehensive programme in this area. According to Chhabra, indirect or supplementary compensation involves ‘fringe benefits’ offered through several employee services and benefits such as housing, subsidized food, medical aid, creches and so on. It involves rewards provided by organizations to employees for their membership, attendance or participation in the organization. Because of the increasing costs of fringe benefits, some people also label them as ‘hidden payroll.’ Benefits currently account for almost 40 per cent of the total compensation costs for each employee. The basic purpose of fringe benefits or supplementary compensation is to attract and maintain efficient human resources within the organization and to motivate them. Types of Indirect Compensation: Below are some of the more popular indirect compensations offered by today’s organizations. a. Social Security: This is a federally administered insurance system. According to law, both employer and employee must pay into the system, and a certain percentage of the employee’s salary is paid up to a maximum limit. How much is paid by employer and employee is calculated on the average monthly wage (weighted towards the later years). It is provided mainly to give financial security to employees when they retire. b. Workers’ Compensation: It is meant to protect employees from loss of income and to cover extra expenses associated with job- related injuries or illness. The laws generally provide for replacement of lost income, medical expenses, rehabilitation of some sort of death benefits to survivors, and lump-sum disability payments. c. Retirement Plans: Retirement and pension plans, which provide a source of income to people who have retired, represent money paid for past services. Private plans can be funded entirely by the organization or jointly by the organization and the employee during the time of employment. 119 CU IDOL SELF LEARNING MATERIAL (SLM)
One popular form of pension plan is the defined-benefit plan. Under this plan, the employer pledges to provide a benefit determined by a definite formula at the employee’s retirement date. The other major type of retirement plan is the defined contribution plan, which calls for a fixed or known annual contribution instead of a known benefit. d. Paid Holidays: These comprise Christmas Day, New Year’s Day, Independence Day, Labour Day, etc. One relatively new concept is the floating holiday, which is observed at the discretion of the employee or the employer. Another relatively new concept is referred to as personal time-off or personal days. Under this concept, organizations give employees a certain number of days with pay to attend to personal affairs. Normally these days can be taken at the employee’s discretion. e. Paid Vacations: Typically, an employee must meet a certain length-of-service requirement before becoming eligible for paid vacation. The time allowed for paid vacations generally depends on the employee’s length of service. Unlike holiday policies that usually affect everyone in the same manner, vacation policies may differ among categories of employees. Most organizations allow employees to take vacation by the day or week but not in units of less than a day. f. Other Benefits: Organizations may offer a wide range of additional benefits, including food services, exercise facilities, health and first-aid services, financial and legal advice, and purchase discounts. The extent and attractiveness of these benefits vary considerably among organizations. For example, purchase discounts would be especially attractive to employees of retail store or an airline. Non-Financial Compensation: Non-financial compensation refers to compensating employee not in form of money but in some other forms that stimulate employees’ morale and also improve his performance. It can be in the following forms: • Job security • Recognition • Participation • Pride in job • Delegation of responsibility • Other incentives The basic types of compensation prevalent particularly in the Indian industries are: 120 CU IDOL SELF LEARNING MATERIAL (SLM)
(1) Basic pay, (2) Dearness or cost of living allowance, (3) Incentive payments, (4) Performance-based remuneration, (5) Bonus, (6) Fringe benefits and miscellaneous cash allowances. Type 1. Basic Pay: Basic pay universally constitutes the most important component of compensation. However, there are variations in the manner in which basic pay is determined and paid. It may be on daily, weekly or monthly basis. In India, under the Minimum Wages Act, 1948, both the central and state governments have fixed minimum daily rates of wages for a large number of sweatedemployments. In the U.S.A., U. K. and France, there has been the practice of fixing hourly rates of wages for several categories of workers. In the organised sectors in India, the practice of prescribing monthly basic rates of wages under wage scales with provision of annual increments is widely prevalent. Basic wages are significant for workers for a variety of reasons. Generally speaking, most other cash allowances made available to workers, such as dearness allowance, house rent allowance, city compensatory allowance, medical allowance and so on, are linked with the quantum of basic wages. Besides, contributions to social security funds such as provident and pension funds, gratuity and certain cash allowances are often linked to basic wages. The quantum of basic pay is also taken into account in determining the scales of certain fringe benefits, such as housing accommodation, and travelling and leave travel allowances. Overtime payments for additional hours worked are also usually based on basic pay. Type 2. Dearness or Cost of Living Allowance: Dearness allowance or cost of living allowance, separate and distinct from basic pay, has been an important component of compensation in industrial and governmental employments in India and a number of Asian countries. The basic purpose behind the provision of dearness allowance is to offset the rise in prices of consumption goods and to protect the real wages from being encroached by price rise. Starting during the Second World War period on a temporary and experimental basis, the system has become a permanent feature of the wage structure in Indian industries and governmental and semi- governmental employments. 121 CU IDOL SELF LEARNING MATERIAL (SLM)
In general, the quantum of dearness allowance payable to industrial workers as well as government and semi-government employees is linked with the fluctuations in the Consumer Price Index Numbers for industrial workers worked out by Labour Bureau, Ministry of Labour, and Government of India, which has been engaged in the task since 1946. The specific schemes for the determination of D.A. have considerably varied from time to time. In its earliest form, flat rates on a graduated basis without any linkage to CPI numbers were prevalent. Subsequently, calculation of D.A. came to be made with reference to rise or fall in the CPI numbers calculated by either the central or state governments. Initially, the percentage of neutralisation for the rise in prices was higher in low wage brackets tapering off gradually when wages rose. Later, a more or less consistent formula providing for neutralisation for rise in prices on a common percentage basis emerged for government and semi- government employees. However, the industrial establishments have their own separate schemes generally worked out on the basis of negotiations. In many countries such as the U.S.A. and Australia, there are schemes of automatic revision of basic rates of pay when prices rise above the specified level. Many collective agreements in the U.S.A. contain escalator clauses to avoid frequent bargaining for revision of wage rates. Type 3. Incentive Payments: In a number of industrial undertakings, employees are in receipt of incentive payments. These incentive schemes are generally directly related to the quantum, and in some cases, to the quality of goods produced by individual employees or a group of them. The specific schemes vary from organisation to organisation, and with different sets of employees in the same organisation. There are schemes, such as the straight piece-rate system, in which the earnings of employees vary in the same proportion as increase in output. In many schemes, incentive payments are lower than the proportion of increase in output. There are also schemes in which incentive payments are higher in proportion to the increase in output. In a number of schemes, incentive payments vary in different proportions at different levels of output. Performance-based remuneration described below may also be considered incentive payment. Type 4. Performance-Based Remuneration: During more recent years, especially after the onset of globalisation and competition, many categories of employees, particularly managerial and supervisory personnel, have been receiving performance- based remuneration. 122 CU IDOL SELF LEARNING MATERIAL (SLM)
Such a remuneration is worked out on the basis of the outcome of performance appraisal of individual employees, which takes into account the level of their performance in such areas as extent of improvement in the quantity and quality of products or services, acquisition of skills and capabilities, regularity of attendance, relationship with co-employees, capacity to face challenging situations and extent of commitment to work. The specific schemes of performance appraisal vary from organisation to organisation and different sets of personnel in the same organisation. Based on performance appraisals, individual employees are allotted specific grades, and are remunerated and given inducements based on their performance. Performance appraisal also constitutes key to decisions in other areas of HRM such as promotion, transfer, demotion and even separation. Type 5. Bonus: Employees in a large number of industrial establishments in India have been in receipt of profit- sharing bonus. Initially, the practice of giving bonus to industrial workers started on an ad hoc basis primarily at the discretion of employers. However, during the course of time, it became a major bone of contention between employers and workmen, often resulting in industrial unrest and work stoppages. Many disputes on the question of bonus came up for decision by industrial tribunals and even Supreme Court. In view of the mounting and regular unrest over the question, the Payment of Bonus Act was enacted in 1965. The Act specifies in some detail the formula for the calculation of bonus, and prescribes both the minimum and maximum bonus payable to specified categories of workers. Type 6. Fringe Benefits and Miscellaneous Cash Allowances: Apart from wages and salaries, incentive payments, dearness allowance and bonuses, employees are often in receipt of several types of indirect compensation or fringe benefits, both in cash and kind. These include housing facilities and house rent allowance, city compensatory allowance, leave-travel facilities, medical facilities and allowances, educational facilities and allowances for the children of employees, social security benefits such as sickness benefit, provident fund, gratuity and pension, concessional availability of electricity and food-grains, transport facilities, supply of uniforms and so on. The nature and scale of fringe benefits vary widely from organisation to organisation. To the employer, they are a part of labour cost. In many organisations, they constitute a substantial portion of labour cost, surpassing even the wage bill. 123 CU IDOL SELF LEARNING MATERIAL (SLM)
Many of these fringe benefits are made available to employees voluntarily by the employers; many have been the outcome of collective agreements and many others have been statutorily imposed. Many employers, owning large-scale industrial establishments and also those having their establishments in remote and isolated areas, provide housing accommodation to their employees and have also established well-equipped hospitals and dispensaries. Gary Dessler and Biju Varkkey have preferred to keep various forms of compensation into two main categories—direct financial payments such as wages, salaries, incentives, commission and bonuses, and indirect financial payments such as employer-paid insurance and leave travel concessions. Joseph J. Martocchio has classified seven types of monetary or core compensation in the context of practices in the U.S.A. These are as follows – hourly pay, annual salary, cost of living adjustments, seniority pay, merit pay, incentive pay and person-focused pay, pay-for-knowledge and skill-based pay. Practices in regard to forms of compensation or their combinations vary from organisation to organisation depending on a set of internal and external factors. CONCEPT OF WAGES Wage Management is of great significance in the study of Personnel Management. How much wages he paid to the employees, has been a debatable question. Wage is like a pivot round which labor problems revolve. It is pretty difficult to determine wage-rate. The entrepreneur is keen to pay minimum possible wage to the laborer’s while the laborer’s want to get maximum wage from the entrepreneur. To bring about synthesis between the satisfaction of the laborer’s and interests of the employers is what is called determination of wage. Historically, satisfaction of the workers and interest of the employees both have been open to question. Different opinions on this issue have led to the emergence of the following concepts: (i) Concept of Statutory Minimum Wages. (ii) Bare or Minimum Wage Concept. (iii) Concept of Minimum Wage. (iv) Concept of Fair Wage. (v) Concept of Living Wage. A more detailed study of these concepts is as under: (1) Statutory Minimum Wages: According to this concept wages are so determined by the employers as to conform to the provisions of Minimum Wages Act 1948. Under the Act, minimum wages are determined so that no labour is 124 CU IDOL SELF LEARNING MATERIAL (SLM)
paid less than the minimum fixed nor is he exploited. The employer has got to pay statutory minimum wages, irrespective of his capacity to pay. (2) Bare or Minimum Wage Concept: It is that wage-rate which is determined by judicial pronouncements, Awards, Industrial Tribunals, Labor Courts and National Tribunals. The employer is legally bound to pay this amount. (3) Minimum Wage Concept: The term “minimum wage” means least possible or lowest wage. It is that rate of wage, less than which is neither paid nor accepted. Under minimum wage concept, main objective of Minimum Wage Act 1948 was to keep the labor class satisfied and to maintain industrial peace in the country. Minimum wage implies that wage-rate which is essential to maintain standard of living, health, social dignity and efficiency of the concerned laborers. While determining minimum wage, it must be taken into account that its amount should be such as to meet the bare necessities of life and also provide such facilities to the employees as are essential to maintain their efficiency. According to All India Employers Organization, “That rate of wage which satisfies the physical needs of the worker and his family, is called minimum wage.” From humanitarian as also from legal point of view laborer’s must get minimum wages as it checks their exploitation and also eliminates inefficient employers. FACTORS INFLUENCING COMPENSATION The amount of compensation received by an employee should take into account several factors such as the amount of effort put in, competitive rates prevailing in labor market, demand for and supply of labor, the firm’s ability to pay, labor policy, etc. Let’s look into these factors more closely: 1. The Organization’s Ability to Pay: Wage increases should be given by those organizations which can afford them. Companies that have good sales and, therefore, high profits tend to pay higher wages than those which running at a loss or earning low profits because of the high cost of production or low sales. In the short run, the economic influence on the ability to pay is practically nil. All employers, irrespective of their profits or losses, must pay no less than their competitors and need pay no more if they wish to attract and keep workers. In the long run, the ability to pay is very important. During the time of prosperity, employers pay high wages to carry on profitable operations and because of their increased ability to pay. But during a period of depression, wages are cut because funds are not available. Marginal firms and non-profit organizations (like hospitals and educational institutions) pay relatively low wages because of low or no profits. 2. Supply of and Demand for Labor: The labor market conditions or supply and demand forces operate at the national, regional and local levels, and determine organizational wage structure and level. 125 CU IDOL SELF LEARNING MATERIAL (SLM)
If the demand for certain skills is high and the supply is low, the result is a rise in the price to be paid for these skills. When prolonged and acute, these labor-market pressures probably force most organizations to “reclassify hard-to-fill jobs at a higher level” than that suggested by the job evaluation. The other alternative is to pay higher wages if the labor supply is scarce; and lower wages when it is excessive. Similarly, if there is great demand for labor expertise, wages rise; but if the demand for manpower skill is minimal, the wages will be relatively low. Mescon says- “The supply and demand compensation criterion are very closely related to the prevailing pay, comparable wage and ongoing wage concepts since, in essence, all of these remuneration standards are determined by immediate market forces and factors.” 3. Prevailing Market Rate: This is also known as the ‘comparable wage’ or ‘going wage rate’, and is the most widely used criterion. An organization’s compensation policy generally tends to conform to the wage rates payable by the industry and the community. This is done for several reasons. First, competition demands that competitors adhere to the same relative wage level. Second, various government laws and judicial decisions make the adoption of uniform wage rates an attractive proposition. Third, trade unions encourage this practice so that their members can have equal pay, equal work and geographical differences may be eliminated. Fourth, functionally related firms in the same industry require essentially the same quality of employees, with the same skills and experience. This results in a considerable uniformity in wage and salary rates. Finally, if the same or about the same general rates of wages are not paid to the employees as are paid by the organization’s competitors, it will not be able to attract and maintain a sufficient quantity and quality of manpower. Belcher and Atchison observe- “Some companies pay on the high side of the market in order to obtain goodwill or to ensure an adequate supply of labor, while other organizations pay lower wages because economically, they have to, or because by lowering hiring requirements they can keep jobs adequately manned.” 4. The Cost of Living: The cost of living pay criterion is usually regarded as an automatic minimum equity pay criterion. This criterion calls for pay adjustments based on increases or decreases in an acceptable cost of living index. In recognition of the influence of the cost of living, “escalator clauses” are written into labor contracts. When the cost of living increases, workers and trade unions demand adjusted wages to offset the erosion of real wages. However, when living costs are stable or decline, the management does not resort to this argument as a reason for wage reductions. 5. The Living Wage: The living wage criterion means that wages paid should be adequate to enable an employee to maintain himself and his family at a reasonable level of existence. However, employers do not generally favor using the concept of a living wage as a guide to wage determination because they prefer to base the wages of an employee on his contribution rather than on his need. Also, they feel 126 CU IDOL SELF LEARNING MATERIAL (SLM)
that the level of living prescribed in a worker’s budget is open to argument since it is based on subjective opinion. 6. Productivity: Productivity is another criterion, and is measured in terms of output per man-hour. It is not due to labor efforts alone. Technological improvements, better organization and management, the development of better methods of production by labor and management, greater ingenuity and skill by labor are all responsible for the increase in productivity. Actually, productivity measures the contribution of all the resource factors — men, machines, methods, materials and management. No productivity index can be devised which will measure only the productivity of a specific factor of production. Another problem is that productivity can be measured at several levels — job, plant, industry or national, economic level. Thus, although theoretically it is a sound compensation criterion, operationally many problems and complications arise because of definitional measurement and conceptual issues. 7. Trade Union’s Bargaining Power: Trade unions do affect rate of wages. Generally, the stronger and more powerful the trade union, the higher the wages. A trade union’s bargaining power is often measured in terms of its membership, its financial strength and the nature of its leadership. A strike or a threat of a strike is the most powerful weapon used by it. Sometimes trade unions force wages up faster than increases in productivity would allow and become responsible for unemployment or higher prices and inflation. However, for those remaining on the payroll, a real gain is often achieved as a consequence of a trade union’s stronger bargaining power. 8. Job Requirements: Generally, the more difficult a job, the higher are the wages. Measures of job difficulty are frequently used when the relative value of one job to another in an organization is to be ascertained. Jobs are graded according to the relative skill, effort, responsibility, and job conditions required. 9. Managerial Attitudes: These have a decisive influence on the wage structure and wage level since judgement is exercised in many areas of wage and salary administration — including whether the firm should pay below average, or above average rates, what job factors should be used to reflect job worth, the weight to be given for performance or length of service, and so forth, both the structure and level of wages are bound to be affected accordingly. These matters require the approval of the top executives. Lester observes “Top management’s desire to maintain or enhance the company’s prestige has been a major factor in the wage policy of a number of firms. Desires to improve or maintain morale, to attract high-caliber employees, to reduce turnover, and to provide a high living standard for employees as possible also appear to be factors in management’s wage policy decisions.” 10. Psychological and Social Factors: These determine in a significant measure how hard a person will work for the compensation received or what pressures he will exert to get his compensation increased. Psychologically, persons perceive the level of wages as a measure of success in life; people may feel secure; have an inferiority 127 CU IDOL SELF LEARNING MATERIAL (SLM)
complex, seem inadequate or feel the reverse of all these. They may not take pride in their work, or in the wages they get. Therefore, these things should not be overlooked by the management in establishing wage rates. Sociologically and ethically, people feel that “equal work should carry equal wages,” that “wages should be commensurate with their efforts,” that “they are not exploited, and that no distinction is made on the basis of caste, colour, sex or religion.” To satisfy the conditions of equity, fairness and justice, a management should take these factors into consideration. 11. Skill Levels Available in the Market: With the rapid growth of industries, business trade, there is shortage of skilled resources. The technological development, automation has been affecting the skill levels at faster rates. Thus, the wage levels of skilled employees are constantly changing and an organization has to keep its level up to suit the market needs. STEPS IN COMPENSATION ADMINISTRATION Steps in compensation Administration as given below: 1. Job analysis (The systematic process of collecting information that identifies similarities and difference in the work. 2. Job description (Summary report that identify defines and describe the job as it is actually performed.) 3. Job evaluation (Compensation of jobs within an Organization) 4. Job structure (an ordering of jobs based on their content or relative value.) 5. Pay structure (specify the employer's competitive pay policy) 6. Compensation. 1. Job analysis: Job analysis is done for identifying the skills and experience required to perform the work clarifies hiring and promotion standards and identifies training needs. A Good Job analysis collects sufficient information to adequately identify, define and describe a Job. In job analysis we collect data related to job like title of the job, Department in which Job is located, Number of People who holds Job, Tasks, activities, constraint on action, performance criteria, criticalincidents, demand, working conditions. Data collected related to employee. Like professional Knowledge, manual skills, verbal skills, written skills, quantitative skills, mechanical skills, conceptual skills, managerial skills, leadership skills, international skills, and employee international Relationship with boss and Other superiors, peers& subordinates and employee external Relationship with suppliers, customers, Regulatory professional industry, community, union, employee group. 128 CU IDOL SELF LEARNING MATERIAL (SLM)
2. Job description: The information collected should be organized and summarized and documented. That summary of the Jobs is the Job description. The Job description provides a word picture of the job. 3. Job evaluation: Job evaluation is the process of systematically determined the relative wroth of Jobs to create a job structure for the Organization. They are different methods to evaluate the job. They are ranking, paired Comparison, Print method. 4. Job structure: The final result of the Job analysis, Job description Job evaluation process is a structure. 5. Pay structure : In designing pay structure it includes steps like specify the employer's competitive pay policy, define the purpose of the survey ,select relevant market competitors, design the survey, interpret survey results and construct the market line, construct a pay policy line that reflects external pay policy and balance competitiveness with internal alignment through the use of ranges flat rates. Pay structure Undertake training. Increase experience. Facilitate career progression. Facilitate performance. Reduce pay - related grievance. Reduce pay - related work stop page. 6. Compensation: Is the remuneration received by an employee in return for his/her contribution to the organization. It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees. Compensation is of 2 types: 1. Cash Compensation 2. Benefit compensation. 1. Cash Compensation: a.) Base b) Merit c) Incentives a.) Base: Base wage is the cash compensation that an employer pays for the work performed. Base Wage tends to reflect the value of the work (or) skills and generally ignores difference attributes to individual employees. b) Merit: Merit increases are given as increments to the base pay in recognition of post work behaviour. c) Incentives: Incentives differ from merit adjustments Incentives don't increase base wage. It must be re-earned each pay period. The potential size of the Incentive payment will generally be known beforehand. 129 CU IDOL SELF LEARNING MATERIAL (SLM)
2. Benefit compensation: a) Income Protection. b) Work life Balance. c) Allowances. a) Income Protection: Medical insurance, retirement programs, life insurance and saving plans and common benefits. Which help protect employees from the financial risk inherent in daily life. b) Work life Balance: Programs that help employees better integrate their work and life responsibilities include time away from work vocation, Jury duty) access to service to meet specific needs (drugs consuming, financial planning, referrals for child and elders care) and flexible work arrangements (tele commuting, on-traditional schedule) and non-paid time off, Responding to the changing demographics of the work force. c) Allowances: like housing (dormitories, apartment) and transportation allowances are frequently part of the pay package. EXECUTIVE COMPENSATION - CONCEPT AND COMPONENTS In modern business, executives hold the most pivotal place in an organisation. They play a major part in looking after the economic health of the company. As they are important for the success, growth and profitability of an organisation, they have to be compensated properly. To make the executives happy to the extent possible, companies have been giving in recent years, bigger and more frequent rises in salaries. The cumulative effect is that executive compensation cost is today a sizeable cost and rising cost. Companies have started looking at executive compensation more systematically and more proactively so that they can expect better performance from the executives. For the higher management, salaries are influenced by the size of a company, by the specific industry, and in part by the contribution of the incumbent to the process of decision-making. The bigger the company, the greater is the compensation paid to the executives. Straight salaries, bonuses, stock purchase plans and profit sharing are used to compensate executives. In addition, executives are compensated for the various expenses incurred by them, for taxation takes away a major portion of their salary. Such payments are in the form of: 1) medical care; 2) professional service in legal and financial matters; 3) facilitates for entertaining customers and for dining out; 4) company recreational services; 5) the cost of education and training of executives, scholarships for their children, and allowances for professional magazines and books; and 6) free well-furnished accommodation, conveyance and servants. All these go under the head of perquisites. A sound system of executive compensation is essential for a number of reasons, namely: a. to attract the right kind of personnel; b. to retain the right kind of personnel; 130 CU IDOL SELF LEARNING MATERIAL (SLM)
c. to motivate the right kind of personnel; and d. to get the best out of the right kind of personnel in the face of competition. The absence of internal equity leads to dissatisfaction among executives. In organizations, there are disparities between compensation patterns. For whatever reasons, compensation practices are kept as guarded secrets by organisations. Surveys of compensation practices tells us among other things, that executive compensation practices are based on factors like traditions, technology, management beliefs and executive acceptance. To be effective, executive compensation has to be seen as a whole, evolved for a situation and administered in letter and spirit. Essentially, an executive compensation system or scheme for an organisation has to be tailor-made. Also, it has to be reviewed and revised from time to time. Top management should develop an approach to compensation that accounts for internal as well as external equity. The executive compensation will succeed when the totalpackage: i) establishes sufficient levels of pay; ii) provides internal and external competitiveness; iii) supplies opportunity, security and status; iv) maximises after tax earnings; v) calls forth maximum effort; and vi) makes the executive a much better performer both as an individual and as a team member both for today and for tomorrow. RETENTION STRATEGIES When one of the best employees resigns from a job, then it tends to become a nightmare for the manager. Immediately, there should be a plan to balance the number of challenges to tackle. As the market demands skilled and talented professionals, it is very difficult to find replacement for a talented resource and further balance the team. The resignation of a talented employee will also have an impact on the other team members who start to follow his footsteps and walk out of the organization. Hence, a manager’s most important job is to create an effective employee retention strategy. Key Employee Retention Strategies A good retention policy starts from the time when the employees are hired till the time, they leave the organization. Following are some of the employment practices which will help create an impact on employee retention − • Recruitment and Hiring − Right and correct resource should be hired in the first place. It calls for quite a lot of time and effort. When the bond between the employees and the organization is cordial and the mix between the required skill set for a particular job requirement is also right, retention is less likely to be an issue. • Orientation and Onboarding − Treating employees the right way in the early stages of employment is vital and enhances retention. 131 CU IDOL SELF LEARNING MATERIAL (SLM)
• Training and Development − Training and development are the key factors in helping employees grow with your company and stay marketable in their field. • Performance Evaluation − When employees are aware of what they are doing and the areas they need to improve on, it is beneficial both for the organization and the employee. • Pay and Benefits − While today many employees tend to rate factors such as career development higher than pay, good pay and benefits still count to be the deciding factors for employee retention. • Internal Communication − Effective communication will help reduce the communication gap in an organization and curb employee attrition. Employees need to know and be reminded on a regular basis how the organization is doing and what they can do to help. • Termination and Outplacement − Employees who leave on good terms are much more likely to recommend your company, and in doing so, help you attract and retain future employees. Basic Practices for Employee Retention • Create an environment where the employees want to work and have fun. • Giving the employees responsibility with power and authority. • Have trust and faith in the employee and give respect to them. • Keep providing them feedback on their performance. • Provide them information and knowledge. • Make employees realize that they are the most valuable asset of the organization. • Recognize and appreciate their achievements. • Keep their morale high. These practices are categorized into three levels – Low, Medium and High. 132 CU IDOL SELF LEARNING MATERIAL (SLM)
Employee Retention Policies The following additional policies need to be considered for employee retention − • The responsibilities must be delegated according to the individual’s specialization and interests. • Constant disputes among employees encourage them to go for a change. • The human resources department must ensure that the right candidates are hired. • Employee recognition is one of the most important factors which go a long way in retaining employees. • Performance appraisals are also important for an employee to stay motivated and avoid looking for a change. • The salary of the employees must be discussed at the time of the interview. • The company’s rules and regulations should be made to benefit the employees. SUMMARY • The goals of compensation administration are to design the lowest cost-pay structure that will attract, motivate, and retain competent employees. It consists of organisation’s policies, procedures, and rules determining the compensation system. 133 CU IDOL SELF LEARNING MATERIAL (SLM)
• Compensation is usually composed of the basic wage or salary, allowances, incentive or bonuses, and benefits. • 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. Establishing strategic pay plans involved four main decisions: pay level decision, pay structure decision, differential pay decision and administration decision. • Job evaluation serves as the foundation of most wage and salary systems. The question of fair pay involves both internal and external equity. The fact that how employees are paid has important consequences for individual, group and organisational performance. Top executives, particularly receive special attention in the compensation literature because of their potential influence on organisational success. • Knowledge-based organizations these days follow a performance-based payment plan offering awards to employees for cost saving suggestions, bonuses for perfect attendance or merit pay based on supervisory appraisals. The benefits and services offered by various organizations in India may be broadly put into five compartments. Payment for time not worked, employee security, safety and health, welfare and recreation facilities and old age and retirement benefits. Organisations face many challenges while deciding on remuneration of an employee. These may be seen as different options present before them • Retention Strategies -Most business owners and managers think retention is based on compensation issues-wage and salary levels, incentives, and golden handcuffs--when in reality the drivers go much deeper into the human psyche to the actions and attitudes that make employees feel successful, secure and appreciated. As a result, a sound retention strategy should focus on and tactically address four key elements-performance, communication, loyalty and competitive advantage. KEY WORDS/ABBREVIATIONS • Achievement award – Provides an incentive, in the form of a onetime payment, to eligible employees for attaining measurable goals above and beyond normal duties that support the university’s mission and objectives. • Adjustment - Salary changes outside of the normal salary programs (promotions, reclassification's, merits, etc.) to remedy salary issues such as external pressure in high demand areas, internal salary compression, and/or retention considerations. • Base Pay – fixed compensation paid to an individual;' it is typically expressed as an hourly rate or an annual amount. The calculation of base pay is: (hourly rate*2080). • Benefit: An indirect reward given to an employee or group of employees as a part of organizational membership. • Compensation: It refers to the financial and non-financial rewards to the employees for their services rendered to the company. 134 CU IDOL SELF LEARNING MATERIAL (SLM)
• Earnings: Total amount of remuneration received by an employee during a given period. • Internal Equity - criterion used to determine fairness in pay among employees of an organization. • Skill – Based Pay - an alternative compensation system in which pay is based, not upon the specific job the employee performs, but upon the number of skills or tasks the employee is capable of per- forming. Such pay systems are linked to flexible work as- segments or both, rotating jobs, typical of self-managed work teams. • Salary (Salary Rate) - for workers hired on a weekly, monthly, or annual basis (e.g., clerical, technical, managerial employees), the rate of pay normally expressed in terms of Rupees per week, month, or year, as opposed to payment for an hour of work. • Salary Structure-structure of job grades and pay ranges established within an organization. The salary structure may be expressed in terms of job grades, job evaluation points, or policy LEARNING ACTIVITY 1. Is there any system ofproduction bonus and/or any other kind of incentive payment in your organization? If so, give details ……………………………………………………………………………………………………….… ……………………………………………………………………………………………..................... 2. If you were establishing your own business, which benefits would you be statutorily required to pay and which you would offer voluntarily? ……………………………………………………………………………………………………….… ……………………………………………………………………………………………..................... UNIT END QUESTIONS (MCQ AND DESCRIPTIVE) A. Descriptive Types Question 1. List down the basic principles of compensation administration? 2. Identify and discuss the characteristic features of executive compensation? 3. What type of compensation system normally motivate the executives? 4. Analyse the future trend of employee compensation in India. 5. Compare and contrast individual, group, and organisation-wide performance bonus systems. How are they alike? and/or Different? 6. If we pay predominantly for jobs rather than people, how can we reward the truly exceptional performing employee? 7. How can employers make employees realise that benefits and services must be earned? 8. Which retention strategies will you imply in your organization as HR Manager? 135 CU IDOL SELF LEARNING MATERIAL (SLM)
B. Multiple Choice Questions 1. Payment of cash rewards for the work extracted from the employee is normally called a. direct compensation b. indirect compensation c. non-monetary compensation d. None of the above 2. Which of the following is the fixed component in compensation packages? a. Profit-sharing b. Base salary c. Gain-sharing d. Equity stock options 3. Insurance schemes, retirement benefits and leave travel concession are examples of a. indirect monetary compensation b. direct monetary compensation c. non-monetary compensation d. None of the above 4. Ensuring a fair balance between an employee’s contributions to the job and the rewards received in return from that job is the essence of a. equity theory b. expectancy theory c. agency theory d. contingency theory 5. Which of the following is not an objective of executive compensation plans? a. Separating ownership interest and controlling interest b. Enhancing employee motivation, involvement and commitment c. Promoting managerial efficiency d. Attracting and retaining the best executives Answers: 1-a, 2-b, 3-a, 4-a, 5-a REFERENCES • Duari, Pravin. (2010). Human Resource Management. New York: Pearson Education. 136 CU IDOL SELF LEARNING MATERIAL (SLM)
• Dessler, G. (2013). Human Resource Management. Delhi: Prentice-Hall. • Flippo, Edwin B. (1966). Personnel/Human Resource Management. New Delhi: Tata McGraw Hills. • Haldar, U.K. And Sarkar. (2012). Human Resource Management. New Delhi: Oxford & IBH. • Saiyadain, M.S. Human Resource Management. New Delhi: Tata McGraw Hill. • Sanghi, S. (2004). The Handbook of Competency Mapping. New Delhi: Sage Publications • www.benefitslink.com • www.ssa.gov/ssa • www.compensationlink.com • http://www.workfamily.com • https://www.yourarticlelibrary.com 137 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT -9 MANAGING ETHICAL ISSUES IN HRM Structure Learning Objectives Introduction Types Approaches Factors Affecting Ethical Behaviour at Work Role of HRM in the Development of Ethical Behaviour Summary Key Words/Abbreviations Learning Activity Unit End Questions (MCQ and Descriptive) References LEARNING OBJECTIVES After studying this unit, you will be able to: • Explain the types and approaches of ethical issues of HRM • Outline the factors affecting ethical behaviour at work • Discuss role of HRM in development of ethical behaviour INTRODUCTION Human resource management deals with manpower planning and development related activities in an organization. Arguably it is that branch of management where ethics really matter, since it concerns human issues specially those of compensation, development, industrial relations and health and safety issues. There is however sufficient disagreement from various quarters. There are different schools of thought that differ in their viewpoint on role of ethics or ethics in human resource development. One group of thought leaders believes that since in business, markets govern the organizational interests and these interests are met through people, the latter are therefore at the highest risk. They believe that markets claim profits in the name of stakeholders and unless we have protocols, standards and procedures the same will develop into a demon monopolizing markets and crushing human capital; HR ethics are become mandatory. There is another group of ethicists inspired by neo-liberalism who believe that there are no business ethics apart from realization of higher profits through utilization of human resources. They argue that by utilizing human resources optimally, there is more value creation for the shareholders, 138 CU IDOL SELF LEARNING MATERIAL (SLM)
organization and the society and since employees are part of the society or organization, they are indirectly benefited. Nevertheless, ethics in human resource management has become a perennial debate of late! Discussions in ethics in HRM stem from employee relationships and whether or not there can be a standard for the same. Employee rights and duties and freedom and discrimination at the workplace are issues discussed and covered by most texts on the topic. Some argue that there are certain things in employment relationship that are constant others disagree with the same. For example, right to privacy, right to be paid in accordance with the work (fair compensation) and right to privacy are some areas that cannot be compromised upon. TYPES Of all the organisational issues or problems, ethical issues are the most difficult ones to handle or deal with. Issues arise in employment, remuneration and benefits, industrial relations and health and safety. Fig 9.1 Types Diagrammatic representation of HR Ethical Issues Cash and Compensation Plans There are ethical issues pertaining to the salaries, executive perquisites and the annual incentive plans etc. The HR manager is often under pressure to raise the band of base salaries. There is increased pressure upon the HR function to pay out more incentives to the top management and the justification for the same is put as the need to retain the latter. Further ethical issues crop in HR when long term compensation and incentive plans are designed in consultation with the CEO or an external 139 CU IDOL SELF LEARNING MATERIAL (SLM)
consultant. While deciding upon the pay-out there is pressure on favouring the interests of the top management in comparison to that of other employees and stakeholders. Race, Gender and Disability In many organisations till recently the employees were differentiated on the basis of their race, gender, origin and their disability. Not anymore ever since the evolution of laws and a regulatory framework that has standardised employee behaviours towards each other. In good organisations the only differentiating factor is performance! In addition, the power of filing litigation has made put organisations on the back foot. Managers are trained for aligning behaviour and avoiding discriminatory practices. Employment Issues Human resource practitioners face bigger dilemmas in employee hiring. One dilemma stem from the pressure of hiring someone who has been recommended by a friend, someone from your family or a top executive. Yet another dilemma arises when you have already hired someone and he/she is later found to have presented fake documents. Two cases may arise and both are critical. In the first case the person has been trained and the position is critical. In the second case the person has been highly appreciated for his work during his short stint or he/she has a unique blend of skills with the right kind of attitude. Both the situations are sufficiently dilemmatic to leave even a seasoned HR campaigner in a fix. Privacy Issues Any person working with any organisation is an individual and has a personal side to his existence which he demands should be respected and not intruded. The employee wants the organisation to protect his/her personal life. This personal life may encompass things like his religious, political and social beliefs etc. However certain situations may arise that mandate snooping behaviours on the part of the employer. For example, mail scanning is one of the activities used to track the activities of an employee who is believed to be engaged in activities that are not in the larger benefit of the organisation. Similarly, there are ethical issues in HR that pertain to health and safety, restructuring and layoffs and employee responsibilities. There is still a debate going on whether such activities are ethically permitted or not. Layoffs, for example, are no more considered as unethical as they were thought of in the past. 140 CU IDOL SELF LEARNING MATERIAL (SLM)
APPROACHES In a business setting manger are put to test when they face the challenge of resolving an ethical dilemma. Often certain situations do not fall in the ambit of procedures or the official code of conduct and this is when the managers feel the heat. The problem with ethical decision-making is that a decision in itself cannot be taken in a vacuum; one single decision affects lots of other decisions and the key is to strike a balance to ensure a win- win situation is arrived upon. Though there are no golden rules to resolve ethical issues but managers can take a number of initiatives to resolve ethical issues. A brief description is given below. Know the Principles In ethical decision making there are three basic principles that can be used for resolution of problem. These three principles are that of intuitionism, moral idealism and utilitarianism. The principle of intuition works on the assumption that the HR person or the manager is competent enough to understand the seriousness of the situation and act accordingly, such that the final decision does not bring any harm to any person involved directly or indirectly. The principle of moral idealism on the other hand states that there is a clear distinction between good and bad, between what is acceptable and what is not and that the same is true for all situations. It therefore asks to abide by the rule of law without any exception. Utilitarianism concerns itself with the results or the implications. There is no clear distinction between what is good and what is bad; the focus is on the situation and the outcome. What may be acceptable in a certain situation can be unacceptable at some other place. It underlines that if the net result of the decision is an increase in the happiness of the organization, the decision is the right one. Debate Moral Choices Before taking a decision, moral decisions need to be thought upon and not just accepted blindly. It is a good idea to make hypothetical situations, develop case studies and then engage others in brainstorming upon the same. This throws some light into the unknown aspects and widens the horizon of understanding and rational decision making. Balance Sheet Approach In balance sheet approach, the manager writes down the pros and cons of the decision. This helps arrive at a clear picture of things and by organizing things in a better way. 141 CU IDOL SELF LEARNING MATERIAL (SLM)
Engage People Up and Down the Hierarchy One good practice is to announce ones stand on various ethical issues loudly such that a clear message to every member of the organization and to those who are at the greater risk of falling prey to unethical practices. This will prevent the employees from resorting to unethical means. Integrating Ethical Decision Making into Strategic Management Morality and ethical make up for a perennial debate and ethical perfection is almost impossible. A better way to deal with this is to integrate ethical decision making into strategic management of the organization. The way the HR manager gains an alternate perspective rather than the traditional employee oriented or stakeholder-oriented view. All these steps can bring better clarity into resolving ethical dilemmas. The choice lies with the manager and his own and the organization value clarity. FACTORS AFFECTING ETHICAL BEHAVIOUR AT WORK There are several internal as well as external factors affecting employee behaviour. Let us go through them in detail: Leadership Managers and leaders play an important role in influencing the behaviour of individuals at workplace. It is the responsibility of leaders to set a direction for team members. In majority of the cases, it has been observed that employees do not feel like going to work when they have strict bosses. You need to stand by your team always. Guide them and help them in their day to day operations and help them acquire new skills and upgrade their knowledge. Make them feel important. As a leader, you need to be a strong source of inspiration for your subordinates. If you do not reach office on time, how can you expect your team members to adhere to the rules and regulations of organization? Work Culture Employees need to feel comfortable at workplace for them to stay positive and happy. Rules and regulations should be same for everyone. Employees ought to be encouraged to respect their reporting bosses and follow the code of ethics. Do not have complicated reporting systems. Transparency at all levels is essential. You must know what your team member is up to and vice-a- versa. Job security is one of the most crucial factors affecting employee behaviour. Stand by your team at the times of crisis. Do not throw them out during bad times. Believe me, they will never leave you. Job Responsibilities Employees should be asked to do what best they can perform. Do not overburden employees. Encourage them to upgrade their skills from time to time. 142 CU IDOL SELF LEARNING MATERIAL (SLM)
Effective Communication Managers need to communicate effectively with team members. The moment, employees feel left out, they lose interest in work. They need to have a say in organization’s major decisions. Let them express their views and come out with their problems. Grievances need to be addressed immediately. Family and Personal Life Trust me, if you fight with your family members or relatives in the morning, you feel restless the whole day. It has been observed that individuals with a troubled background or problematic family life tend to behave irrationally at workplace. Employees who have strained relationships with family members like to sit till late at work and spoil the entire work culture. Individuals from very poor families also have a habit of stealing office stationery and taking things to home. Conflicts in personal life lead to stress and irrational behaviour. Also, individuals should try not to bring their personal problems to work. Try to keep your personal and professional life separate. Relationship at Work It is necessary to have friends at the workplace. You need people around to talk to, discuss and share experiences. It is really not possible to work in isolation. Not allowing employees to interact with fellow workers leads to frustration and stress at workplace. Avoid arguing with team members. ROLE OF HRM IN THE DEVELOPMENT OF ETHICAL BEHAVIOUR Management plays an essential role in inculcating workplace ethics in employees. Bosses need to set an example for their subordinates. You need to come on time if you expect your team members to reach office on time. Management needs to act as a source of inspiration for the employees. It is generally observed that team managers, leaders influence their team members to a large extent. Superiors strictly need to adhere to the rules and regulations of the organization for their employees to follow the same. Remember, you have no rights to scold your subordinates if you yourself are at fault. Moreover no one would bother to listen to you as well. Don’t expect your team members to sit till late if you yourself leave early. It is the role of the management to motivate the employees and guide them as to what is right and wrong. Remember a boss is like the captain of the ship. It is your responsibility to take your team members along and provide constant mentoring. Rebuking is not the only solution. If you know one of your team members is meeting his girlfriend during office hours, do you feel insulting or criticizing in front of others would help? NO. Call him to your cabin or speak to him in private and make him realize that it is not morally correct to bunk office. You need to counsel him and make him understand his mistake politely. Trust me, being rude would make the situation worse. Do not discuss 143 CU IDOL SELF LEARNING MATERIAL (SLM)
the matter in front of others. The other person might not like it. Your job is to make the other person feel guilty and realize that indeed he has done something wrong. Believe me; he would never repeat his mistake. Constant communication between the management and employees is of utmost importance in inculcating workplace ethics. Management ought to be transparent with its employees. Let them have a say in company’s decisions. Let them decide what is right and what is wrong for them. Sit with them, discuss, brainstorm ideas and listen to what they have to say. Never ignore their opinions. Let them come out with their grievances. Lend a sympathetic ear to their problems as well. Try to provide them a solution. If you feel most of your employees have a problem coming to office early as they in any case have to stay back till late in the evening as per the client’s availability, please adjust the office timings accordingly. How can you expect your employees to reach office sharp at 8 AM when they are leaving for the day at 10 PM. Remember, rules and regulations should not act as a hindrance in their performance? Be realistic and logical. If the problem is genuine and faced by a major chunk of employees, there is no harm in changing the policies. Think from the employee’s perspective as well. Policies should not be too rigid. Don’t be too strict with the employees. If someone is not present in the office, please do not call his family members to enquire about him. No one would like it. We all are mature professionals to understand that if there is work, we need to finish it first rather than waste our time in gossiping and surfing social networking sites. Management can’t force employees to respect the organization. Respect must be commanded and not demanded. Respect your employees if you expect the same in return. Some organizations do not easily release their employees. Remember, you cannot stop an individual from changing his job if he/she has already decided to move on. Try to convince him once and if he/she is still not willing to continue, let him go. Employees depend on fake relieving letters, experience certificates when they do not get it from their previous organization on time. SUMMARY • Companies and staff today are experiencing an array of pressures that create conditions for potential ethical dilemmas and conflicts. some of the reasons that have been identified for why ethical conflicts occurring apply to business in general, such as inequalities between exchange partners, attempts to reduce competition and conflicting pressures resulting from attempting to satisfy a variety of stakeholder interests and performance demands. Hence the conditions are ripe for ethical problems arising in business more widely. 144 CU IDOL SELF LEARNING MATERIAL (SLM)
• HR managers’ role in the ethical conduct within an organisation can feed in at various points: o in the nurturing of an ethical organisational culture; o in the recruitment of staff who will set the ethical tone of the organisation and uphold its values and ethical climate; o in the resolution of ethical conflict when it occurs; and o in dealing with the aftermath of an ethical conflict. • The first two of these can help to minimise the likelihood of ethical problems occurring in the first place. • Ethical conflict, once it has arisen, presents a number of challenges; it can give rise to distortion of the facts to protect vested interests by the parties concerned, avoidance of involvement by witnesses for fear of reprisals or jeopardising their own relationships with one or more parties and abuse of power in the outcomes of the conflict. • HR managers can help to ensure that organisations operate with due concern for fairness, integrity and justice both to reduce the likelihood of ethical conflicts arising and in dealing with them in the event that they do. • Ethically unhealthy organisations will likely lose good staff and encourage a detrimental zero- sum mentality rather than a win-win one. • In handling ethical problems HR managers need to appreciate the complexities involved, avoid escalation of the issue and protect against the emotional and reputational impact that can result from them. • It is also increasingly important for HR managers to develop a global perspective on ethical issues. KEY WORDS/ABBREVIATIONS • Code of ethics: guidelines written for a professional body to follow. These guidelines are always developed by the professional body, monitored by that body, and enforced by that body • Ethics: The theoretical study of morality. Ethics is also the standard of morality that a profession should follow. • Virtue: The quality of living by one's stated moral values. A person has virtue if they are fair, honest, responsible, and beneficent. • Value: Individual relative worth placed on some intrinsic or extrinsic object, experience, or persons. 145 CU IDOL SELF LEARNING MATERIAL (SLM)
LEARNING ACTIVITY 1. You are a recruiter for your company. The company has a very attractive training program for new financial analysts. You will get 250-300 applicants for 15-25 slots. Your boss has asked you to interview the daughter of a major client. The investments manager has asked you give the daughter a very positive (hire) recommendation. How should you respond to the requests? ………………………………………………………………………………………………………… …………………………………………………………........................................................................ 2. The temporary staffing agency you use is in financial trouble as a result of losing some clients. You wonder if this as an opportunity to get a better rate by threatening to change agencies. What are the ethical issues in this case? ………………………………………………………………………………………….……………… …………………………………………………………………………………………………………. UNIT END QUESTIONS (MCQ AND DESCRIPTIVE) A. Descriptive Types Questions 1. State various types of ethical issues in HRM. 2. List down the factors affecting behaviour at workplace. 3. Identify and discuss role of HR manager in development of Ethical values at work? 4. How can you resolve ethical issues arising at workplace? 5. Write short note on Managing ethical issues in HR. B. Multiple Choice Questions 1. A written statement of policies and principles that guides the behaviour of all employees is called a. code of ethics b. word of ethics c. ethical dilemma d. None of the above 2. The HR policy which is based on the philosophy of the utmost good for the greatest number of people is covered under the a. Utilitarian approach b. approach based on rights c. approach based on justice d. None of the above 3.Which of the following is not usually the objective of a code of ethics? 146 CU IDOL SELF LEARNING MATERIAL (SLM)
Search
Read the Text Version
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
- 11
- 12
- 13
- 14
- 15
- 16
- 17
- 18
- 19
- 20
- 21
- 22
- 23
- 24
- 25
- 26
- 27
- 28
- 29
- 30
- 31
- 32
- 33
- 34
- 35
- 36
- 37
- 38
- 39
- 40
- 41
- 42
- 43
- 44
- 45
- 46
- 47
- 48
- 49
- 50
- 51
- 52
- 53
- 54
- 55
- 56
- 57
- 58
- 59
- 60
- 61
- 62
- 63
- 64
- 65
- 66
- 67
- 68
- 69
- 70
- 71
- 72
- 73
- 74
- 75
- 76
- 77
- 78
- 79
- 80
- 81
- 82
- 83
- 84
- 85
- 86
- 87
- 88
- 89
- 90
- 91
- 92
- 93
- 94
- 95
- 96
- 97
- 98
- 99
- 100
- 101
- 102
- 103
- 104
- 105
- 106
- 107
- 108
- 109
- 110
- 111
- 112
- 113
- 114
- 115
- 116
- 117
- 118
- 119
- 120
- 121
- 122
- 123
- 124
- 125
- 126
- 127
- 128
- 129
- 130
- 131
- 132
- 133
- 134
- 135
- 136
- 137
- 138
- 139
- 140
- 141
- 142
- 143
- 144
- 145
- 146
- 147
- 148
- 149
- 150
- 151
- 152
- 153
- 154
- 155
- 156
- 157
- 158
- 159
- 160
- 161
- 162
- 163
- 164
- 165
- 166
- 167
- 168
- 169
- 170
- 171
- 172
- 173
- 174
- 175
- 176
- 177
- 178
- 179
- 180
- 181
- 182
- 183
- 184
- 185
- 186
- 187
- 188
- 189
- 190
- 191
- 192
- 193
- 194
- 195
- 196
- 197
- 198
- 199
- 200
- 201
- 202
- 203
- 204
- 205
