MBA606_Human Resource Management(Draft 3)

It refers to the systematic and deliberate advancementmade by an individual in his careerin theentire work life. It indicates the way in which one’s career has progressed and is determined byvariousfactors suchasindividual’s knowledge,skills,abilityandtheopportunitiesactuallyavailable.  CareerAnchors: They aredistinctpatternsof self-perceivedtalents,attitude,motivesandvaluesthatguideandstabilizea person’scareerafterseveralyearsofreal-worldexperience andfeedback.  CareerGoals: Futurepositionsonetriesto reachaspart ofcareer.  Careercycle: Thestagesthroughwhichaperson’scareer evolves  Careercluster: It refers to the categorization of different occupations. Jobs of similar nature are usually broughttogetherunderacareercluster. LIMITATIONSOFCAREERPLANNING. 1. For small units where there are very few opportunities for the vertical growth of employees, it isnotsuitable. 2. In a developing country like India, environmental factors such as Government policy, publicsector, growth of backward areas, laws of land etc. influence business and industry. Therefore,careerplansfora periodexceedinga decademaynotbeeffective. 3. Career planning is not an effective technique for a large number of employees who work on theshopfloor,particularlyforilliterateandunskilledworkers. 4. In family business houses in India, members of the family expect to progress faster in their careerthantheirprofessionalcolleagues.This upsetsthe careerplanningprocess. 5. Systematic career planning might become difficult due to favoritism and nepotism in promotions,politicalinterventioninappointmentsetc. 6. Career opportunities for certain categories reach the declining stage due to the influence of thetechnologicaloreconomicfactors. SUCCESSIONPLANNING Forecasting the availability of inside or outside candidates is particularly important in successionplanning. Inanutshell, successionplanningsimplyreferstotheplansacompanymakestofill itsmostimportantexecutivepositions. Inpractice, however,theprocessofteninvolvesafairly complicated series of steps. A more comprehensive definition of succession planning is that it is “theprocess of ensuring a suitable supply of successors for current and future senior or key jobs arisingfrombusinessstrategy,sothatthecareersofindividualscanbeplanned andmanagedtooptimisetheorganisation’s needs and the individuals’ aspirations.” Succession planning includes these activities:Analysisofthedemandformanagersand 93 CUIDOLSELFLEARNINGMATERIAL(SLM)

professionalsbycompanylevel,functionandskill. 94 CUIDOLSELFLEARNINGMATERIAL(SLM)

Audit for existing executives and projection of likely future supply from internal and external sources.Planning of individual career paths based on objective estimates of future needs and drawing onreliable performanceappraisalsandassessmentsofpotential. Career counselling undertaken in the context of a realistic understanding of the future needs of thefirm,as wellas those oftheindividuals. Acceleratedpromotions, targetedagainstthefutureneedsofthebusiness. Performance-related training and development toprepare individualsforfuture roles as well ascurrentresponsibilities. Plannedstrategicrecruitmentnotonlytofillshort-termneedsbutalsofutureneeds. The actual activities by which openings arefilled. Succession planningidentifies high potentialemployees as possible replacements for key jobs, by encouraging hiring from within, successionplanning helps employees develop careers, not just hold jobs. Succession planning is part of a long-term HR strategy that plans for future vacancies and changing work requirements. A sophisticatedsuccession planning system is oriented at developing leaders at the levels of the organisation throughongoing training, education and development. Also, it involves proactive planning for future talentneeds atall levelsandimplementing programmes designed toensure that the rightleaders areavailablefor therightjobsintherightplacesandattherighttimestomeetorganisationalneeds. The accelerating rate of change, both within the organisations and in the environment which theyfunction has created an ever-increasing need for management succession programmes. Advances ininformationtechnology,changingmanagementconceptsandrequirementshaveaddednewdimensions to succession planning. Professional management have to cope successfully with variouschanges affecting succession planning programmes, particularly in expanding organisations. Theexpectations,aswellasmanagerialandpersonalphilosophiesoftoday’syoungermanagerialemployeesh avechanged. They expect to be able to mature and progress in a professional management atmosphere that willpermitthem to realisetheirfull potential.Each organisation,therefore,musthave a well-designedand understood system of management succession, with carefully spelt out principles and guidelines.Further, all levels of managementmustknow each of the processes in succession planning andunderstandhowtheyfitintothetotalorganisational system. SUMMARY  Individual employee careers mustbe of concern to organisations andmanagementin orderthathumanresourcesmaybedevelopedtomeetconstantlychangingenvironmentalconditions.  A career is a sequence of separate but related work activities that provides continuity, orderandmeaning to a person'slife.Itis shaped bymany factors,including heredity,culture,family,agelevelandactualexperiencesinoneormoreorganisations.  Although career planning, manpower planning and succession planning are not synonymous,theyarecomplementingandareinterdependentfortheireffectiveworkingand 95 CUIDOLSELFLEARNINGMATERIAL(SLM)

implementation. All the three are essential for the organisational growth and development,effective utilisationofavailablehumanresources,andoptimumproductivity.  Manpower planning provides and inventory of the skills and potential available within anorganisation and the career plan provides a picture of the succession plan. From the features,objectives and important terminologies of career planning as explained in this Unit, it appearsto be a good management technique for promoting organisational growth and development,and effective utilisation of human resources, thusincreasing both managerial andlabourproductivity.  Career planning or the development process is not as simple as it may seem. It involves manymeasures to be taken, such as preparation development of personnel inventory, career paths orladders and it also involves identification of fit and willing employees for career planning, thedesigning and implementing suitable training and developing programmes, career counselling,review andevaluationofcareerplans.  It also has its limitations as it may not suit small organisations and may have little utility andpracticability for a large number of shop-floor workers, particularly for unskilled and semi-skilledworkers.  In spite of these limitations and other economic, political and social constraints, as alreadydiscussed in this Unit, it is still considered useful for making human-management effective asit helps management in developing and fully utilising available managerial and supervisorytalents.  Careerdevelopmentisalifelongprocessofunderstandingyourcareerpreferences;identifying,obtai ninganddevelopingappropriateskillsandtrainingforthatcareerandcontinually evaluatingyourcareer preferencesandskillsoveryourworkinglifetofindwhethertheycontinue tomeetyourneedsandthoseoftheorganisation.  Succession planning though a neglected area in the pre-liberalisation period,is carried outinasystematic wayinmostprofessionally-managedcompaniesinIndianow.  Successionplanningfocusesoncreatingandstockingpoolsofcandidateswithhighleadership potential. Career development could occur at the individual or the organisationallevel.Individualscan push uptheircareersthrough performance,exposure,networking,leveraging,etc. KEYWORDS/ABBREVIATIONS  Career:Alljobsthatareheldduringone’sworkingLife.  CareerDevelopment: Itisaprocessofidentifyingcareergoalsandestablishing.Themeansofmakingthemareality.  CareerManagement:TheProcessofdesigningandimplementingplanstoenabletheorgani zation.Tosatisfyemployeesneedsandallowindividualstoachievetheirgoals.  CareerProgression:Makingprogressinone’scareerthroughaseriesofrightmoves 96 CUIDOLSELFLEARNINGMATERIAL(SLM)

 CareerCounselling:Itistheprocessofhelpingindividualssortoutcareerissuesandmakecareerde cision.  CareerGoals:Futurepositionsonetriesto reachaspartofcareer.  Careercycle:Thestagesthroughwhichaperson’scareer evolves LEARNING ACTIVITY 1. Drawacareerpathfortrainees joininganorganizationafter completingtheir graduation ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… 2Studyandcomparethecareeropportunitiesfor upwardmobilityinanytwocompanies. ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… UNITENDQUESTIONS(MCQANDDESCRIPTIVE) A. DescriptiveTypesQuestions 1. Whatisacareer?Whataretheobjectivesofacareerplanning? 2. Whatdoyouunderstandbycareerdevelopmentprogramme? 3. Identifyanddiscussthelimitationsofcareerplanning. 4. Whattypeofinformationwould youseekfromthe HRdepartmenttohelpyoudevelopyourindividualcareer plan if youwerejuststarting withalargemultinationalcorporation? 5. Successionplanningisemergingasanalternativeapproachinlightoffuturebusinessneedsandchal lenges.Comment. 6. Istheconceptofcareer planningandsuccessionplanningrealisticintoday’srapidlychangingenvironment? 7. Justifywithreasonsthetrendtowardincreasedemphasisoncareerdevelopmentprogrammes. B. MultipleChoiceQuestions 1. Incareer planningofemployees,thestrongvocationalinterestinventoryandLindsaystudyofvaluesaretestsus edfor a. Realityfeedback b. Self-Assessment c. SpacedAssessment d. MassedAssessment 2. Thefeedbackincareerplanningwhichfocuseshowellemployeesfits 97 CUIDOLSELFLEARNINGMATERIAL(SLM)

infutureorganizationalplanisclassifiedas 98 CUIDOLSELFLEARNINGMATERIAL(SLM)

a. RealityFeedback b. MassedFeedback c. SpacedFeedback d. TactileFeedback 3. TheSeriesofpositionsthatapersonoccupiesthroughoutthecareerisclassifiedas a. Organizationplanning b. Careers c. Careerplanning d. Learningplans 4. Thetypeofcareerplanningwhichprioritizethecareerofindividualovertheneedsoforganiza tionisclassifiedas a. Compressioncareerplanning b. Tactilecareer planning c. Individualcentredcareerplanning d. Organizationcentredcareerplanning 5. TheSelf- assessmenttestinwhichemployeeswereaskedaboutpreferencesregardingoccupationisca lledas a. Tactile interest inventory b. Swattestofcareer c. StrongVocationalinterestinventory d. Lindzeystudyofvalues Answers: 1-b,2-a,3-b, 4-d, 5-c. REFERENCES  Duari,Pravin.(2010). HumanResourceManagement. NewYork:PearsonEducation.  Dessler,G.(2013).HumanResourceManagement.Delhi:Prentice-Hall.  Flippo,EdwinB.(1966).Personnel/HumanResourceManagement.NewDelhi:TataMcG raw Hills.  Haldar, U.K. AndSarkar.(2012).HumanResourceManagement. NewDelhi:Oxford&IBH.  Gupta,C.B.,“HumanResourceManagement”(1997),SultanChand&Sons, NewDelhi.  JuciusMicheal,J.:“PersonnelManagement”,(1995)  RichardIrwin.Micheal,V.P.:“HumanResourceManagementandHumanRelations”(199 8),Himalaya Publishinghouse,NewDelhi. 99 CUIDOLSELFLEARNINGMATERIAL(SLM)

 Monappa, Arun and Saiyadain, Mirza S.: “Personnel Management” (1996), Tata McGraw- Hill,NewDelhi.  Saiyadain,MirzaS.:“HumanResourceManagement”(3rdEd.),2003,TataMcGrawHill,New Delhi.  Tripathi,P.C.:“HumanResourceDevelopment”,2003,SultanChand,NewDelhi.  Philip,Tom:“Making PerformanceAppraisalWork”,1983,McGrawHill,U.K.  http://www.colgate.co.in/app/Colgate/IN/Corp/Careers/TrainingDevelopment.cvsp 100 CUIDOLSELFLEARNINGMATERIAL(SLM)

UNIT–7PERFORMANCEAPPRAISAL Structure Learning ObjectivesIntroducti onObjectives UsesPro cessMet hods ErrorsinPerformanceAppraisal.S ummary KeyWords/Abbreviations LearningActivity Unit EndQuestions(MCQand Descriptive)References LEARNINGOBJECTIVES Afterstudyingthisunit,youwillbeableto:  Statethe objectivesandusesofperformanceappraisal  Explainprocessofperformanceappraisal  Describethemethodsofperformanceappraisal  IdentifytheerrorsinperformanceAppraisal INTRODUCTION In the organization contextperformance appraisal is an evaluation of personnel in a systematicway by superiors or others familiar with their performance. It is also described as merit rating inwhich oneindividual is ranked as better or worse in comparison to others. The basic purpose inthis merit rating is to determine an employee’s eligibility for promotion. However, performanceappraisal is a broad term and it may be used to ascertain the need for training and development,salaryincrease,transfer,discharge,etc.besidespromotion. Insimpleterms,performanceappraisalmaybeunderstoodas thereviewof anindividual’sperformance in an orderly way, theperformance is measured by considering factors like jobknowledge,qualityandquantityofoutput,initiative,leadershipabilities,supervision,dependability, co-operation, judgment, versatility, health, and the like. Evaluation should not berestricted to past performance alone but, the future performances of the employee should also beassessed. 101 CUIDOLSELFLEARNINGMATERIAL(SLM)

Meaning According to Flippo, a prominent personality in the field of Human resources, “performanceappraisal is the systematic, periodic and an impartial rating of an employee’s excellence in thematterspertainingtohispresentjobandhispotentialforabetterjob.” In the words of Yoder, “Performance appraisal refers to all formal procedures used in workingorganizations 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 onlythe contributions of the members who form part of the organization, but also aims at spotting thepotentialofthepeople.” Performance appraisal is a systematic and orderly evaluation of performance of employees of atwork 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 tobe measured in terms of results and not in terms of efforts. Performance appraisal is one of theoldest and universal practices of management. Such appraisal is common in the case of bluecollaredemployeesaswellaswhitecollaredemployees(e.g.Bankemployees,governmentservants,e tc.). Performance appraisal indicates the position of an individual employeein relationtojobexpectations. Performance appraisal is widely used practice in society. It is used universally in different aspectsof life. Teachers evaluate their students and even teachers are evaluated by their students. In theindustrialsector,employers/managementsevaluatetheperformanceoftheiremployeesperiodically for differentpurposes. Well-developed techniques are now used for performanceevaluation/appraisal of technical, managerial and professional personnel. Performance appraisal ispossible 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 ofperformance appraisal helps the managementand employee toknow the level of employee’sperformance as compared to expected or standard performance. Performance appraisal acts as thebasis HRD as its facilities improvement in actual performance of employees through training anddevelopmentprogrammes. OBJECTIVES Performanceappraisalhasanumberofspecificobjectives. Thesearegivenbelow: 102 a) Toreviewpastperformance; b) Toassesstrainingneeds; c) Tohelpdevelopindividuals; d) Toaudittheskillswithinanorganization; CUIDOLSELFLEARNINGMATERIAL(SLM)

e) Tosettargetsfor futureperformance; 103 CUIDOLSELFLEARNINGMATERIAL(SLM)

f) Toidentifypotentialfor promotion. Someemployeesmaybelievethatperformanceappraisal issimply usedby theorganization toapportion blame and to provide a basis for disciplinary action. They see it as a stick that managementhas introduced with which to beat people. Under such situations a well thought out performanceappraisal is doomed to failure. Even if the more positive objectives are builtintothesystem,problems may still arise because they may not all be achievable and they may cause conflict. ForExample, an appraise is less likely to be open about any shortcomings in past performance during aprocessthataffectspayorpromotionprospects,orwhichmightbeperceivedasleadingtodisciplinary 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 wholestrategy.Thus,incorporatingobjectivesintotheappraisalsystemmayhighlightareasforimprovement, newdirectionsandopportunities USESOFPERFORMANCEAPPRAISAL In many organizations, an appraisal system assists in achieving numerous goals. However, in fewfirm’s performance appraisal is used in measuring and improving individual as well as organizationalperformance. The most common issue with performance appraisal is that a lot is expected from oneform of performance appraisal system plan. For instance, a plan that is strategically designed toimprove and develop employee skills may not be used in deciding wage increases. Although, if anappraisalplaniswelldesigneditcanbeusedinaccomplishingthesetobjectivesaswellasperformance. 1. HumanResourcePlanning:Itisimportant to record data/information of employees inafirm so that it is easy to identify the potentials of who deserves to be promoted or have any area toimprove. Performance appraisal also helps in revealing if there is insufficient number of workers. Anappraisal system should be designed and planned after considering the strengths and weaknesses ofthe HRM oftheorganization. 2. Recruitment and Selection: Through the process of performance analysis, organizations candetermine the performance potential on an applicant. Studies show that successful employees displayspecific behavioral traits while performing tasks. The data processed through performance evaluationhelpin setting standards for behavioral interviews. In the process of selection, the employee ratingcanalsobe usedasavariable againstwhichtestscoresarecompared. 3. Training and Development: Training and developmentis crucial for any employee as itacts as way to communicating what is expected and how. Performance appraisal helps in drawingattention to these specific needs of training. For example, if an employee’s job involves the skill ofcreative writing and by the process of evaluation it reveals that he or she lacks in it or has poorknowledge about it, the employee will need appropriate training sessions. When managers of a firmlack the capability of administering disciplinary action, they need the necessary training to deal withthisproblem.Hence,identifyingdeficienciesandobstaclescanbeovercomebytrainingand 104 CUIDOLSELFLEARNINGMATERIAL(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 byprovidingdata. 4. Career Planning and Development: Career planning can be described as a never- endingcycle in which an individual sets profession goals and means to achieve them throughout his or herlifetime. However, career development is a more formal approach used by organizations. It involvesrecruitingsuitablequalifiedandexperiencedpeoplewhenrequired.Performanceappraisalcandeter mine an employee’s potential through assessing its weaknesses and strengths. The data is alsousefultocounseljuniorstaffmemberandassistingincareerplans. 5. CompensationPrograms:Performanceappraisalevaluationshelpinmakingdecisionsdealing with wage or salary regulations. It is believed that organizations should reward employeeswith increase in pay when excellent performance is achieved. In order to increase performance, anorganization should implement well planned and designed performance appraisal systems and awardthe efficient workers. This not only increases performance but also keeps employees motivated toachieve betterinfuture. 6. InternalEmployeeRelations:Performanceappraisalevaluationcanprovidecrucialinformation 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 inseveral areas of internal employee relations, including promotion, demotion, termination, layoff, andtransfer.Also,anemployee’sperformanceinonejobmaybeusefulindetermininghisorherabilityto perform another job on the same level, as is required in the consideration of transfers. When theperformancelevelisunacceptable,demotionoreventermination maybeappropriate. 7. Assessment of Employee Potential: Some organizations attempt to assess an employee’spotential as they appraise his or herjob performance.Although pastbehaviorsmay be a goodpredictor of future behaviors in some jobs, an employee’s past performancemay not accuratelyindicate future performance in other jobs. The best salesperson in the company may not have what ittakes 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 inpromoting employees into management jobs. Recognition of this problem has led some firms toseparate theappraisal of performance,whichfocuses on pastbehavior,from theassessmentofpotential,whichisfuture-oriented. PROCESSOFPERFORMANCEAPPRAISAL Therearesixstepsintheprocessofperformanceappraisalwhichareasfollow: 105 CUIDOLSELFLEARNINGMATERIAL(SLM)

EstablishingPerformanceStandards CommunicatingStandardsand Expectations Measuringtheactualperformance Comparingwithstandards Discussingresults(Providingfeedback) Takingcorrectiveactions Fig.7.1:Stepsintheperformance appraisalprocess Letuslearnthesesteps indetail.  Establishing Performance Standards: The first step in the process of performance appraisal isthe setting up of the standards which will be used to compare the actual performance of theemployeesagainstthestandardsset.Thissteprequiressettingthecriteriatojudgetheperformance of the employees as successful or unsuccessful and the degrees of their contributiontotheOrganizationalgoalsandobjectives.Thestandardssetshouldbeclear,easilyunderstan dable and measurable. In case the performance of the employee cannot be measured,greatcareshouldbetakentodescribe thestandards.  Communicating the Standards: Once performance standards are set; it is the responsibility ofthe management to communicate the standards to all the employees of the Organization. Theemployees should be informed and the standards should be clearly explained to the employees.This will help them tounderstand their roles andto know whatexactly is expectedfrom them.Thestandardsshouldalsobecommunicatedtotheappraisersortheevaluatorsandifrequired,the standards can also be modified at this stage itself according to the relevant feedback from theemployeesortheevaluators.  MeasuringtheActualPerformance:Themostdifficultpartof thePerformanceappraisalprocessismeasuring theactualperformanceoftheemployees,thatis,thework 106 CUIDOLSELFLEARNINGMATERIAL(SLM)

donebythe 107 CUIDOLSELFLEARNINGMATERIAL(SLM)

employeesduringthespecifiedperiodoftime.Itisacontinuousprocesswhichinvolvesmonitoringtheperf ormancethroughouttheyear.Thisstagerequirescarefulselectionofappropriate techniques of measurement. It should be taken care that personal bias does not affectthe outcomeoftheprocess.  Comparing the Actual with the Desired Performance: The actual performance is comparedwiththedesiredorthestandardperformance.Thecomparisontellsthedeviationsintheperform ance of the employees from the standards set. The result can show the actual performancebeing more than the desired performance. On the other hand, the actual performance may be lessthan the desired performance depicting a negative deviation in the Organizational performance.Thisstepincludesrecalling,evaluatingandanalysisofdatarelatedtotheemployees’perfor mance.  DiscussingResults:Theresultoftheappraisaliscommunicatedanddiscussedwiththeemployees on one-to-one basis. The focus of this discussion is on communication and listening.Theresults,theproblemsandthepossiblesolutionsarediscussedwith theaim of problemsolving and reaching consensus. The feedback should be given with a positive attitude as this canhave an effect on the employees’ future performance. The purpose of the meeting should be tosolve the problemsfacedandmotivate the employeestoperformbetter.  Decision Making: The last step of the process is to take decisions which can be taken either toimprove the performance of the employees, take the required corrective actions, or the related HRdecisionslike rewards,promotions,demotions,transfersetc. METHODSOFPERFORMANCEAPPRAISAL So far, we have discussed the concept, objectives and significance of performance appraisal. Let usnow discuss the methods of performance appraisal under twopopular approaches that are availableforperformance appraisal.These are TraditionalapproachandModernapproach TraditionalApproach This approach has been used as just a method for determining and justifying the salaries of theemployees.Ithasbeenusedasatoolfordeterminingrewardsandpunishmentsforthepastperformanceofth eemployees.Thisapproachwasapastorientedapproachwhichfocusedonlyonthe past performance of the employees i.e. during a past specified period of time. This approach didnotconsiderthedevelopmentalaspectsoftheemployeeperformancei.e.histraininganddevelopmentnee ds or career developmental possibilities. The primary concern of the traditionalapproach is to judge the performance of the Organization as a whole by the past performances of itsemployees.Therefore,itis alsocalled as the overall approach.The following are some of thetraditionalperformance appraisalmethods thatOrganizationsmayfollow: 1. Essay Appraisal Method: This traditional form of appraisal, also known as “Free Form method”involvesadescriptionoftheperformanceofanemployeebyhis/hersuperior.Thedescriptionisan 108 CUIDOLSELFLEARNINGMATERIAL(SLM)

evaluation of the performance of any individual based on the facts and often includes examples andevidences to support the information. A major drawback of the method is that it may suffer from thebiasoftheevaluator. 2. Straight Ranking Method: This is one of the oldest and simplest techniques of performanceappraisal. In this method, the appraiser ranks the employees from the best to the poorest on the basisoftheiroverallperformance.Itisquiteusefulfora comparativeevaluation. 3. Paired Comparison Method: In this method, comparison is made on each employee with allothers in the group. On the basis of the overall comparisons, the employees are given the finalrankings. 4. Critical Incidents Methods: In this method, the evaluator rates the employee on the basis ofcritical events and how the employee behaved during those incidents. It includes both negative andpositive points. The drawback of this method is that the supervisor has to note down the criticalincidentsandthe employeebehaviorasandwhentheyoccur. 5. Field Review Method: In this method, a senior member of the HR department or a training officerdiscusses and interviews the supervisors to evaluate and rate their respective subordinates. A majordrawback of this method is that it is a very time-consuming method. This method helps to reduce thesuperiors’personalbias. 6. ChecklistMethod:The rater is given a checklistof the descriptions of the behavior of theemployees on the job. The checklist contains a list of statements on the basis of which the raterdescribesthejobperformance oftheemployees. 7. Graphical Rating Scale Method: In this method, an employee’s quality and quantity of work isassessed in a graphic scale indicating different degrees of a particular trait. The factors taken intoconsideration include both the personal characteristics and characteristics related to the on the jobperformance of the employees. For example, a traitlike Job Knowledge may be judged on the rangeofaverage,above average,outstandingorunsatisfactory. 8. Rating Scales Method: Rating scales consists of several numerical scales representing job relatedperformance criterion such as dependability, initiative, output, attendance, attitude, etc. Each scaleranges from excellentto poor. The total numerical score iscompared and final conclusions arederived. Advantages of rating scales are: adaptability, ease to use, low cost, every type of job can beevaluatedandfinalconclusionscanbederived,noformaltrainingisrequired.However,rater’sbiasisconsid eredas the majordisadvantageofthismethod. ModernApproach The modern approach to performance development has made the performance appraisal process moreformalandstructured.Itincludesafeedback- processthathelpstostrengthentherelationshipsbetweensuperiorsandsubordinatesandimprovecommunica 109 CUIDOLSELFLEARNINGMATERIAL(SLM)

tionthroughouttheOrganization. Itisa 110 CUIDOLSELFLEARNINGMATERIAL(SLM)

future oriented approach and is developmental in nature. This recognizes employees as individualand focuses on their development. The following are some of the modern performance appraisalmethodsthatOrganizationsmayfollow: 1. AssessmentCentre’s:Anassessmententretypicallyinvolvestheuseofmethodslikesocial/informal events, tests and exercises, assignments being given toa group of employees, toassess their competencies to take higher responsibilities in the future. Generally, employees are givenanassignmentsimilartothejobthey wouldbeexpectedtoperformifpromoted.The trainedevaluators observe and evaluate employees as they perform the assignedjobs and are evaluated onjobrelatedcharacteristics.Themajorcompetenciesthatarejudgedinassessmentcentersareinterpersonal skills, intellectual capability, planning and organizing capabilities, motivation, careerorientationetc.Assessmentcentersarealsoaneffectivewaytodeterminethetraininganddevelopment needs ofthetargetedemployees. Forexample:Assessment CentreatRBI An assessment centre is a place to evaluate an individual potentiality and performance, so as toposition he/she in the core functional areas. Normally, organizations outsource assessment centreinsteadofmakingthembytheirown. [This method of performance appraisal is beingopted by the RBI (Reserve Bank ofIndia)forassessmentofits officers] An assessment center typically involves the use of methods like social/informal events, tests andexercises, assignments being given to a group of employees to assess their competencies to takehigher responsibilities in the future. Generally, employees are given an assignment similar to the jobtheywouldbeexpectedtoperformifpromoted.Thetrainedevaluatorsobserveandevaluateemployeesast heyperformthe assignedjobsandareevaluatedonjobrelatedcharacteristics. The major competencies that are judged in assessment centers are interpersonal skills, intellectualcapability,planningandorganizingcapabilities,motivation,careerorientationetc.assessmentce nters are also an effective way to determine the training and development needs of the targetedemployees. 2. HumanResourceAccountingMethod:HumanresourcesarevaluableassetsforeveryOrganization. Human resource accounting method tries to find the relative worth of these assets interms of money. In this method the Performance appraisal of the employees is judged in terms of costandcontributionoftheemployees.Thecostofemployeesincludesalltheexpensesincurredonthem 111 CUIDOLSELFLEARNINGMATERIAL(SLM)

like their compensation, recruitmentand selection costs, induction and training costs etc. whereastheir contribution includes the total value added (in monetary terms). The difference between the costand the contribution will be the performance of the employees.Ideally,the contribution of theemployeesshouldbegreaterthanthecostincurredonthem ForExample:HRAat Infosys InfosysusedtheLev&Schwartzmodeltocomputethevalueofhumanresources.Theevaluationisbased onthepresentvalueoffutureearningsofemployeesandonthefollowing assumptions: (a) Employeecompensationincludesalldirectand indirectbenefitsearnedbothinIndiaandoverseas (b) Theincrementalearningsbasedongroup/agehavebeenconsidered (c) Thefutureearningshavebeendiscountedatthecost ofcapitalof11.21% (previousyear10.60%).incrore,unless statedotherwise 2011 2010 Employees(no.) Softwareprofessionals 1,23,811 1,06,864 Support 7,009 6,932 Total 1,30,820 1,13,796 Value ofhumanresources Softwareprofessionals 1,22,539 1,06,173 Support 12,566 7,114 Total 1,35,105 1,13,287 Totalincome (1) 27,501 22,742 Totalemployeecost(1) 14,856 12,093 Value-added 25,031 20,935 Netprofit(1) 6,823 6,219 Ratios Valueofhumanresourcesper employee 1.03 1.00 Totalincome/humanresourcesvalue(ratio) 0.20 0.20 Employeecost/humanresourcesvalue(%) 11.0 10.7 Value-added/humanresourcesvalue(ratio) 0.19 0.18 Returnonhumanresourcesvalue (%) 5.1 5.5 112 CUIDOLSELFLEARNINGMATERIAL(SLM)

3. Management by Objectives (MBO): MBO can be described a process whereby the employeesand the superiors come together to identify common goals. The employees set their goals to beachieved,thestandardstobetakenasthecriteriaformeasurementoftheirperformanceandcontribution and deciding the course of action to be followed. The essence of MBO is participativegoal setting, choosing course of actions and decision making. An important part of the MBO is themeasurementandthecomparison of theemployee’sactual performancewith thestandardsset.Ideally,when employees themselves havebeen involved with the goal setting and choosing thecourseofactionto be followedbythem,theyaremorelikelytofulfilltheirresponsibilities. Example: MBO atICICIBank ICICIBANKperformanceappraisalenvironment The bank is using the Management by Objectives (MBO) method. In this method the subordinate inconsultation with the supervisor chalks out short-term objectives followed by specific actions that hehastocarry out.Thegoalsarefinally setandareaction oriented.Thegoalssetare specific,measurable, achievable, review able and time bound andmostimportantly they use to be alignedwith the goal of the organization. At the end of a specified time period, the activities are jointlyreviewedbyboththesubordinateandhissupervisor.Dependingontheperformanceofthesubordinate, the goals are modified or redesigned for the next period of time. The MBO is thus aperformance- orientedsystem. AwellthoughtoutMBOsystem providesmultiplebenefits.Itestablishesalinkbetweentheperformance of the individual and the bank. It is easy to implement because those who carry out theplan also participates in setting it up. Each employee becomes aware of the task he has to perform inthe bank. This leads to better utilization of capacity and talent. It promotes better communication andinformation sharing. It provides guidelines for self-evaluation as well as evaluation by the superioragainstsettasksandgoals.Itfacilitatesguidance andcounselling. EffectivecomponentsofICICIPAsystem PerformancePlanning(includesemployeegoalsetting/objectivesetting)On- goingPerformanceCommunication DataGathering,ObservationandDocumentationPe rformanceAppraisalMeetings PerformanceDiagnosisandCoaching Performance Appraisal system in ICICI bank emphasizes individual objectives, Bank objectives andalso mutual objectives. From the viewpoint of individual objective, the Performance Appraisal talksabout a) Whattasktheindividualisexpectedtodo? 113 CUIDOLSELFLEARNINGMATERIAL(SLM)

b) Howwelltheindividualhasdone the task? c) Howcanhisperformancebefurtherimproved? d) Hisreward fordoingwell. From the bank view point a Performance Appraisal should generate manpower information, improveefficiency and effectiveness serve as a mechanism of control and provide a rational compensationstructure. In short, the appraisal system establishes and upholds the principle of accountability in theabsence of which bank failure is the only possible outcome. Finally, talking about mutual goals, theemphasisisongrowthanddevelopment,harmony,effectivenessandprofitabilityofthe bank. ICICI has adopted a “PerformanceAppraisal”model in which best-to-worst rankingmethods areused to identify poor performers. The identified poor performers are then given a time period duringwhich they have to show an improvement in their performance. In cases where the employee fails toimprove his performance, he is asked to leave the organization gracefully and a severance package isoffered to him. If the employee refuses to leave then his service is terminated and no compensation isoffered.Thissystemiscalled“rankandyankstrategy”.Advocatesofthissystemfeel thatitcontinuallymotivatesemployeestobettertheirperformancesincenobodywouldliketobeincludedin thepoor performanceband.But theflipsideof this strategy is thatemployees becometoocompetitive andteamspiritisnotnurtured. Effective banks are notbuiltmerely on investmentand returns butmore on the quality of theworkforce, its commitment to the organizational goals andinvestments made to attract train andretain superior human capital. An integrated Performance Management system is essential to get thebest out of its people. Employee performance is linked to the bank’s performance. This helps inachieving the organizational goal and creates a performance culture in the bank. Invention, creativity,diversityofperspectivesisfostered.Employeesactasone bankonebrand. 4. Balance Score Card:The Balanced scorecard – an approach given by Kaplan and Nortonprovidesaframeworkofvariousmeasurestoensurethecompleteandbalancedviewoftheperformanc e of the employees. Balanced scorecard focuses on the measures that drive performance.The balanced scorecard provides alistof measures that balance the Organizationsinternal andprocessmeasureswithresults,achievementsandfinancialmeasures. Example:BalanceScorecardatTATAMotors TTM has an intact performance measurement system keeping in line with their strategy of offeringinnovation at a competitive price, as mentioned above – the Balanced Scorecard. After suffering theirfirst loss in more than fifty years in 2000, TTM had to resort to stringent cost cutting 114 CUIDOLSELFLEARNINGMATERIAL(SLM)

across allbusinessunits,whichpoised achallenge.TATAMotorsCommercialVehicleBusinessUnitthen 115 CUIDOLSELFLEARNINGMATERIAL(SLM)

employedthebalancedscorecard.Withtheprocessinprogress,thegenuineproblemrevealeditself.It turned out that the manual nature of the review procedures of such a huge structure was gettingextremely difficulttoimplementand consuming valuable amountof time.Toaddress this,theBalanced Scorecard Automation Tool was implemented that would centralise, assimilate and collatethe data, providing rapid review and analytical functionality and a comprehensive single picture oforganisational performance. Within two years of this, CVBU registered a profit of $ 2.3 Million fromthelossof$2.5Million,leadingto60%ofTTMsinventoryturnover.Initially,CVBUhadstartedthe balanced scorecard with only corporate level scorecard; but with its success, now it has expandedto six hierarchical levels with three hundred and thirty-one scorecards, additionally lookingforwardtoproliferateittothe lowestleveloforganisational structure. 5. 360DegreeFeedbackAppraisal:Itisalsoknownas‘multi-raterfeedback’,isthemostcomprehensive appraisal where the feedback about the employees’ performance comes from all thesources that come in contact with the employee on his job. 360-degree respondents for an employeecan 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 andinformation or feedback regarding the “on-the-job” performance. The 360-degree appraisal has fourintegralcomponents:Selfappraisal,Superior’sappraisal,Subordinates’appraisalandpeer’sappraisal. Self-appraisal gives a chance tothe employeetolookathis/herstrengths andweaknesses,hisachievements, and judge his own performance. Superior’s appraisal forms the traditional part of the360-degree performance appraisal where the employees’ responsibilities and actual performance israted by the superior. Subordinates appraisal gives a chance to judge the employee on the parameterslikecommunication andmotivatingabilities,superior’sability todelegatethework,leadershipqualities etc. The correct feedback given by peers can help to find employees’ abilities to work in ateam,co-operationandsensitivitytowardsothers. Example:360-DegreeFeedbackinAlphaTechnologyLtd. AlphaTechnology Ltdusepaper-basedperformanceappraisalsystem whichwastooslowandcumbersome. There were concerns about whether the raters could be assured of the confidentiality totheir ratings. Because of these concerns, the company wanted a better system for appraising anddeveloping the performance of its IT managers. Company was in particular interested in enhancingthese managers’ project management and project team leadership skills. The IT managers neededsubstantial improvement in their skills, and the company wanted a performance appraisal system thatwould provide feedback from the managers’ subordinates, peers and customers as well as their directreportingbosses. 116 CUIDOLSELFLEARNINGMATERIAL(SLM)

Due this concerns company decided to develop a 360-degree feedback system. The refreshing aspectof the company’s approach to the 360-degree system is that the company decided to base the systemon the Internet and its own Intranet. An independent contractor, Transcend, developed the system andhandlesthe collationandanalysis ofthefeedbackinformation. 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 uptheinformation andcompletetheappraisalinapproximately 30minutes.Aftercompletingtheappraisal, they simply submit the results via e-mail to Transcend, to process. Because the system isencrypted, the company is able to provide greater confidentiality and anonymity for the raters thanwith the previous paper-and- pencil system. In addition to the LEAPS items, the company included afairly large set of other items to assess managers’ technical competency and their contributions to thebusiness. Transcend, was able to provide appraisal profiles for the managers within 2 days after thelast of the evaluators e-mailed their input for the manager. In addition, the profile of actual ratings foreachmanagerfromTranscend,alsoincludesanidealleadershipprofiledevelopedbyAlphatechnology executives. By comparing his actual ratings with the ideal profile, managers can identifyareasforfuturedevelopment.  Explainhowwasthe360-degreeappraisal betterthanthetraditionalappraisalsysteminAlpha Technology?  Accordingtoyouwhatchallenges Alphatechnologyfacedpreandpostimplementationofthe360- degreesystemontheInternet? ERRORSINPERFORMANCEAPPRAISAL While it is assumed that performance appraisal process and techniques present an objective system itwould be naïve to assume, however, that all practicing managers impartially interpret and standardizethecriteriauponwhichtheirsubordinateswillbeappraised.Inspite of ourrecognitionthatacompletelyerror- freeperformanceappraisalcanonlybeidealizedanumberoferrorsthatsignificantlyimpede objective evaluation.Some ofthese errorsarediscussedbelow: 1) Leniency Error:Every evaluator hashis/her own value system thatacts as a standard againstwhich appraisals are made. Relative to the true or actual performance an individual exhibits, someevaluators mark high and others low. The former is referred to as positiveleniency error, and thelatterasnegativeleniencyerror.Whenevaluatorsarepositivelylenientintheirappraisal,anindividual’s performance becomes overstated; that is rated higher than it actually should. Similarly, anegativeleniencyerrorunderstatesperformance,givingtheindividualsaslowerappraisal. 2) Halo Effect: The halo effect or error is a tendency to rate high or low on all factors due to theimpression of a high or low rating on some specific factor. For example, if an employee tends to beconscientious and dependable,the supervisor mightbecomebiased toward thatindividual to 117 CUIDOLSELFLEARNINGMATERIAL(SLM)

theextentthathe willrate him/herhighonmanydesirableattributes. 118 CUIDOLSELFLEARNINGMATERIAL(SLM)

3) Similarity Error: When evaluators rate other people in the same ways that the evaluators perceivethemselves, they are making a similarity error. Based on the perception that evaluators have ofthemselves, they project those perceptions onto others. For example, the evaluator who perceiveshimself or herself as aggressive may evaluate others by lookingfor aggressiveness. Those whodemonstratethischaracteristic tendtobenefit,whileothersarepenalized. 4) Low Appraiser:Motivation Whatare the consequences of the appraisal? If the evaluator knowsthat a poor appraisal could significantly hurt the employee’s future particularly opportunities forpromotion or a salary increase the evaluator may be reluctant to give a realistic appraisal. There isevidence that it is more difficult to obtain accurate appraisals when important rewards depend on theresults. 5) Central Tendency: It is possible that regardless of whom the appraiser evaluates and what traits areused, the pattern of evaluation remains the same. It is also possible that the evaluator’s ability toappraise objectively and accurately has been impeded by afailure to use the extremes of the scale,thatis,central tendency.Central tendencyisthereluctancetomakeextremeratings( in eitherdirections);theinabilitytodistinguishbetweenandamongratees;a formofrangerestriction 6) Recency vs. Primacy Effect: Recency refers to the proximity or closeness to appraisal period.Generally, an employee takes iteasy 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, filesmove faster, tasks are taken seriously and the bosses are constantly appraised of the progress andproblems. All this creates an illusion of high efficiency and plays a significant role in the appraisaldecisions. The supervisor gets railroaded into believing that the employee is alertand hence, rateshimhigh.Inrealitythoughitrefersonlytohistwotothree month’sperformance. The opposite of recency is primacy effect. Here the initial impression influences the decision on yearend appraisal irrespective of whether the employee has been able to keep up the initial impression ornot.Firstimpressionisthelastimpression isperhapsthemostbefittingdescriptionofthiserror. SUMMARY  Performance Appraisal is the systematic evaluation of the performance of employees and tounderstand the abilities of a person for further growth and development. It also assesses thepotentialofcandidatesforfurtherdevelopment.  Themainobjectiveoftheperformanceappraisalistorewardthosewhoareworkingefficiently andhonestly in the Organization.At the same time,italsoaims ateliminatingthosewhoare inefficientandunfitto carryouttheirresponsibilities.  The system of performance appraisal is useful to the Organizations not only to identify andrate employees on performance levels but also to allocate human resources optimally andefficiently and develop the desired competencies in them. An Organization comes acrossvarious problems and challenges of performance appraisal in order to make a performanceappraisal system effective and successful. There are six steps in the process of performanceappraisalwhichare: Establishing PerformanceStandards,Communicating theStandards, 119 CUIDOLSELFLEARNINGMATERIAL(SLM)

Measuring the Actual Performance, Comparing the Actual with the Desired Performance,DiscussingResults andDecisionMaking.  Methodsofperformanceappraisalhavebeendiscussedundertraditionalapproachandmodernappro ach.  Methods under traditional approach are: Essay Appraisal Method, Straight Ranking Method,Paired Comparison Method, Critical Incidents Methods, Field Review Method, ChecklistMethod,GraphicalRatingScaleMethod,andRatingScalesMethod.  Methods undermodern approach are:AssessmentCenters,Human Resource AccountingMethod, Management by Objectives (MBO), Balance Score Card and 360 Degree FeedbackAppraisal. KEYWORDS/ABBREVIATIONS  Peers are persons or colleagues who have equal standing with another or others in terms ofrank,designationorage.  Ranking is a relationship between a set of items such that, for any two items, thefirstiseither‘rankedhigherthan’,‘rankedlowerthan’or‘rankedequalto’thesecond.  Rating is a systematic estimation of the degree of some attribute based on a numerical ordescriptivecontinuum.  Assessment center is a comprehensive standardized procedure in which multiple assessmenttechniquesareused to evaluateindividualemployeeforvarietyofmanpowerdecisions.  Balance score card measures employee performance by making balance with Organizationinternalprocessesandmeasurestheresultsachieved.MBOInvolvessettingspecificme asurablegoalswitheachemployee and thenperiodicallyreviewingtheprogress made.  Appraisal:Anobjectiveassessment,balancedjudgementandunbiasedevaluationofperformance ofthejobbyanyperformer.  Performance: Refers to both the quantity (volume of output) and quality (excellence ofaccomplishment)ofworkbytheperformer.  Behaviorally Anchored Ratios Scale: It is an absolute assessment technique wherein criticalincidents are identified and a range of performance possibilities (from poor to good) aredescribedforeachdimension.  Central Tendency: The reluctance to use the extremes of a rating scale and to thereby fail toadequatelydifferentiateemployees beingrated.  Checklist: Performance appraisal tool that uses a lot of statements or words that are checkedbyraters.  Contrast Error: Tendency to rate people relative to other people rather than to performancestandards.  HaloEffect:Biaswhichoccurswhentherater'spersonal opinionof aspecifictraitofemployeeinfluencesthe rater's overallassessmentofperformance. 120 CUIDOLSELFLEARNINGMATERIAL(SLM)

 RaterBias:Errorthatoccurswhenarater'svaluesor prejudicesdistorttherating.  RatingScale:Amethodwhichrequirestheratertoprovideasubjectiveperformanceevaluat ionalonga scalefromlowtohigh. LEARNINGACTIVITY 1. WhatdoyoumeanbyFieldReviewMethodofperformanceappraisal? ……………………………………………………………………………………………………….… ……………………………………………………………………………………………..................... 2. WhatisRatingScaleMethod? ……………………………………………………………………………………………………….… ……………………………………………………………………………………………..................... UNITENDQUESTIONS(MCQANDDESCRIPTIVE) A. DescriptiveTypesQuestion 1. Whatisperformanceappraisal?Explaintheobjectivesofperformanceappraisal 2. Identifyanddiscuss modernmethodsofperformanceappraisal. 3. Stateandexplain processofperformance appraisal? 4. Elaborateonvariouserrorsinperformanceappraisal. 5. \"Some of the so-called modern industries still follow traditional techniques of performanceappraisal\".Justifyyouranswerwithrelevantexamples. 6. \"Performanceappraisalisnotmerelyforappraisalbutisforaccomplishmentandimprovementofperform ance\".Discuss. 7. Listdownmethodsofappraisal?Whichmethodwouldyoupreferasanemployee?Why? B. MultipleChoiceQuestions 1) Aligning and evaluating the employee's performance with that of company's set goals iscalled a. appraisalmanagement b. performancemanagement c. hierarchyofmanagement d. off-the-jobtraining 2) Whentheratingsarecollectedfromsupervisors, customersandpeers itiscalled 121 a. 350-degreefeedback b. 320-degreefeedback c. 360-degreefeedback CUIDOLSELFLEARNINGMATERIAL(SLM)

d. 380-degreefeedback 3) Performancemanagementshouldbeseenasaprocesswhichisa: a. Onceayear task b. Twiceayear activity c. On-goingprocessorcycle d. Isengagedinwhentheappraisalsarecarriedout 4) Aperformancerating systemis: a. Agradeorscorerelating to overallperformance b. Detailsoftheextent towhichworkobjectivesweremet c. Lastyear’sobjectives d. Achievementsduringthe year 5) PerformanceAppraisalisdefinedasproductofability&motivation. a. TRUE b. FALSE Answers: 1-b,2-c,3-c,4-a,5-a REFERENCES  Duari,Pravin.(2010). HumanResourceManagement. NewYork:PearsonEducation.  Dessler,G.(2013).HumanResourceManagement.Delhi:Prentice-Hall.  Flippo, Edwin B. (1966). Personnel/Human Resource Management. New Delhi: TataMcGraw Hills.  Haldar, U.K. AndSarkar.(2012).HumanResourceManagement. NewDelhi:Oxford&IBH.  BiswajitPattanayak,HumanResourceManagement,NewDelhi,PrenticeHallofIndia,2006.  Armstrong Michael:AHandbookofHumanResource Management,KoganPage Ltd.,London.91PerformanceAppraisal  Wayne F. Cascio, Managing Human Resources, Tata McGraw-Hill Publishing CompanyLimited,NewDelhi,2005.  SrinivasR. Kandula,HumanResourceManagementinPractice– with300Models,TechniquesandTools,Prentice- HallofIndiaPrivateLimited,NewDelhi,2003.  https://www.yourarticlelibrary.com 122 CUIDOLSELFLEARNINGMATERIAL(SLM)

 https://www.managementstudyguide.com  www.performancemanagementguide.com/  http://en.wikipedia.org/wiki/Performance_appraisal  http://www.performance-appraisal.com/intro.htm 123 CUIDOLSELFLEARNINGMATERIAL(SLM)

UNIT–8 COMPENSATIONMANAGEMENT Structure Learning ObjectivesIntroducti on RewardsandincentivesObjectivesT ypes Concept ofWages Factors Influencing CompensationStepsinCompensationA dministration Executive Compensation - Concept and ComponentsRetentionstrategies. Summary KeyWords/Abbreviations LearningActivity Unit EndQuestions(MCQand Descriptive)References LEARNINGOBJECTIVES Afterstudyingthisunit,youwillbeableto:  Stateobjectivesand typesofrewardsandincentives  Discussconceptofwages  Explainfactorsinfluencing compensation  Outlinestepsincompensationadministration  Studyconceptand componentsofexecutivecompensation  Identifyretentionstrategies INTRODUCTION One of the most difficult functions of human resource management is that of determining the rates ofmonetarycompensation.Itisnotonlycomplex,butsignificantbothtotheorganisationandemployees. Employee compensation decisions are crucial for the success of an organisation. From acost perspective alone, effective management of employee compensation is critical because of thetotaloperatingcosts.Anotherreasonforstudyingcompensationfromtheorganisation’sperspectiveis to assess its impact on a wide range of employee attitudes and behaviours and, ultimately theeffectiveness of the organisation andits units.Compensation may directly influence key outcomeslikejobsatisfaction, attraction,retention,performance, skillacquisition, 124 CUIDOLSELFLEARNINGMATERIAL(SLM)

cooperation,andflexibility 125 CUIDOLSELFLEARNINGMATERIAL(SLM)

REWARDSANDINCENTIVESOBJECTIVES Rewards and incentives in the workplace have benefits for both employees and employers. Whenrecognizedforstellarperformanceandproductivity,employeeshaveincreasedmorale,jobsatisfaction and involvement in organizational functions. As a result, employers experience greaterefficiency and an increase in sales and productivity. Through workplace rewards and incentives,employersandworkers enjoyapositive andproductiveworkenvironment. MonetaryIncentivesMotivate Monetaryincentivesrewardworkersforperformanceandproductivitythroughmoney.Theseincentives include employee stock options, profit sharing plans, paid time off, bonuses and cashawards.Additional monetary incentivesincludeannual orsemi-annual bonuses,such asmid-yearand end-of-year rewards. These incentives encourage friendlycompetition between associateswhenlinkedtojobperformance.Monetaryrewardsmotivateemployeestoproduceoptimally. Non-MonetaryOpportunities Non-monetary incentivesrewardemployeeperformancethrough perksandopportunities.Theserewardsincludeflexible work hours, training opportunities and the ability towork independently.The rewards and incentives are valuable to an employee because they allow workers to learn newskillsandpursueadvancementopportunities.Forexample,arecentgraduatemayviewanexemplary trainingprogram withinan organization asmorevaluable than ahigherbasesalarybecausehefeels thelearningopportunitywillbenefithis career. EmployeeRecognitionImprovesMorale Employees who receive recognition for their work accomplishments tend to have increased moraleand positive workplace attitudes. Employee recognition is an incentive employer utilize to offerfeedback and encouragement to employees. Recognition rewardscan include award ceremoniesand public announcements, her choice for the next assignment, and asking him to be a mentor toothers.And don'tunderestimate the power of a simple,sincere thank-youfor a job well done.Workplace recognition rewards occur frequentlysuch as at the end of the day,week orat theconclusionofthesalesmonth. EmployeeAssistanceAddsBalance Manyemployersofferrewardsandincentivesthroughemployeeassistanceprograms.Theseprograms help workers maintain abalance between work and homelife by supporting workers'mental and physical well-being. For example, many programs provide counseling services to helpcope 126 CUIDOLSELFLEARNINGMATERIAL(SLM)

withstress,familyissues andsubstanceabuse. 127 CUIDOLSELFLEARNINGMATERIAL(SLM)

Employee assistance programs also offerdiscounts to join fitness centers to encourage an activeand healthy lifestyle. Some programs help working parents find daycare and other activities fortheir children.The purpose of these programsis to supportworkers with their home responsibilitiesso they can remainfocused on theirjobs while they are atwork. Small businesses can contract withanemployee assistancefirmtoprovide the services thatworkersneed. TYPESOFCOMPENSATION 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 employeesreceive aspartof the employmentrelationship.In the era of globalization,where thebusinessenvironmenthasbecomeincreasinglycomplexandchallenging,structuringaneffectivecompen sationpackagetoattractandretaintalentisanimportantfunctionoforganizationaleffectiveness. Compensation refers to as a wide range of financial and non-financial rewards given to employeesfor their services rendered to the organization. It is paid in the form of wages, salaries and employeebenefits such as paid vacation, insurance, maternity leave, free traveling facility, retirement benefits,etc. Compensationcanbeclassifiedintotwocategories: 1. FinancialCompensation 2. Non-FinancialCompensation FinancialCompensation: Financial compensation is most popular and important compensation that is given in the form ofmoney.Itisthe mostimportantmotivationalfactorthatsatisfiesemployees’basicneedslikefood,clothing,etc. Itis furthercategorizedintotwoparts: I. DirectCompensation: Directcompensationmeanscompensatingemployeesbypayingthemmoneyinthefollowingforms: a. Wages-Wages meansremunerationpaidincashfortheworkperformedbyanemployee. b. Bonus- Bonusmeansextracashpaidtoanemployeefor exceedinghisperformanceoroncompletionofspecifiedprojectortarget. Otherfinancialincentivesthataredirectlygiventoemployeesintheformofcash. II. IndirectCompensation(FringeBenefits): Dessler refers to indirect compensation as the indirect financial and non- financial paymentsemployeesreceiveforcontinuingtheir employmentwiththecompanywhichareanimportantpartofevery employee’s compensation. Other terms such as fringe benefits, employee services,supplementarycompensationandsupplementarypayareused. 128 CUIDOLSELFLEARNINGMATERIAL(SLM)

Armstrong says indirect compensation or employee benefits are elements of remuneration given inadditiontothevarious formsofcashpay. Theyalsoincludeitemsthatarenotstrictlyremunerationsuchas annualholidays. Management uses it ostensibly to facilitate its recruitment effort or influence the potential ofemployees coming to work for a company, influence their stay or create greater commitment, raisemorale, reduceabsenteeismingeneralandimprovethestrengthoftheorganizationbyinstitutingacomprehensive programmeinthisarea. According to Chhabra, indirect or supplementary compensation involves ‘fringe benefits’ offeredthrough several employee services and benefits such as housing, subsidized food, medical aid,crechesandsoon.Itinvolvesrewardsprovided byorganizationstoemployeesfortheirmembership,attendance orparticipationintheorganization. Because of the increasing costs of fringe benefits, some people also label them as ‘hidden payroll.’Benefitscurrentlyaccountfor almost40percentofthetotalcompensationcostsfor eachemployee.The basic purpose of fringe benefits or supplementary compensation is to attract and maintainefficienthumanresources withinthe organizationandtomotivatethem. TypesofIndirectCompensation: Belowaresomeofthemorepopularindirectcompensationsofferedbytoday’sorganizations. a. SocialSecurity: This is a federally administered insurance system. According to law, both employer and employeemust pay into the system, and a certain percentage of the employee’s salary is paid up to a maximumlimit. How much is paid by employer and employee is calculated on the average monthly wage(weightedtowardsthelateryears).Itisprovidedmainlytogivefinancialsecuritytoemployeeswhenthey 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, medicalexpenses, rehabilitation of some sort of death benefits to survivors, and lump-sum disabilitypayments. c. RetirementPlans: 129 Retirement and pension plans, which provide a source of income to people who have retired,representmoneypaidforpastservices. Privateplanscanbefundedentirelybytheorganizationorjointlybytheorganizationandthe CUIDOLSELFLEARNINGMATERIAL(SLM)

employeeduringthetime ofemployment. 130 CUIDOLSELFLEARNINGMATERIAL(SLM)

Onepopularformofpensionplanisthedefined-benefitplan. Underthisplan,theemployerpledgesto provide a benefit determined by a definite formula at the employee’s retirement date. The othermajor type of retirement plan is the defined contribution plan, which calls for a fixed or knownannualcontributioninsteadofaknownbenefit. d. PaidHolidays: These comprise Christmas Day, New Year’s Day, Independence Day, Labour Day, etc. Onerelatively new concept is the floating holiday, which is observed at the discretion of the employee orthe employer. Another relatively new concept is referred to as personal time-off or personal days. Under thisconcept,organizationsgiveemployeesacertainnumber ofdayswithpaytoattendtopersonalaffairs.Normallythesedays canbe takenattheemployee’sdiscretion. e. PaidVacations: Typically, an employee must meet a certain length-of-service requirement before becoming eligibleforpaidvacation. Thetimeallowedforpaidvacationsgenerallydependsontheemployee’slengthofservice. Unlikeholidaypoliciesthatusuallyaffecteveryoneinthesamemanner, vacationpoliciesmaydifferamong categories of employees. Most organizations allow employees to take vacation by the day orweekbutnotinunits ofless thanaday. f. OtherBenefits: Organizations may offer a wide range of additional benefits, including food services, exercisefacilities,healthandfirst- aidservices,financialandlegaladvice,andpurchasediscounts.Theextentand attractiveness of these benefits vary considerably among organizations. For example, purchasediscountswouldbe especiallyattractive toemployeesofretailstoreoranairline. Non-FinancialCompensation: Non-financial compensation refers to compensating employee not in form of money but in someotherformsthatstimulateemployees’moraleand alsoimprovehisperformance. Itcanbeinthefollowingforms:  Jobsecurity  Recognition  Participation  Pride injob  Delegationofresponsibility  Otherincentives 131 CUIDOLSELFLEARNINGMATERIAL(SLM)

Thebasictypesofcompensationprevalent particularlyintheIndianindustriesare: 132 CUIDOLSELFLEARNINGMATERIAL(SLM)

(1) Basicpay, (2) Dearnessorcostoflivingallowance, (3) Incentivepayments, (4) Performance-basedremuneration, (5) Bonus, (6) Fringebenefitsandmiscellaneouscashallowances. Type1.BasicPay: Basicpayuniversallyconstitutesthemostimportantcomponentofcompensation. However,therearevariations in the manner in which basic pay is determined and paid. It may be on daily, weekly ormonthlybasis.InIndia,undertheMinimumWagesAct,1948, boththecentralandstategovernmentshavefixedminimumdailyratesofwagesfor alargenumberofsweatedemployments. In the U.S.A., U. K. and France, there has been the practice of fixing hourly rates of wages forseveralcategoriesofworkers.IntheorganisedsectorsinIndia,thepracticeofprescribingmonthlybasic ratesofwagesunderwage scaleswithprovisionofannualincrementsiswidelyprevalent. Basic wages are significant for workers for a variety of reasons. Generally speaking, most other cashallowances made available to workers, such as dearness allowance, house rent allowance, citycompensatory 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 andcertaincashallowancesareoftenlinkedtobasic wages. The quantum of basic pay is also taken into account in determining the scales of certain fringebenefits,suchashousing accommodation,andtravellingand leavetravelallowances.Overtimepaymentsforadditionalhoursworkedare alsousuallybasedonbasic pay. Type2.DearnessorCost ofLiving Allowance: Dearness allowance or cost of living allowance, separate and distinct from basic pay, has been animportant component of compensation in industrial and governmental employments in India and anumberofAsiancountries. Thebasicpurposebehindtheprovisionofdearnessallowanceistooffsettheriseinpricesofconsumptiongood sand to protect therealwagesfrombeing encroached bypricerise. StartingduringtheSecondWorld War periodonatemporaryandexperimentalbasis,thesystemhasbecome a permanent feature of the wage structure in Indian industries and governmental and semi- governmentalemployments. 133 CUIDOLSELFLEARNINGMATERIAL(SLM)

In general, the quantum of dearness allowance payable to industrial workers as well as governmentand semi-government employees is linked with the fluctuations in the Consumer Price IndexNumbersforindustrialworkersworkedout byLabourBureau,MinistryofLabour,and GovernmentofIndia,whichhasbeenengagedinthetasksince1946. ThespecificschemesforthedeterminationofD.A.haveconsiderablyvariedfromtimetotime. Initsearliestform,flatratesonagraduatedbasiswithout anylinkagetoCPInumberswereprevalent. Subsequently, calculationofD.A. cametobemadewithreferencetoriseorfallintheCPInumberscalculatedbyeitherthecentralorstategovernment s. Initially, the percentage of neutralisation for the rise in prices was higher in low wage bracketstapering off gradually when wages rose. Later, a more or less consistent formula providing forneutralisationforriseinpricesonacommonpercentagebasisemergedforgovernmentandsemi- government employees. However, the industrial establishments have their own separate schemesgenerallyworkedoutonthebasis ofnegotiations. InmanycountriessuchastheU.S.A.andAustralia,thereareschemesofautomaticrevisionofbasicrates of pay when prices rise above the specified level. Many collective agreements in the U.S.A.containescalatorclausestoavoidfrequentbargainingforrevisionofwage rates. Type3.IncentivePayments: In a number of industrial undertakings, employees are in receipt of incentive payments. Theseincentiveschemesaregenerallydirectlyrelatedtothequantum,andinsomecases,tothequalityofgood s produced by individual employees or a group of them. The specific schemes vary fromorganisationtoorganisation,and withdifferentsetsofemployeesinthesameorganisation. Thereareschemes,suchasthestraightpiece-ratesystem,inwhichtheearningsofemployeesvaryinthe same proportion as increase in output. In many schemes, incentive payments are lower than theproportion of increase in output. There are also schemes in which incentive payments are higher inproportion to the increase in output. In a number of schemes, incentive payments vary in differentproportions at different levels of output. Performance-based remuneration described below may alsobe consideredincentivepayment. Type4.Performance-BasedRemuneration: 134 During more recent years, especially after the onset of globalisation and competition, manycategoriesofemployees, particularlymanagerialandsupervisorypersonnel,havebeenreceivingperformance- basedremuneration. CUIDOLSELFLEARNINGMATERIAL(SLM)

Such a remuneration is worked out on the basis of the outcome of performance appraisal ofindividualemployees,whichtakesinto accounttheleveloftheirperformanceinsuchareasasextentof improvement in the quantity and quality of products or services, acquisition of skills andcapabilities, regularity of attendance, relationship with co-employees, capacity to face challengingsituationsandextentofcommitmenttowork. The specific schemes of performance appraisal vary from organisation to organisation and differentsets of personnel in the same organisation. Based on performance appraisals, individual employeesareallottedspecificgrades,andareremuneratedandgiveninducementsbasedontheirperforman ce.Performance appraisal also constitutes key to decisions in other areas of HRM such as promotion,transfer,demotionandevenseparation. 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 basisprimarilyatthediscretionofemployers. However,duringthecourseoftime,itbecameamajorboneof contention between employers and workmen, often resulting in industrial unrest and workstoppages. Many disputes on the question of bonus came up for decision by industrial tribunals and evenSupremeCourt.Inviewofthemountingandregular unrestoverthequestion, thePaymentofBonusAct was enacted in 1965. The Act specifies in some detail the formula for the calculation of bonus,andprescribesboththeminimumandmaximum bonuspayableto specifiedcategoriesofworkers. Type6. FringeBenefitsandMiscellaneousCashAllowances: Apartfromwagesandsalaries,incentivepayments,dearnessallowanceandbonuses,employeesareofteninrece ipt ofseveraltypesofindirectcompensationorfringebenefits,bothincashand kind. These include housing facilities and house rent allowance, city compensatory allowance, leave- travelfacilities, medical facilities and allowances, educational facilities and allowances for the children ofemployees, 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 soon. The nature and scale of fringe benefits vary widely from organisation to organisation. To theemployer,theyareapart oflabourcost.In manyorganisations,theyconstituteasubstantialportionoflabourcost,surpassingeventhe wagebill. 135 CUIDOLSELFLEARNINGMATERIAL(SLM)

Manyofthesefringebenefitsaremadeavailabletoemployeesvoluntarilybytheemployers;manyhavebeent heoutcomeofcollectiveagreementsand manyothershavebeenstatutorilyimposed. Many employers, owning large-scale industrial establishments and also those having theirestablishmentsinremoteandisolatedareas,providehousingaccommodationtotheiremployeesandhave alsoestablishedwell-equippedhospitalsanddispensaries. GaryDesslerandBijuVarkkeyhavepreferredtokeepvarious formsofcompensationintotwomaincategories—direct financial payments such as wages, salaries, incentives, commission and bonuses,andindirectfinancialpaymentssuchasemployer- paidinsuranceandleavetravelconcessions. JosephJ.Martocchiohasclassified seventypesofmonetaryorcorecompensationinthecontextofpracticesintheU.S.A. Theseareasfollows–hourlypay, annualsalary,costoflivingadjustments, senioritypay,meritpay,incentive pay and person-focused pay, pay-for-knowledge and skill-based pay. Practices in regard toforms of compensation or their combinations vary from organisation to organisation depending on asetofinternalandexternalfactors. CONCEPTOFWAGES Wage Management is of great significance in the study of Personnel Management. How much wageshe paid to the employees, has been a debatable question. Wage is like a pivot round which laborproblems revolve.It is pretty difficultto determine wage-rate. The entrepreneuris keen to payminimum possible wage to the laborer’s while the laborer’s want to get maximum wage from theentrepreneur. To bring about synthesis between the satisfaction of the laborer’s and interests of theemployersis whatiscalleddeterminationofwage. Historically,satisfactionof theworkersandinterestof theemployeesbothhavebeenopen toquestion. Differentopinionsonthisissuehaveled totheemergenceofthefollowing concepts: (i) Concept ofStatutoryMinimumWages. (ii) BareorMinimumWageConcept. (iii) Concept ofMinimumWage. (iv) ConceptofFairWage. (v) ConceptofLiving Wage. Amoredetailedstudyoftheseconceptsisasunder: (1) StatutoryMinimumWages: AccordingtothisconceptwagesaresodeterminedbytheemployersastoconformtotheprovisionsofMinimu mWagesAct1948.UndertheAct,minimumwagesaredeterminedso thatnolabour is 136 CUIDOLSELFLEARNINGMATERIAL(SLM)

paidless than the minimumfixednoris he exploited. The employerhas got topaystatutoryminimumwages,irrespective ofhiscapacitytopay. (2) Bare orMinimumWageConcept: It is that wage-rate which is determined by judicial pronouncements, Awards, Industrial Tribunals,LaborCourtsand NationalTribunals.The employerislegally boundtopaythisamount. (3) MinimumWageConcept: The term “minimum wage” means least possible or lowest wage. It is that rate of wage, less thanwhichis neitherpaidnoraccepted.Underminimum wage concept, main objective of MinimumWage 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, socialdignityandefficiencyoftheconcernedlaborers. While determining minimum wage, it must be taken into account that its amount should be such as tomeet the bare necessities of life and also provide such facilities to the employees as are essential tomaintaintheirefficiency. According to All India Employers Organization,“Thatrate of wage which satisfies the physicalneedsofthe workerandhisfamily,iscalledminimumwage.” From humanitarian as also from legal point of view laborer’s must get minimum wages as it checkstheirexploitationandalsoeliminatesinefficientemployers. FACTORSINFLUENCINGCOMPENSATION The amount of compensation received by an employee should take into account several factorssuchas the amount of effort put in, competitive rates prevailing in labor market, demand for and supply oflabor,thefirm’sabilitytopay,laborpolicy,etc. Let’slookintothesefactorsmoreclosely: 1. TheOrganization’sAbility toPay: Wage increases should be given by those organizations which can afford them. Companies that havegood sales and, therefore, high profits tend to pay higher wages than those which running at a loss orearning low profits because of the high cost of production or low sales. In the short run, the economicinfluence on the ability to pay is practically nil. All employers, irrespective of their profits or losses,mustpay no less than their competitors and need pay no more if they wish to attract and keepworkers. Inthelongrun,theabilitytopayisveryimportant.Duringthetimeofprosperity,employerspayhighwagestocar ryonprofitableoperationsandbecauseof theirincreasedabilitytopay.Butduringa period of depression, wages are cut because funds are not available. Marginal firms and non-profitorganizations (like hospitals and educational institutions) pay relatively low wages because of low ornoprofits. 2. SupplyofandDemandforLabor: The labor market conditions or supply and demand forces operate at the national, regional and locallevels,anddetermineorganizationalwagestructure andlevel. 137 CUIDOLSELFLEARNINGMATERIAL(SLM)

If the demand for certain skills is high and the supply is low, the result is a rise in the price to be paidfortheseskills.Whenprolongedandacute,theselabor- marketpressuresprobablyforcemostorganizationsto“reclassifyhard-to- filljobsatahigherlevel”thanthatsuggestedbythejobevaluation. The other alternative is to pay higher wages if the labor supply is scarce; and lower wageswhenitis excessive. Similarly, if there is great demand for labor expertise, wages rise; but if the demand for manpowerskillisminimal,thewageswillberelativelylow.Mesconsays- “Thesupplyanddemandcompensation criterion are very closely related to the prevailing pay, comparable wage and ongoingwage concepts since, in essence, all of these remuneration standards are determined by immediatemarketforcesandfactors.” 3. PrevailingMarketRate: This is also known as the ‘comparable wage’ or ‘going wage rate’, and is the most widely usedcriterion.Anorganization’scompensationpolicygenerallytendstoconform tothewageratespayable by the industry and the community. This is done for several reasons. First, competitiondemands that competitors adhere to the same relative wage level. Second, various government lawsandjudicialdecisionsmake the adoptionofuniformwage ratesanattractiveproposition. Third, trade unions encourage this practice so that their members can have equal pay, equal work andgeographical differences may be eliminated. Fourth, functionally related firms in the same industryrequire essentially the same quality of employees, with the same skills and experience. This results ina considerableuniformityinwage andsalaryrates. Finally, if the same or about the same general rates of wages are not paid to the employees as arepaid by the organization’s competitors, it will not be able to attract and maintain a sufficient quantityand quality of manpower. Belcher and Atchison observe- “Some companies pay on the high side ofthemarketinordertoobtaingoodwillortoensureanadequatesupplyoflabor,whileotherorganizations pay lower wages because economically, they have to, or because by lowering hiringrequirementstheycankeepjobs adequatelymanned.” 4. TheCostofLiving: The cost of living pay criterion is usually regarded as an automatic minimum equity pay criterion.Thiscriterioncallsfor payadjustmentsbasedonincreasesor decreasesinanacceptablecostoflivingindex. In recognition of the influence of the cost of living, “escalator clauses” are written into laborcontracts. When the cost of living increases, workers and trade unions demand adjusted wages to offset theerosion of real wages. However, when living costs are stable or decline, the management does notresorttothisargumentas a reasonforwagereductions. 5. TheLivingWage: The living wage criterion means thatwages paid should be adequate to enable an employee tomaintain himself and his family at a reasonable level of existence. However, employers do notgenerally favor using the concept of a living wage as a guide to wage determination because theyprefertobase the wagesofanemployee onhiscontributionratherthanonhisneed.Also,theyfeel 138 CUIDOLSELFLEARNINGMATERIAL(SLM)

that the level of living prescribed in a worker’s budget is open to argument since it is based onsubjective opinion. 6. Productivity: Productivity is another criterion, and is measured in terms of output per man-hour. It is not due tolaboreffortsalone.Technologicalimprovements,betterorganizationandmanagement,thedevelopmentof better methodsof production by laborandmanagement, greater ingenuity andskillby labor are all responsible for the increase in productivity. Actually, productivity measures thecontributionofalltheresourcefactors—men,machines,methods,materialsandmanagement. No productivity index can be devised which will measure only the productivity of a specific factor ofproduction. 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,operationallymanyproblemsandcomplicationsarisebecauseofdefinitionalmeasurementandconc eptualissues. 7. TradeUnion’sBargainingPower: Trade unions do affect rate of wages. Generally, the stronger and more powerful the trade union, thehigher the wages. A trade union’s bargaining power is often measured in terms of its membership, itsfinancial strength and the nature of its leadership. A strike or a threat of a strike is the most powerfulweaponusedbyit. Sometimes trade unions force wages up faster than increases in productivity would allow and becomeresponsible for unemployment or higher prices and inflation. However, for those remaining on thepayroll,a realgainisoftenachievedasa consequenceofa trade union’sstrongerbargainingpower. 8. JobRequirements: Generally, the more difficult a job, the higher are the wages. Measures of job difficulty are frequentlyused when the relative value of one job to another in an organization is to be ascertained. Jobs aregraded according tothe relativeskill,effort,responsibility,andjobconditionsrequired. 9. ManagerialAttitudes: These have a decisive influence on the wage structure and wage level since judgement is exercised inmany areas of wage and salary administration— including whether the firm should pay belowaverage, or above average rates, what job factors should be used to reflect job worth, the weight to begiven for performance or length of service, and so forth, both the structure and level of wages arebound tobe affected accordingly.Thesemattersrequire the approvalofthetopexecutives. Lester observes “Top management’s desire to maintain or enhance the company’s prestige has been amajorfactor in the wage policy of a numberof firms.Desires toimprove ormaintainmorale,toattracthigh- caliberemployees,toreduceturnover,andtoprovideahighlivingstandardforemployeesaspossiblealsoappe artobefactorsinmanagement’swagepolicydecisions.” 10. PsychologicalandSocialFactors: These determine in a significant measure how hard a person will work for the compensation receivedor what pressures he will exert to get his compensation increased. Psychologically, persons perceivethe levelofwages asameasure ofsuccessinlife;peoplemayfeelsecure;have aninferiority 139 CUIDOLSELFLEARNINGMATERIAL(SLM)

complex, seem inadequate or feel the reverse of all these. They may not take pride in their work, or inthewages theyget. 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 “wagesshould be commensurate with their efforts,” that “they are not exploited, and that no distinction ismade onthebasis ofcaste,colour,sexorreligion.” To satisfy the conditions of equity, fairness and justice, a management should take these factors intoconsideration. 11. SkillLevelsAvailableintheMarket: Withtherapidgrowth of industries,businesstrade,thereisshortage ofskilledresources.Thetechnological development, automation has been affecting the skill levels at faster rates. Thus, thewage levels of skilled employees are constantly changing and an organization has to keep its level uptosuitthemarketneeds. STEPSINCOMPENSATIONADMINISTRATION StepsincompensationAdministrationasgivenbelow: 1. Jobanalysis(Thesystematicprocessofcollectinginformationthatidentifiessimilaritiesanddiffere nceinthework. 2. Jobdescription(Summaryreportthatidentifydefinesanddescribethejobasitisactuallyperform ed.) 3. Jobevaluation(CompensationofjobswithinanOrganization) 4. Jobstructure(anorderingofjobsbasedontheircontentorrelativevalue.) 5. Paystructure(specifytheemployer'scompetitivepaypolicy) 6. Compensation. 1. Job analysis: Job analysis is done for identifying the skills and experience required to perform thework clarifies hiring and promotion standards and identifies training needs. A Good Job analysiscollects sufficient information to adequately identify, define and describe a Job. In job analysis wecollect data related to job like title of the job, Department in which Job is located, Number of PeoplewhoholdsJob,Tasks,activities,constraint onaction,performancecriteria,criticalincidents,demand,workingconditions. Datacollectedrelatedtoemployee.LikeprofessionalKnowledge,manualskills,verbalskills,writtenskills, 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 professionalindustry,community,union,employeegroup. 140 CUIDOLSELFLEARNINGMATERIAL(SLM)

2. Jobdescription:Theinformationcollectedshouldbeorganizedandsummarizedanddocumented.That summary of the Jobs is the Job description. The Job description provides a word picture of thejob. 3. Job evaluation: Job evaluation is the process of systematically determined the relative wroth ofJobstocreateajobstructurefortheOrganization.Theyaredifferentmethodstoevaluatethejob.Theyar eranking,pairedComparison,Printmethod. 4. Jobstructure:ThefinalresultoftheJobanalysis,JobdescriptionJobevaluationprocessisastructure . 5. Pay structure : In designing pay structure it includes steps like specify the employer's competitivepay policy, define the purpose of the survey ,select relevant market competitors, design the survey,interpretsurveyresultsandconstructthemarketline, constructapaypolicylinethatreflectsexternalpay policy and balance competitiveness with internal alignment through the use of ranges flat rates.Pay structure Undertake training. Increase experience. Facilitate career progression. Facilitateperformance.Reduce pay-relatedgrievance.Reducepay- relatedworkstoppage. 6. Compensation: Is the remuneration received by an employee in return for his/her contribution tothe organization. It is an organized practice that involves balancing the work-employee relation byprovidingmonetaryandnon-monetarybenefitstoemployees. Compensationisof2types: 1.CashCompensation2.Benefitcompensation. 1. CashCompensation: a.) Base b) Merit c) Incentives a.) Base: Base wage is the cash compensation that an employer pays for the work performed. BaseWage tends to reflect the value of the work (or) skills and generally ignores difference attributes toindividualemployees. b) Merit:Meritincreasesaregivenasincrementstothebasepayinrecognitionofpostworkbehaviou r. c) Incentives:Incentivesdifferfrommerit adjustmentsIncentivesdon't increasebasewage.Itmustbe re- earned each pay period. The potential size of the Incentive payment will generally be knownbeforehand. 141 CUIDOLSELFLEARNINGMATERIAL(SLM)

2. Benefitcompensation: a) IncomeProtection. b) WorklifeBalance. c) Allowances. a) IncomeProtection:Medicalinsurance,retirementprograms,lifeinsuranceandsavingplansandcomm onbenefits.Whichhelp protectemployeesfromthefinancialriskinherentindailylife. b) Work life Balance: Programs that help employees better integrate their work and liferesponsibilitiesincludetimeawayfromworkvocation,Juryduty)accesstoservicetomeetspecificneed s (drugs consuming, financial planning, referrals for child and elders care) and flexible workarrangements (tele commuting, on-traditional schedule) and non-paid time off, Responding to thechangingdemographics oftheworkforce. c) Allowances:likehousing(dormitories,apartment)andtransportationallowancesarefrequentlyparto fthepaypackage. EXECUTIVECOMPENSATION-CONCEPTANDCOMPONENTS In modern business, executives hold the most pivotal place in an organisation. They play a major partin looking after the economic health of the company. As they are important for the success, growthand profitability of an organisation, they have to be compensated properly. To make the executiveshappy to the extent possible, companies have been giving in recent years, bigger and more frequentrisesin salaries.The cumulative effectis that executive compensation cost is today a sizeable costand rising cost. Companies have started looking at executive compensation more systematically andmore proactively so that they can expect better performance from the executives. For the highermanagement, salaries are influenced by the size of a company, by the specific industry, and in part bythe contribution of the incumbent to the process of decision-making. The bigger the company, thegreater is the compensation paid to the executives.Straightsalaries, bonuses, stock purchase plansand profit sharing are used to compensate executives. In addition, executives are compensated for thevarious expenses incurred by them, for taxation takes away a major portion of their salary. Suchpayments areintheformof: 1) medicalcare; 2) professionalserviceinlegalandfinancialmatters; 3) facilitatesforentertainingcustomersandfordining out; 4) companyrecreationalservices; 5) thecostofeducationandtrainingofexecutives, scholarships fortheirchildren, andallowances forprofessionalmagazines andbooks;and 6) freewell-furnishedaccommodation,conveyanceandservants. Allthesegounderthehead ofperquisites.Asound systemofexecutivecompensation isessential fora numberofreasons,namely: a. toattracttherightkindofpersonnel; b. toretaintherightkindofpersonnel; 142 CUIDOLSELFLEARNINGMATERIAL(SLM)