IGNOU HRM NOTES

13-9-2012

Block Title Unit title Unit contents Unit writers1. Introduction to Human Resource Management

1. Concept of Human Resource Management

Meaning, objective, role (functions) and scope of Human Resources Management;

Dr. V.M. Prasad

Associate Professor

Faculty of Management

JLN Technical University

Email: vmprasad123@gmail.com

Phone: 9346382438

2. Human Resource Planning

Human Resource Planning- Nature and Significance, Planning personnel functions. Manpower planning process.

3. Recruitment and Selection

Recruitment, Selection Process and Induction - Nature, Significance, Process and Techniques.

Training and Human Resource Development-, Internal mobility including Transfers, Promotions, employee separation.

4. Job description and analysis

Job Analysis, Job Description, job Specification, Job enlargement, Job enrichment, Job rotation, Job evaluation.

5. Performance Appraisal

Scope, Significance and Techniques

6. Wage Management

Significance and payment methods, Compensation management, Wage and Salary Administration - Wage Fixation, Fringe Benefits, Incentive Payment, bonus, and Profit Sharing.

1

INTRODUDCTION TO HUMAN RESOURCE MANAGEMENT

UNIT 1 CONCEPT OF HUMAN RESOURCE MANAGEMENT

Structure

1.1 Meaning

Human Resource Management (HRM) focuses on the human side of work and organizations.

It is an area of vital concern to both public and private sector businesses seeking to manage their

'human assets' effectively. Successful organizations recognize human resource professionals as a

vital connection between top management and employees.

There is a confusion with reference to the difference between personnel management and

human resource management. Since 1920’s the term ‘personnel management’ is widely used in

the industry to indicate all the activities related to employees. It mostly dealt with the activities

like procurement, compensation, development, integration and separation and also service

conditions of the employees in order to achieve the targets of the organizations. The

managements of organizations feel that employees as an input of production for which salaries

are paid on a daily, weekly, fortnightly or monthly basis. The management’s of organizations are

of the opinion that once the monthly salary is paid the employees cannot expect anything from

the outcome of their actions. This is mainly because, in the event of losses to the organization

employees do not take responsibility.

In contrast to the philosophy of personnel management, if the management of any

organization treat the employees as resource which will yield both short term and long term

stability of growth to the organization then it is considered as Human Resource

Management(HRM). Hence in recognition to the contribution made by the HR the organizations

nurture the employees by way of rewards, promotions, stock options and treat the employees as

business partners and not as isolated cogs in the machine. It is the attitude of the management

that determines whether they are practicing personnel management or HRM.

2

Personnel became a true management function, often an advisory function to senior

management and certainly, in smaller companies, the management advisor to the president or

other senior managers. At the same time, in many companies, Personnel became the stepping

stone for a career in the senior most positions in companies.

HRM plays the most crucial role in the management of an organization. Human resources

play crucial role in the conversion process of inputs into outputs. Product design, Quality of

product, customer satisfaction etc. depend upon the efficiency of human resources.

As a manager you can lay bright plans, draw clear organization charts, set up modern

assembly lines and use sophisticated accounting controls but fail in hiring the right candidates for

right place and time and failing in motivating and managing the human resources. On the other

hand, many managers were successful by hiring the right people, motivating them and appraising

them. It clearly indicates the importance of the HRM in the organizations which leads to

attaining the goals of the organization.

1.2 Objective

The basic objective of HRM is to maintain efficient team of workers for the benefit of the

organization. In addition, to provide opportunities for self development and finally to maintain

congenial work atmosphere and inter-personnel relations are the objectives of HRM. HRM aims

at giving fair treatment to employees as regard wages, 'welfare facilities, non-monetary benefits,

working conditions and so on.

The objectives of HRM are derived from the basic objectives of an organization. In order

to achieve organizational objectives, integration of employer's interest and employee interests is

necessary. The objectives of HRM in any industrial organization can be summarized as under.

i. To attain maximum individual development (self-development) of the members of an

organization and also to utilize available human resources (with the organization) fully

and effectively.

ii. To mould available human resources effectively.

iii. To establish desirable working relationships between employer and employees and

between groups of employees.

3

iv. To ensure satisfaction to the workers so that they are freely ready to work.

v. To improve the service rendered by the enterprise to the society through better employee

morale, which leads to more efficient individual and group performance.

vi. To establish and maintain a productive and self respecting relationship among all the

members of an organization.

vii. To ensure the availability of a competent and willing workforce to the organization for its

progress and prosperity.

viii. To help organization to achieve its goals by providing well trained efficient and properly

motivated employees.

ix. To maintain high morale and good human relations within the organization for the benefit

of employer and employees.

x. To secure the integration of all the individuals and groups with the organization by

reconciling individual/group goals with those of an organization.

1.3 Role (Functions)

A HR manager has to perform the basic functions of management. These managerial

functions include' planning, organizing, directing and controlling human resources. The

operative functions of the department are: procurement of staff, development of staff through

training, payment of compensation to staff i.e. wages and salaries, integration of manpower i.e.

fair reconciliation of individual, social and organizational goals and interests and maintenance of

staff i.e. providing them safety at the work place and also to offer welfare facilities and

conveniences to employees. In brief, personnel management involves the following operational

functions:

1.3.1 Procurement of manpower: Procurement means acquiring the manpower required by an

organization from time-to-time. The basic Principle in procurement is "right man for the right

job". The procurement function includes manpower planning and forecasting, recruitment,

selection, appointment, placement and induction of employees so as to have a team of efficient

and capable employees for the benefits of the organization. Even promotions and transfers are

covered by this broad personnel function.

4

1.3.2 Development of manpower: Development of manpower (human resource development)

means planning and execution of the training programs for all categories of employees in order

to develop new skills and qualities required for working at the higher level. Manpower

development is possible through training and career development programmes and not simply by

offering attractive wages to workers. Executive development programs are introduced for the

benefit of higher-level managers similarly, future manpower requirement will be met internally

through HRD programs. It aims at educating and training employees for the improvement of

overall performance of an organization. HRD (Human Resource Development) programs are for

education, training and development of existing manpower in an organization. This is for facing

new problems and challenges likely to develop in the near future and in the long run.

1.3.3 Compensation to manpower employed: Third function of HRM is compensation in

monetary form to employees for the services rendered. Equity (equal pay for equal work) in

wage payment acts as a motivating factor. For this, a fair system of wages and salaries needs to

be introduced. Remuneration to employees should be attractive so that the labour force will be

satisfied and disputes, etc. will be minimized.

1.3.4 Integration of manpower and the organization: Manpower is interested in wage

payment while organization is interested in higher profits, consumer loyalty, market reputation

and so on. HRM has to reconcile the interests of the individual members of the organization with

those of the organization.

1.3.5 Maintenance of manpower: This function relating to maintaining deals with satisfying

manpower in the organization through the provision of welfare facilities, transfers, promotions to

suit individual interests keeping in view the organizational requirements. For this, attention needs

to be given to health and safety measures, maintenance of proper working conditions at the work

place, provision of welfare facilities and other non-monetary benefits so as to create efficient and

satisfied labor force with high morale. Even collective bargaining and workers participation

comes within this broad personnel function.

1.3.6 Provision of welfare facilities: Employees are offered various welfare facilities. They

include medical, educational, recreation, housing, transport and so on.

5

1.3.7 Miscellaneous functions: Misc functions under HRM include maintenance of service

records of employees (which are used for promotions/transfers, performance appraisal, etc.),

promotions and transfers of employees, maintaining cordial industrial relations, introduction of

rational grievance procedure, performance evaluation of employees, career planning of

employees, maintenance of discipline, administering the policies with regard to disciplinary

action and compliance of various labour laws.

Exercise:

Purpose: The purpose of this exercise is to provide practice in identifying the basic functions of

HRM by illustrating examples of various companies.

Instructions:

Work individually or in groups to identify and discuss the following questions.

1. Identify some companies well known to you.

2. List out the Managerial functions and roles carried in those companies.

3. Differentiate the HR functions and roles.

1.4 Scope of Human Resource Management

The scope of human resource management outlined below includes an outline of transformation

and development issues, tentative generic skills required in performing HRM roles, as well as the

roles of a human resource and HRM professionals. With regard to the latter, the assumption is

made that roles are inter-linked and management practitioner (line management interdependent,

even though these relationships may not be expressly stated in each case.

Knowledge management which entails accumulating & capturing knowledge in large

organizations for future application & use (organizational memory).

Reconciliation management.

Work creation as opposed to job creation.

Manage the transfer of HRM functions and skills to line management.

Marketing of HRM to line management.

Development of contextual approaches to HRM.

Encourage Multi-skill /or multi-tasking.

6

Increased societal responsibility.

Managing people in virtual work environments.

Focus on deliverables rather than being doubtful on employees.

Questions for Discussion:

1) Describe in brief the nature and scope for HR function in your organization or any organization of your choice?

2) The HR manager is being paid by the management. Is he or she therefore a representative of the management or HR. Discuss in detail?

3) “HR management is a basic management pertaining to all levels and types of Management.” Discuss.

4) Explain the qualities necessary for a HR Manager?

5) Compare the HR policies of two or three companies?

Case Study:

Jack Nelson’s Problem

As a new member of the board of directors for a local bank, Jack Nelson was being introduced to all employees in the home office. When he was introduced to Ruth Johnson, he was curious about her work and asked her what the machine she was using did. Johnson replied that she really did not know what the machine was called or what it did. She explained that she had only been working there for two months. She did, how ever, know precisely how to operate the machine. According to her supervisor, she was an excellent employee.

At one of the branch offices, the supervisor in charge spoke to Nelson confidentially, telling him that “some thing was wrong,” but she didn’t know what. For one thing, she explained, employee turnover was too high, and no sooner had one employee been put on the job than another one resigned. With customers to see and loans to be made, she continued, she had little time to work with the new employees as they came and went.

All branch supervisors hired their own employees with out the communication with the home office or other branches. When an opening developed, the supervisor tried to find a suitable employee to replace the worker who had quit.

After touring the 22 branches and finding similar problems in many of them, Nelson wondered what the home office should do or what action he should take. The banking firm was

7

generally regarded as a well run institution that had grown from 27 to 191 employees during the past eight years. The more he thought about the matter, the more puzzled Nelson became. He couldn’t quite put his finger on the problem, and he didn’t know whether to report his findings to the president.

Questions

a) What do you think is causing some of the problems in the bank’s home office and branches?b) Do you think setting up an HR unit in the main office would help?c) What specific functions should an HR unit carry out? What HR functions would then be carried

out by supervisors and other line managers?

(Source: From Claude S.George, Supervision in action, 4th ed., 1985. Adapted by permission of Prentice Hall, Inc., Upper Saddle River, NJ.)

8

UNIT 2 HUMAN RESOURCE PLANNING

Structure

2.1 Human Resource Planning

Manpower Planning which is also called as Human Resource Planning consists of putting

right number of people, right kind of people at the right place, right time, doing the right things

for which they are suited for the achievement of goals of the organization. Human Resource

Planning has got an important place in the arena of industrialization. Human Resource Planning

has to be a systems approach and is carried out in a set procedure. The procedure is as follows:

1. Analyzing the current manpower inventory.

2. Making future manpower forecasts.

3. Determine the wastage in terms of resignations, death, permanent disability,

retrenchment, dismissal etc.

4. Determine the number of wait list candidates trade wise.

5. Calculate additional requirement = Future requirement + Wastage – Wait List.

6. Develop recruitment program.

7. Develop selection process.

8. Select employees.

9. Compensation management.

10. Induction of employees as and when required.

11. Design training programs.

12. Developing employment programs.

Manpower Planning is a two-phased process because manpower planning not only analyses

the current human resources but also makes manpower forecasts and thereby draw employment

programs. Manpower Planning is advantageous to firms in following manner:

9

1. Shortages and surpluses can be identified so that quick action can be taken wherever

required.

2. All the recruitment and selection programs are based on manpower planning.

3. It also helps to reduce the labour cost as excess staff can be identified and thereby

overstaffing can be avoided.

4. It also helps to identify the available talents in a concern and accordingly training

programs can be chalked out to develop those talents.

5. It helps in growth and diversification of business. Through manpower planning, human

resources can be readily available and they can be utilized in a best manner.

6. It helps the organization to realize the importance of manpower management which

ultimately helps in the stability of a concern.

2.2 Nature and Significance

1. Key to managerial functions- The four managerial functions, i.e., planning, organizing,

directing and controlling are based upon the manpower. Human resources help in the

implementation of all these managerial activities. Therefore, staffing becomes a key to all

managerial functions.

2. Efficient utilization- Efficient management of personnel becomes an important function

in the industrialization of world of today. Setting of large scale enterprises requires

management of large scale manpower. It can be effectively done through staffing

function.

3. Motivation- Staffing function not only includes putting right men on right job, but it also

comprises of motivational programs, i.e., incentive plans to be framed for further

participation and employment of employees in a concern. Therefore, all types of

incentive plans become an integral part of staffing function.

4. Better human relations- A concern can stabilize itself if human relations develop and

are strong. Human relations become strong trough effective control, clear

communication, effective supervision and leadership in a concern. Staffing function also

10

looks after training and development of the work force which leads to co-operation and

better human relations.

5. Higher productivity- Productivity level increases when resources are utilized in best

possible manner. Higher productivity is a result of minimum wastage of time, money,

efforts and energies. This is possible through the staffing and it's related activities

( Performance appraisal, training and development, remuneration)

2.3 Planning Personnel Functions

Human Resource Planning involves the forecasting of labor demand and supply for a

specified time period, based on an organization’s operating objectives and business strategy.

Wh y i s hu m an resource planning important :

A. Prevents understaffing and disruptions to operations.

B. Prevents overstaffing and the eventual costs of employee layoffs.

C. Provides greater efficiency and effectiveness of other HR functions:

i. Recruiting – allows lead-time to implement best recruiting methods.

ii. Selection – allows larger applicant pools and optimal selection ratios.

iii. Training – allows training programs to be operated at optimal levels.

iv. Compensation – helps prevent wage inflation due to “crisis hiring”.

The objectives of HR plan must be derived from organizational objectives. Specific

requirements in terms of number and characteristics of employees should be derived from the

organizational objectives.

Organizational objectives are defined by the top management and the role of HRP is to

sub serve the overall objectives by ensuring availability and utilization of human resources.

11

Once the organizational objectives are defined by the top management and the role of

HRP is to sub serve the overall objectives by ensuring availability and utilization of human

resources.

Once the organizational objectives are specified, communicated and understood by all

concerned, the HR department must specify its objectives with regard to HR utilization in the

organization.

Fig 1: Frame work of HRP Process

12

2.3.1 HR Demand Forecast

Demand forecasting is the process of estimating the future quantity and quality of people

required. The basis of forecast must be annual budget and long-term corporate plan, translated

into activity levels for each function and department.

There are several good reasons to conduct demand forecasting :

- Quantify the jobs necessary for producing a given number of goods.

- Determine what staff-mix is required.

- Asses appropriate staffing levels in different parts of the organization.

- Prevent shortages of people.

- Monitor compliance with legal requirements with regard to reservation of jobs.

2.3.2 HR Supply Forecast

Personnel demand analysis provides the manager with the means of estimating the number and

kind of employees that will be required. The next logical step for the management is to

determine whether it will be able to procure the required number of personnel and the sources for

such procurement. This information is provided by supply forecasting. Supply forecasting

measures the number of people likely to be available from within and outside an organization,

after making allowance for absenteeism, internal movements and promotions, wastage and

changes in hours, and other conditions of work.

Reasons for supply forecast are:

- Helps quantify number of people and positions expected to be available.

- Helps clarify staff mixes that will exist in the future.

- Assess existing staffing levels in different parts of the organization.

- Prevents shortage of people.

- Monitors expected future compliance with legal requirements of job reservations.

13

2.3.3 HR Programming

Once an organization’s personnel and supply are forecast, the two must be reconciled or

balanced in order that vacancies can be filled by the right employees at the right time.

2.3.4 HR Plan Implementation

Implementation requires converting an HR plan into action. A series of action programmes are

initiated as apart of HR plan implementation.

- Recruitment, Selection and Placement : after the job vacancies are known, efforts must be made

to identify sources and search for suitable candidates. The selection programme should be

professionally designed.

- Training and Development : The training and development programme should cover the

number of trainees required and programmes necessary for existing staff.

- Retraining and Redeployment : new skills are to be imparted to existing staff when technology

changes.

- Retention Plan : retention plan covers actions which would help reduce avoidable separations

of employees.

- Downsizing : where there is surplus employee, trimming of labour force will be necessary.

2.3.5 Control and Evaluation

Control and evaluation represents the fifth and the final phase in the HRP process. The

HR plan should include budgets, targets and standards. It should also clarify responsibilities for

implementation and control, and establish reporting procedures, which will enable achievements

to be monitored against the plan.

2.4 Manpower Planning Process

The following is the manpower planning process:

14

2.4.1 Analyzing the current manpower inventory- Before a manager makes forecast of future

manpower, the current manpower status has to be analysed. For this the following things have to

be noted-

Type of organization

Number of departments

Number and quantity of such departments

Employees in these work units

Once these factors are registered by a manager, he goes for the future forecasting.

2.4.2 Techniques for manpower forecasts- Once the factors affecting the future manpower

forecasts are known, planning can be done for the future manpower requirements in

several work units.

The Manpower forecasting techniques commonly employed by the organizations are as

follows:

i. Expert Forecasts: This includes informal decisions, formal expert surveys and

Delphi technique.

ii. Trend Analysis: Manpower needs can be projected through extrapolation

(projecting past trends), indexation (using base year as basis), and statistical

analysis (central tendency measure).

iii. Work Load Analysis: It is dependent upon the nature of work load in a

department, in a branch or in a division.

iv. Work Force Analysis: Whenever production and time period has to be analysed,

due allowances have to be made for getting net manpower requirements.

v. Other methods: Several Mathematical models, with the aid of computers are

used to forecast manpower needs, like budget and planning analysis, regression,

new venture analysis.

15

2.4.3 Developing employment programs- Once the current inventory is compared with future

forecasts, the employment programs can be framed and developed accordingly, which

will include recruitment, selection procedures and placement plans.

2.4.4 Design training programs- These will be based upon extent of diversification,

expansion plans, development programs, etc. Training programs depend upon the extent

of improvement in technology and advancement to take place. It is also done to improve

upon the skills, capabilities, knowledge of the workers.

Questions :

1) What do you understand by Human resource planning? How would you draw-up a manpower plan for an organization?

2) What are the benefits of Human resource planning for an organization?

3) Draw an action plan to the manpower plan for a newly established firm?

4) In what ways are Manpower planners are responsible for maintaining staffing levels?

5) In what ways does Human resource planning differ operationally from Manpower planning? Illustrate with examples.

Exercise

Imagine that you are a manpower planner for a food retail stores in your city. You have 25 stores in your area, ranging in size about employing a store manager, two assistant managers, 9 Line supervisors, 24 full time employees working as check-out specialists, 45 full time ware house and stores assistants and 4 Security men.

Over the last 6 months, you have noticed a steadily increasing demand for your products with the region as a whole.

As a manpower planner, prepare an initial manpower plan for the organization and report to senior management explaining the need of human resources planning for future requirement outlining the reasons.

16

UNIT 3 RECRUITMENT AND SELECTION

Structure

3.1 Recruitment

3.2 Selection Process and Induction

3.3 Nature

3.4 Significance

3.5 Process and Techniques

3.6 Training and Human Resource Development

3.7 Internal mobility including transfers

3.8 Promotions

3.9 Employee Separation

3.1 Recruitment refers to the process of screening, and selecting qualified people for a job at an

organization or firm, or for a vacancy in a volunteer-based organization or community group.

Recruitment is a positive process as it attracts suitable applicants to apply for available jobs. It is

the process of searching the candidates to employ and stimulate them to apply for jobs in the

organization. It is a linking activity that brings together those offering jobs and seeking jobs.

While generalist managers or administrators can undertake some components of the recruitment

process, mid- and large-size organizations and companies often retain professional recruiters or

17

outsource some of the process to recruitment agencies. External recruitment is the process of

attracting and selecting employees from outside the organization.

PROCESS OF RECRUITMENT

3.1.1 Sourcing: It involves

i. Advertising: a common part of the recruiting process, often encompassing multiple media,

such as the Internet, general newspapers, job ad newspapers, professional publications, window

advertisements, job centers, and campus graduate recruitment programs; and

ii. Recruiting research: is the proactive identification of relevant talent who may not respond to

job postings and other recruitment advertising methods. This initial research for so-called passive

prospects, also called name-generation, results in a list of prospects who can then be contacted to

solicit interest, obtain a resume/CV, and be screened.

3.1.2 Screening and selection

Suitability for a job is typically assessed by looking for skills, e.g. communication, typing, and

computer skills. Qualifications may be shown through resumes, job applications, interviews,

educational or professional experience, the testimony of references, or in-house testing, such as

for software knowledge, typing skills, numeracy, and literacy, through psychological tests or

employment testing. In some countries, employers are legally mandated to provide equal

opportunity in hiring. Business management software is used by many recruitment agencies to

automate the testing process. 

3.1.3 On boarding

"On boarding" is a term which describes the introduction process. A well-planned introduction

helps new employees become fully operational quickly and is often integrated with a new

company and environment. On boarding is included in the recruitment process for retention

purposes. Many companies have on boarding campaigns in hopes to retain top talent that is new

to the company, campaigns may last anywhere from 1 week to 6 months.

18

Method of recruitment depends on the sources of recruitment. A criterion for adopting a particular method of recruitment depends on many factors.

Most important of them are:

1. Cost

2. Effectiveness

The method adopted must be such that, it is capable of attracting maximum number of potential candidates. In addition it must involve optimum cost.

1. Internal Sources search

2. External sources search  

3.1.4 Internal Sources Search

Method of internal search involves the following:

Posted on bulletin/Notice Boards of the organization

Through memos circulated among the shop supervisors.

Advertised in the in-house employee magazine/bulletins/handouts.

Other methods like’ word-of-mouth” and/or “who-you-know” system

3.1.5 External Sources Search

The external source search consists of a number of methods.

Dunn and Stephen have broadly classified them under the following broad categories.

1. Direct methods

2. Indirect methods

3. Third party methods

 3.1.6 DIRECT METHOD

19

The most frequently used direct method is at schools, colleges, management institutes and

university departments. Usually, this type of recruiting is performed in co-operation with

placement bureaus of educational institutions providing assistances in attracting students,

arranging interviews and making available space and students resumes.

Other direct methods include sending recruiters to establish exhibits at job fairs, using mobile

camps to visit shopping centers in rural areas and places where unemployed may be contacted.

These are discussed briefly in the following

1. Scouting

2. Campus-recruitment

3. Casual callers/unsolicited applicants

3.1.6.1 Scouting

This is one of the oldest methods. In this method the personnel department sends their

representatives to potential places of recruitment and establishes contact with potential

candidates seeking employment. Preliminary screening/interviews are arranged at selected places

wherein the candidates present themselves. In these effort local/consultants

agents/institutions/colleges play the liaison work. Organizing conventions, indoctrination

seminars, fairs, etc. are other means in this method.  

3.1.6.2 Campus Recruitment

Campus recruitment is a popular method especially for recruiting professional like Engineers and

MBA’s. In this method Firm Representatives call on potential colleges/institutes/schools to

establish direct contact. In such cases, “placement cells” established in those educational

institutions do the liaison work and coordination for arranging the preliminary screening and

interviews. Sometime the firms directly contact the Director/Faculty/Professors for

recommending students with outstanding performance for employment. The organization has

definite advantages through campus recruitment. They are:

20

1. Cost is low.

2. They can arrange interviews at short notice.

3. They can meet the teaching faculty.

4. Gives them opportunity to “sell” the organization to a large student community seeking

campus recruitment.

5. Unskilled, semi skilled and skilled employees are benefited.

 3.1.6.3 Casual Callers/Unsolicited Applicants

Casual callers and job seekers at the factory and unsolicited applicants are other sources of direct

recruitments

3.2 THE SELECTION PROCESS

Selection in the process of logically choosing individuals who possess the necessary skills,

abilities and personality to successfully fill specific jobs in the organization. The selection

process is entirely dependent upon proper manpower planning and recruitment. The success

of an organization significantly depends on the quality of personnel which in turn depends on

the effectiveness of selection process. It is therefore, necessary that a job should be done by a

qualified personnel.

3.3 Nature of Selection

An easy-to-do analysis of job applicants' responses to questions on standardized job-application

forms can predict with accuracy those candidates' potential for long-term employment.

The problems associated with high employee turnover continue to plague the hospitality industry.

Turnover rates exceeding 100 percent in full-service restaurants and other hospitality-related

chains are common.(1) Because of the costs associated with recruiting, selecting, and training

employees, many hospitality managers recognize that high employee turnover creates a

substantial extra cost of doing business.(2)

21

To address the turnover problem, one strategy has been to seek ways to identify those applicant

characteristics associated with employees' willingness to stick with a job (i.e., employment

tenure). If such characteristics can be identified, it may then be possible to use them during

employee selection as predictors of employee job tenure. Of course, it will be feasible to use such

variables or measures only if they can be used in a reasonable, cost-effective manner. Predictors

that are expensive or time consuming to define administer, and score may not be useful from a

practical standpoint even though they may be significantly related to employee turnover.

3.4 Significance

Selection means to choose the person from among the prospective candidates to fill in the vacant

posts in the organisation. The success of the organisation depends upon the quality of personnel

selected for the job. Thus selection of personnel is the most important function of the personnel

management. The importance of selection may be judged from the following facts.

(1) Procurement of Qualified and Skilled Workers—scientific selection facilitates the

procurement of well qualified and skilled workers in the organisation. It is in the interest of the

organisation in order to maintain the supremacy over the other competitive firms. Selection of

skilled personnel reduces the labour cost and increases the production. Selection of skilled

personnel also facilitates the expansion in the size of the business.

(2) Reduced Cost of Training and Development—Proper selection of candidates reduces the cost

of training because qualified personnel have better grasping power. They can understand the

technique of the work better and in no time. Further, the organisation can develop different

training programmes for different persons on the basis of their individual differences, thus

reducing the lime and cost of training considerably.

3.5 Selection Process /Technique

Techniques used by a particular organization depend on a number of factors including its

size, resources and staff objective. Selection techniques also differ according to the size of

the business and the kind of the personnel that are to be selected. Various steps of the

selection procedure may be described as under:

22

a) Application Blank

b) Preliminary Interview

c) Screening Application Forms

d) Employment Tests

e) Interviewing

f) Reference Checks

g) Physical Examination

h) Final Selection

Steps in selection procedure are not rigid. They may vary from organisation to organisation

or in the same organisation from job to job and from time to time. The arrangement of the

steps may also be disregarded or steps maybe reduced or some other steps maybe some

added. All this depends upon the size of the enterprise, nature of the company, nature of the

job, job description and the objectives of the organization.

3.6 Training and Development

Meaning and Definition

A business' most important asset is often its people. Training and developing them can be one of

the most important investments a business can make. The right training can ensure that your

business has the right skills to tackle the future. It can also help attract and retain good quality

staff, as well as increasing the job satisfaction of those presently with you - increasing the

chances that they will satisfy your customers.

Training and development refer to the imparting to specific skills’ ability and knowledge to an

employee. A formal definition of training and development is:

“… It is any attempt to improve current or future employee performance by increasing an

employee’s ability to perform through learning, usually by changing the employee’s attitudes or

increasing his or her skills and knowledge.”

The need for training and development is determined by the employee’s performance deficiency,

computed as follows:

23

Training and Development need = Standard performance – Actual performance.

We can make a distinction among training, education and development. Such distinction enables

us to acquire a better perspective about the meaning of the terms. Training, as was started earlier,

refers to the process of imparting specific skills. Education, on the other hand, is confined to

theoretical learning in the classrooms.

3.7 Internal Mobility & Transfer

Basically, internal mobility is necessary to much the employee’s skill and requirement with the

requirement of the job and those of the organization continual . Internal mobility is needed

because of the following reasons:

Changes in job structure, job design, job grouping etc.

Changes in technology, mechanization etc. resulting in enhancement of job demands.

Expansion and diversification of product/operation.

Adding different lines of auxiliary and supportive activity.

Taking up of geographical expansion and diversification.

Introduction of creative and innovation idea in all the areas of management resulting in

increased job demand.

Change in employee skill, knowledge, ability, aptitude, values etc.

Changing demand of trade union regarding protecting the interest of their members.

Changing government role in human resource management.

National economic and business trends and their impact on the job design and demand.

Problem of maintenance of interpersonal relation and sound human relation.

Social and religion condition of the employee or the region.

Transfer as "the movement of an employee from one job to another on the same occupational

level and at about the same level of wages or salary" No appreciable change in task or

responsibility is expected, SCOTT and others define transfer as “the movement of an employee

from one job to another. It may involve a promotion, demotion or no change in job status other

than moving from one job to another."

Types of Transfer: Transfers are of many types. It may be a reward transfer or a punishment

24

transfer. Transfers can be classified as production transfers, Replacement transfers, Versatility

transfers, shift transfers or remedial transfers. They can be temporary or permanent. However, it

is better to have a clear-cut and flexible transfer policy. Otherwise, it may lead to a lot of heart-

burning among the affected employees.

3.8 Promotion

Promotion is defined as giving higher position to the employee, which carries high status

more responsibilities and higher status. Promotion means advancement of employee in terms of

pay and status also improvement in working conditions.

                 Promotions are used to fill the positions which are more important to fill rather than

the present position of employee. It can be filled by external recruitment but employees having

eligibility and experience must be appointed for their motivation. Also it will decrease labour

turn over as external recruitment costs more. Also increase in salary and status will increase job

satisfaction.

When scale of pay is increased without changing job it is called up-gradation and

promotion involves changes in job as well as high salary.  When higher position is given without

change in salary it is known as Dry Promotion. All these, Promotion Up-Gradation and Dry

Promotion are used by management to increase morale of employee and as giving reward also.

3.9 EMPLOYEE SEPARATION

Broadly speaking, in normal scenarios the separation between employer and employee can be

due to any of the following three (this will be discussed in detail in subsequent paragraphs):

1) Resignation – Employee decides to leave the organization.

2) Termination – Employer decides to break the contract of employment.

3) Absconding – When the employee decides to leave the organization without tendering his

resignation or following the proper process of separation.

Apart from the above mentioned, the relation between employer and employee can also be

terminated during the lay-offs (Financial or economic crisis); during the process of mergers,

25

acquisitions and take-over; or any other legal intervention by the state or central government.

Based on the type of employee that has been hired by the company, if local or an expatriate or a

national of other country or if an employee is hired through outsourcing agencies, the process of

separation and the documents involved in it also differs.

Questions

1) You are required to hire five sales representatives to your company. Describe appropriate

Recruitment, selection and induction methods you would use?

2) Briefly concept of selection? Out line those selection techniques which are popularly

used in India?

3) What is Recruitment process? What are the modern sources and techniques of

Recruitment?

4) Briefly discuss what an interviewer can do to improve his or her performance?

5) Explain the concept of HRD. How does HRD differ from HRM?

6) Discuss the process of the Training Programme with reference to any organization?

7) Critically examine the importance of the training of personnel towards the development

of an organization?

EXERCISES

1. In Groups prepare an interview (including a sequence of at least 25 questions) you

will use to interview candidates for the job of Executive position in an MNC.

Each group should present their interview questions in class.

2. Prepare and give a short presentation on Recruitment and Selection process of an

organization of your choice.

3. Working individually or in groups, develops a short, programmed learning

26

program on the subject “Guide lines for giving a more Effective Lecture.”

4. Compare and Contrast in groups about system of training in various organizations

from the view points of purpose, organization requirements.

UNIT 4 JOB DESCRIPTION AND ANALYSIS

4.1 Job Analysis

4.2 Job Description

4.3 Job Specification

4.4 Job Enlargement

4.5 Job Enrichment

4.6 Job Rotation

4.7 Job Evaluation

Job analysis is the systematic method of jobs to identify work activities, tasks, and

responsibilities, KSAs, working conditions to perform the job.

27

4.1 Job analysis

Purposes of job analysis are to identify:

• Job description & specification

• Recruitment and Selection

• Job evaluation

• Job design

• Compensation

• Performance Appraisal

• Training

• Compliance with labor law

Process

Process of job analysis includes 8 steps as follows:

• Step 1: identify purpose of job analysis

• Step 2: selecting the analysts

• Step 3: selecting the appropriate method

• Step 4: train the analysts

• Step 5: preparation of job analysis

• Step 6: collecting data

• Step 7: review and verify data

• Step 8: develop a job description and job specification

4.2 JOB DESCRIPTION is an organized factual statement of job contents in the form of

duties and responsibilities of a specific job. The preparation of job description is very important

before a vacancy is advertised. It tells in brief the nature and type of job. This type of document

is descriptive in nature and it constitutes all those facts which are related to a job such as :

1. Title/ Designation of job and location in the concern.

2. The nature of duties and operations to be performed in that job.

28

3. The nature of authority- responsibility relationships.

4. Necessary qualifications that are required for job.

5. Relationship of that job with other jobs in a concern.

6. The provision of physical and working condition or the work environment required in

performance of that job.

4.3 JOB SPECIFICATION is a statement which tells us minimum acceptable human qualities

which helps to perform a job. Job specification translates the job description into human

qualifications so that a job can be performed in a better manner. Job specification helps in hiring

an appropriate person for an appropriate position. The contents are :

1. Job title and designation

2. Educational qualifications for that title

3. Physical and other related attributes

4. Physique and mental health

5. Special attributes and abilities

6. Maturity and dependability

7. Relationship of that job with other jobs in a concern.

4.4 Job enlargement

Job enlargement is a job design technique wherein there is an increase in the number of tasks

associated with a certain job. In other words, it means increasing the scope of one’s duties and

responsibilities. The increase in scope is quantitative in nature and not qualitative and at the same

level.

Job enlargement is a horizontal restructuring method that aims at increase in the workforce

flexibility and at the same time reducing monotony that may creep up over a period of time. It is

29

also known as horizontal loading in that the responsibilities increase at the same level and not

vertically.

Many believe that since the enlargement is horizontal in nature there is not a great need for

training! Contrary to this, job enlargement requires appropriate training especially on time and

people management. Task related training is not required much since the person is already aware

of the same or doing it for some time.

4.5 Job Enrichment

Job enrichment means a vertical expansion of a job. It is different from job enlargement. Job

enlargement means a horizontal expansion of a job.

Job enrichment makes the job more meaningful, enjoyable and satisfying. It gives the workers

more autonomy for planning and controlling the job. It also gives the workers more

responsibility. Job enrichment gives the workers opportunities for achievement, recognition,

advancement and growth. So, the workers are motivated to work harder.

4.6 Job Rotation

Job Rotation is a management approach where employees are shifted between two or more

assignments or jobs at regular intervals of time in order to expose them to all verticals of an

organization. It is a pre-planned approach with an objective to test the employee skills and

competencies in order to place him or her at the right place. In addition to it, it reduces the

monotony of the job and gives them a wider experience and helps them gain more insights.

Job rotation is a well-planned practice to reduce the boredom of doing same type of job everyday

and explore the hidden potential of an employee. The process serves the purpose of both the

management and the employees. It helps management in discovering the talent of employees and

determining what he or she is best at. On the other hand, it gives an individual a chance to

explore his or her own interests and gain experience in different fields or operations.

4.7 Job Evaluation

30

Job evaluation is a process of determining the relative worth of a job. It is a process which is helpful even for framing compensation plans by the personnel manager. Job evaluation as a process is advantageous to a company in many ways:

1. Reduction in inequalities in salary structure - It is found that people and their

motivation is dependent upon how well they are being paid. Therefore the main objective

of job evaluation is to have external and internal consistency in salary structure so that

inequalities in salaries are reduced.

2. Specialization - Because of division of labour and thereby specialization, a large number

of enterprises have got hundred jobs and many employees to perform them. Therefore, an

attempt should be made to define a job and thereby fix salaries for it. This is possible

only through job evaluation.

3. Helps in selection of employees - The job evaluation information can be helpful at the

time of selection of candidates. The factors that are determined for job evaluation can be

taken into account while selecting the employees.

4. Harmonious relationship between employees and manager - Through job evaluation,

harmonious and congenial relations can be maintained between employees and

management, so that all kinds of salaries controversies can be minimized.

5. Standardization - The process of determining the salary differentials for different jobs

become standardized through job evaluation. This helps in bringing uniformity into salary

structure.

6. Relevance of new jobs - Through job evaluation, one can understand the relative value

of new jobs in a concern.

Questions

1. What is Job Evaluation? Explain the different techniques of Job Evaluation.

2. Explain how you should conduct Job analysis.

3. What is job analysis? How can you make use of the information it provides?

4. “Job Evaluation does not usually price jobs” Discuss.

31

EXERCISES

1. Consider the job you like most and list all the positive sides of the job which you

particularly enjoy and found rewarding. Then, List all the negative aspects of the job and

the reasons for which you find them tedious, repetitive or monotonous.

2. Working individually or groups, obtain the copies of Job descriptions for clerical

positions at the college or University where you study and suggest how to improve Job

description?

UNIT 5 PERFORMANCE APPRAISAL

Scope, Significance and Techniques

5.1 Scope

5.2 Significance

5.3 Techniques

5.1 Scope

32

Definition: In simple terms, appraisal may be understood as the assessment of an individual’s

performance in a systematic way, the performance being measured against such factors as job

knowledge, quality, and quantity of output, initiative, leadership abilities, supervision,

dependability, co-operation, judgment, versatility, health, and the like. Assessment should not be

confined to past performance alone. Potentials of the employee for future performance must also

be assessed.

The scope of any performance appraisal should include the following: provide employees with a

better understanding of their role and responsibilities; increase confidence through recognizing

strengths while identifying training needs to improve weaknesses; improve working relationships

and communication between supervisors and subordinates; increase commitment to

organizational goals; develop employees into future supervisors; assist in personnel decisions

such as promotions or allocating rewards; and allow time for self-reflection, self-appraisal and

personal goal setting. (See Reference 3: Performance Appraisal System)

5.2Significance

Employees are the most significant resource of any business, and performance appraisals reflect

the organization's commitment in developing this important resource of human capital.

Performance appraisals grant upper management an opportunity to reward excellent performance

or reprimand unsatisfactory performance. This powerful managerial tool should directly reflect

the overall organization's goals and objectives; the employee assessment should provide useful

feedback about the employee's contributions or lack of contributions toward these goals.

5.3 Appraisal Techniques

Rating Scales

This is the simplest and most popular method of appraising employee performance. The typical

rating-scale system consists of several numeric scales, each representing a job-related

performance criterion such as dependability, initiative, output, attendance, attitude and the like.

Each scale ranges from excellent to poor. The rater checks the appropriate performance level on

each criterion, and then computes the employee’s total numerical score. The number of points

33

scored may be linked to salary increases, whereby so many points equal a rise of some

percentage.

Rating scales offer the advantages of adaptability, relatively easy use and low cost. Nearly every

type of job can be evaluated with the rating scale, the only requirement being that the job

performance criteria should be changed. This way a large number of employees can be rated in a

short time, and the rater does not need any training to use the scale.

The disadvantages of this method are several. The raters biases are likely to influence the

evaluation, and the biases are particularly pronounced on subjective criteria such as co-

operation, attitude and initiative. Furthermore, numerical scoring gives an illusion of precision

that is really unfounded.

Man to Man comparison method

This technique was used by the US army, during the First World War. By this method certain

factors are selected for the design by the rater for each factor. A scale of man is also created for

each selected factor. Each man to be rated is compared with the man in the scale, and certain

scores for each factor are awarded to him. So, instead of comparing a “whole man” to a “whole

man” personnel are compared to the key man in respect of one factor at a time. This method s

used in job evaluation and is called the factor comparison method. In performance appraisal it is

not of much use because the designing of scales is a complicated task.

360-degree system of appraisal

Where appraisal is made by peers, superiors, subordinates and clients it is called 360-degree

system of appraisal. First developed at GE, US in 1992, the system has become popular in our

country too. GB (India), Reliance Industries, Crompton Greaves, Godrej soaps, Infosys,

Thermax and Thomas Cook are using the method with greater benefits. The Arthur Anderson

survey (1997) reveal the20% of the organizations use the 360-degree method. Here, besides

assessing performance, other attributes of the assesse- talents, behavioural quirks, values, ethical

standards, tempers and loyalty are evaluated by people who are best placed to do it.

34

Peer Aappraisal

Peers are in a better position to evaluate certain facts of job performance which the subordinates

or supervisors cannot do. Such facts include contribution to work group projects, interpersonal

effectiveness, communication skills, reliability and initiative. Closeness of the working

relationship and the amount of personal contacts place peers in a better position to make accurate

assessments. Unfortunately, friendship or animosity may result in distortion of evaluation.

Further, when reward allocation is based on peer evaluation, serious conflicts among co-workers

may develop. Finally, all the peers may join together to rate each other high.

MBO (Management by Objectives)

The Management by objectives concept which was conceived by Peter Drucker, reflects a

management philosophy which values and utilizes employee contributions.

MBO works can be described in four steps:

1) The organization, superiors and subordinates together or just the superiors alone establish the

goals of the employee. This goal usually the desired outcome to be achieved and it can be used to

evaluate performance.

2) Second step involves involves setting the performance standard for the subordinates in a

previously arranged time period. As subordinates perform, they know fairly well what there is to

do, what has been done, and what remains to be done.

3) Then the actual level of goal attained is compared to the goals agreed upon. The evaluator

figures out why the goals were not met and accordingly determines training needs.

4) The last step is establishing new goals and, possibly, new strategies for goals not previously

attained. If the goals were succeeded the subordinate may have larger involvement in setting of

his next goal otherwise the superior may have to do it alone.

However, this method has been criticized for not being applicable to jobs with little or no

flexibility, such as assembly-line work. It works well with managerial personnel and employees

who have a fairly wide range of flexibility and self control in their jobs. And if this method is

linked to employee rewards, that they are more likely to take up less challenging goals so that

35

they are more likely to achieve them. Also if the rewards are semi annual or annual, then the

employees may take up short term goals and neglect the important long term goals. L&T follows

MBO style of evaluation

Assessment centers

Mainly used for executive hiring, assessment centers are now being used for evaluating

executive o supervisory potential. An assessment centre is a central location where managers

may come together to have their participation in job related exercises evaluated by trained

observers. The basic idea is to evaluate managers over a period of time, say one to three days, by

observing and evaluating their behavior across a series of selected exercises or work samples.

Assesses are requested to participate in-basket exercises, work groups (without leaders),

computer simulations, role playing, and other similar activities which require the same attributes

for successful performance, as in the actual job. After recording their observations, the raters

meet and discuss these observations. The decision regarding the performance of each assessee is

based upon this discussion of observations. Self evaluation and peer evaluation are also thrown

in for final rating.

Questions

1. “Performance appraisal is not merely for appraisal but is for accomplishment and improvement

of performance”. Discuss in brief.

2. Distinguish between Performance management and Performance appraisal?

3. Discuss the Pros and cons of four performance appraisal tools.

4. Explain the problems to be avoided in appraising the performance?

5. Evaluate the significance of performance appraisal with reference to an organization. How

should you make it more effective?

EXERCISE

1. Imagine yourself as a Human resource manager for a medium size company. Prepare an appraisal programme for your employees.

2. List and Discuss the Pros and Cons of Six appraisal methods.

36

3. Develop a Graphic rating scale for the following jobs: a) Manager b) Accountant c) Clerk

UNIT 6 WAGE MANAGEMENT

6.1 Significance and Payment Methods6.2 Compensation Management6.3 Wages and Salary Administration6.4 Wage Fixation6.5 Fringe Benefits6.6 Incentive Payment6.7 Bonus6.8 Profit Sharing

37

6.9 Significance and Payment Methods

6.1 Significance and Payment Methods

Minimum wage is the one that provides not merely the bare sustenance of life but also for the

preservation of the efficiency of the worker. For this purpose, the minimum wage must also

provide for some measure of education, medical requirements and amenities. Minimum wage

may be tied by an agreement between the management and the workers, but is usually

determined through legislation. This is more so in the unorganized sector where labour is

unionized. In the fixation of minimum wages, besides the needs of workers, other factors like

ability of the concern to pay, nature of the jobs, and so on, are also considered.

Basically there are two methods of paying labor remuneration and other methods are

combinations or modifications of these two. One is the time wage system and another is the

piece wage system.

1. Time Wage System

Under this system, wages are paid on the basis of time spent on the job irrespective of the

amount of work done. The unit of time may be a day. A week, a fortnight or a month. In the past,

daily wages have been the most common basis and, therefore, it came to be known as the ‘Day

Wage System’.

Time wage system has the following advantages:

1. It is the simplest and the oldest method. It is easy to understand and workers can easily

compute their own remuneration.

2. Earnings of workers are regular and fixed and they do not suffer from temporary loss of

efficiency.

3. As there is no pressure to speed up production, the quality of work can be kept high. A

worker can show his skill.

4. Learners can concentrate on learning the best methods of work as their earning s are not

dependent on the amount of work.

38

5. It is an objective method.

2. Piece Wage System

Under this system, remuneration is based on the amount of work done or output of a

worker. One unit of output is considered as one piece and a specific rate of wage is paid

per piece. Greater id the number of pieces produced by a worker, higher is his

remuneration. Thus, a workman is paid in direct proportion to his output. It is called

payment by results.

Balance or Debt Method

This method is a combination of time and piece wage systems. The worker is guaranteed a time

rate with an alternative piece rate. If the wage calculated at piece rate exceeds the time rate, the

worker gets credit. On the other hand, if those wages exceed piece wages, the worker is paid time

wage and the deficit is carried forward as debt to be recon served in future.

6.2 Compensation Management

Most of us would have heard the term “compensation” in the context of getting paid for the work

that we do. The work can be as part of full time engagement or part time in nature. What is

common to them is that the “reward” that we get for expending our energy not to mention the

time is that we are compensated for it.

39

From the perspective of the employers, the money that they pay to the employees in return for the

work that they do is something that they need to plan for in an elaborate and systematic manner.

Unless the employer and the employee are in broad agreement (We use the term broad agreement

as in many cases, significant differences in perception about the employee’s worth exist between

the two sides), the net result is dissatisfaction from the employee’s perspective and friction in the

relationship.

It can be said that compensation is the “glue” that binds the employee and the employer together

and in the organized sector, this is further codified in the form of a contract or a mutually binding

legal document that spells out exactly how much should be paid to the employee and the

components of the compensation package. Since, this article is intended to be an introduction to

compensation management, the art and science of arriving at the right compensation makes all

the difference between a satisfied employee and a disgruntled employee.

Though Maslow’s Need Hierarchy Theory talks about compensation being at the middle to lower

rung of the pyramid and the other factors like job satisfaction and fulfillment being at the top, for

a majority of employees, getting the right compensation is by itself a motivating factor. Hence,

employers need to quantify the employee’s contribution in a proper manner if they are to get the

best out of the employee. The provision of monetary value in exchange for work performed

forms the basis of compensation and how this is managed using processes, procedures and

systems form the basis of compensation management.

6.3 Wage & Salary Administration

Wage and salary administration should be controlled by some proper agency. This

responsibility may be entrusted to the personnel department or to some job executive. Since

the problem of wages and salary is very delicate and complicated, it is usually entrusted to a

Committee composed of high-ranking executives representing major line organizations. The

major functions of such Committee are:

a) Approval and/or recommendation to management on job evaluation methods and findings;

b) Review and recommendation of basic wage and salary structure;

40

c) Help in the formulation of wage policies from time to time;

d) Co-ordination and review of relative departmental rates to ensure conformity; and

e) Review of budget estimates for wage and salary adjustments and increases.

This Committee should be supported by the advice of the technical staff. Such staff

committees may be for job evolution. Job description, merit rating, wage and salary surveys

in an industry, and for a review of present wage rates procedure and policies.

Alternatively, the overall plan is first prepared by the Personnel Manager in consultation and

discussions with senior members of other departments. It is then submitted for final approval

of the top executive. Once he has given his approval, for the wage and salary structure and

the rules for administration, its implementation becomes a joint effort of all heads of the

departments. The actual appraisal of the performance of subordinates is carried out by the

various managers, who in turn submit their recommendations to higher authority and the

latter, in turn, to the personnel department. The personnel department ordinarily reviews

recommendations to ensure compliance with established rules of administration. In unusual

cases of serious disagreement, the president makes the final decision.

6.4. WAGE FIXATION:

Fixation of compensation or wage rates for different categories of employees in a company is an

important task of management. The employees are not only concerned with the wages received

but also concerned with the level wages received by same level of employees in similar

organizations. Hence wage structure may be considered very important. The relative wage-rules

must be fixed carefully, because they have implications for promotion, transfer, seniority and

other important personnel matters.

The following principles have always been the bases of the wage determination process.

All are economically valid. At different stages they have collectively, and singularly, been used

to determine wage increases.

1. Preserving real income: This is the argument used by employees and Unions viewing wages

as an income. Following this principle usually results in wages being indexed to inflation. In

periods of rising inflation, indexation becomes a problem of an institutionalized wage-price

41

spiral. Underlying aspects that have also impacted on real wage preservation arguments have

been a "basic" minimum wage, and comparative wage justice.

2. Productivity: A valid economic theory connects wages to labour productivity. Conflict arises

over the measurement of productivity. Rewarding labour with a wage increase when technology,

and/or capital investment, increases labour efficiency may not be justified.

3. The capacity of business: This emphasizes wages as a cost of production, and the threat of

wage increases to squeeze profits.

6.5. Fringe benefits

Fringe benefits include the value of any employer provided benefit received during the

base tax year.  An employer provided benefit is any right, privilege, service, in kind payment or

facility that an employee receives (or assigns to someone else) from their employment.

Employees may 'sacrifice' an amount of their cash salary and receive the value of the amount as a

fringe benefit.  In other cases, a fringe benefit may be a fixed part of the employee's salary

package.

Common forms of salary sacrifice or fringe benefits include:

leasing of vehicles;

extra superannuation contributions;

investments;

expense benefits;

housing assistance; and

Low interest loans.

6.6 INCENTIVE PAYMENTS

Lump sum payments (such as sales commissions) are another traditional method. It is

not added to base pay. Usually the formula and the relationship between performance and the

payment of the lump sum are known beforehand.

42

Sales commissions may often have little to do with performance because factors such as product

quality, brand name and price may contribute more to sales than the ability to convince buyers.

Appraisals are less significant to this category where the criteria (e.g. sales figures) are statistical

and no further measurement is needed. Another traditional method of rewarding performance is

piece rates. Unless related to a reasonable time frame within which the production should be

completed, such rates would not be related to performance. There are several weaknesses in

piece rate systems:

6.7. BONUS

A bonus is often connected directly to performance, such as generating more sales or motivating

a production line to meet or exceed a quota. Knowing there is a tangible financial reward for

increased productivity can be precisely the kind of motivation many employees need. Employers

can use the promise of bonus pay to entice managers to motivate their subordinates towards a

specific goal. Sometimes simply maintaining an accident-free work environment can result in a

performance bonus for supervisors and managers. Generally Bonus is paid as follows.

1. Additional compensation given to an employee above his/her normal wage. A bonus can be

used as a reward for achieving specific goals set by the company, or for dedication to the

company.

2. Dividends paid to shareholders from funds created out of additional profits realized by the

company.

6.8. PROFIT SHARING

These schemes are not related to an individual's performance, but are linked to the profits of an

enterprise, a part of which is paid as a bonus to the workers. It may be a cash payment, or a

deferred payment kept, for instance, in a special fund for a particular period. There are numerous

types of schemes in existence. It has been estimated that by 1988 about half a million American

firms were operating profit sharing schemes.

In the UK in 1991, the Government facilitated profit-related pay by providing tax

43

Exemption up to 20% of total pay received through an approved profit-related pay scheme.

Consequently, between 1990 and 1995 there was a substantial increase in the number of

employees covered by such schemes - estimated as an eleven fold increase.

Questions

1. Distinguish between Minimum wage, Fair wage and a Living wage. What should be the

wage policy for a developing country?

2. List the basic factors in determining the Pay rates?

3. Explain the Principles of Wage and Salary Administration?

4. Describe

a) Bonus b) Profit sharing c) Fringe Benefits with examples?

EXERCISES

1. Working individually or groups, conduct salary surveys for the following

positions :

a) Entry level Software Engineer b) Entry level Marketing Executive

2. Develop Compensation policies for different positions of a selected bank in your

area. The Compensation Policies should address: Appraisals, Hikes, Holidays,

Vacation Pay, Overtime Pay and Method of Pay.

44