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Notes

HUMAN RESOURCE MANAGEMENT

TRAINING & DEVELOPMENT

Definition of Training & Development: Improve performanceTraining & Development is any attempt to improve current or future employeeperformance by increasing an employees ability to perform through learning, usually bychanging the employees attitude or increasing his or her skills and knowledge.

MEANING OF TRAINING & DEVELOPMENT: -

The need for Training and Development is determined by the employees performancedeficiency, computed as follows.Training & Development Need = Standard Performance Actual Performance

We can make a distinction among Training, Development and Education.

Distinction between Training and Education

Training EducationApplication orientedJob experienceSpecific Task in mindNarrow PerspectiveTraining is Job Specific

Theoretical OrientationClassroom learningCovers general conceptsHas Broad PerspectiveEducation is no bar

Training: Training refers to the process of imparting specific skills. An employeeundergoing training is presumed to have had some formal education. No training programis complete without an element of education. Hence we can say that Training is offered tooperatives.

Education: It is a theoretical learning in classrooms. The purpose of education is to teachtheoretical concepts and develop a sense of reasoning and judgment. That any training anddevelopment program must contain an element of education is well understood by HRSpecialists. Any such program has university professors as resource persons to enlightenparticipants about theoretical knowledge of the topics proposed to discuss. In factorganizations depute or encourage employees to do courses on part time basis. CEOs areknown to attend refresher courses conducted by business schools. The education is moreimportant for managers and executives rather than low cadre workers. Anyways educationis common to all employees, their grades notwithstanding.

Development: Development means those learning opportunities designed to helpemployees to grow. Development is not primarily skills oriented. Instead it provides thegeneral knowledge and attitudes, which will be helpful to employers in higher positions.Efforts towards development often depend on personal drive and ambition. Developmentactivities such as those supplied by management development programs are generally

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voluntary in nature. Development provides knowledge about business environment,management principles and techniques, human relations, specific industry analysis and thelike is useful for better management of a company.

Objectives of (MDP) Management Development Programs OR

Advantages of Development

1. Making them Self-starters Committed Motivated Result oriented Sensitive to environment Understand use of power

2. Creating self awareness3. Develop inspiring leadership styles4. Instill zest for excellence5. Teach them about effective communication6. To subordinate their functional loyalties to the interests of the organization

Difference between Training and Development

Training DevelopmentTraining is skills focused Development is creating learning abilitiesTraining is presumed to have a formaleducation

Development is not education dependent

Training needs depend upon lack ordeficiency in skills

Development depends on personal driveand ambition

Trainings are generally need based Development is voluntaryTraining is a narrower concept focusedon job related skills

Development is a broader conceptfocused on personality development

Training may not include development Development includes training wherevernecessary

Training is aimed at improving jobrelated efficiency and performance

Development aims at overall personaleffectiveness including job efficiencies

What are the Training Inputs? Skills Education Development Ethics Problem Solving Skills Decision Making Attitudinal Changes

Importance of Training & Development Helps remove performance deficiencies in employees Greater stability, flexibility and capacity for growth in an organization Accidents, scraps and damages to machinery can be avoided Serves as effective source of recruitment It is an investment in HR with a promise of better returns in future Reduces dissatisfaction, absenteeism, complaints and turnover of employees

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Need of TrainingIndividual level

Diagnosis of present problems and future challenges Improve individual performance or fix up performance deficiency Improve skills or knowledge or any other problem To anticipate future skill-needs and prepare employee to handle more challenging tasks To prepare for possible job transfers

Group level To face any change in organization strategy at group levels When new products and services are launched To avoid scraps and accident rates

Identification of Training Needs (Methods)

Individual Training Needs Identification

1. Performance Appraisals2. Interviews3. Questionnaires4. Attitude Surveys5. Training Progress Feedback6. Work Sampling7. Rating Scales

Group Level Training Needs Identification

1. Organizational Goals and Objectives2. Personnel / Skills Inventories3. Organizational Climate Indices4. Efficiency Indices

5. Exit Interviews6. MBO / Work Planning Systems7. Quality Circles8. Customer Satisfaction Survey9. Analysis of Current and Anticipated Changes

Benefits of Training Needs Identification

1. Trainers can be informed about the broader needs in advance2. Trainers Perception Gaps can be reduced between employees and their supervisors3. Trainers can design course inputs closer to the specific needs of the participants4. Diagnosis of causes of performance deficiencies can be done

Methods of Training

On the Job Trainings: These methods are generally applied on the workplace whileemployees is actually working. Following are the on-the-job methods.

Advantages of On-the-Job Training:It is directly in the context of jobIt is often informalIt is most effective because it is learning by experienceIt is least expensiveTrainees are highly motivatedIt is free from artificial classroom situations

Disadvantages of On-the-Job Training:

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Trainer may not be experienced enough to trainIt is not systematically organizedPoorly conducted programs may create safety hazards

On the Job Training Methods

1. Job Rotation: In this method, usually employees are put on different jobs turn byturn where they learn all sorts of jobs of various departments. The objective is togive a comprehensive awareness about the jobs of different departments. Advantage employee gets to know how his own and other departments also function.Interdepartmental coordination can be improved, instills team spirit. Disadvantage It may become too much for an employee to learn. It is not focused on employeesown job responsibilities. Employees basic talents may remain under utilized.

2. Job Coaching: An experienced employee can give a verbal presentation to explainthe nitty-grittys of the job.

3. Job Instruction: It may consist an instruction or directions to perform a particulartask or a function. It may be in the form of orders or steps to perform a task.

4. Apprenticeships: Generally fresh graduates are put under the experiencedemployee to learn the functions of job.

5. Internships and Assistantships: An intern or an assistants are recruited toperform a specific time-bound jobs or projects during their education. It may consista part of their educational courses.

Off the Job Trainings: These are used away from work places while employees are notworking like classroom trainings, seminars etc. Following are the off-the-job methods;Advantages of Off-the-Job Training:Trainers are usually experienced enough to trainIt is systematically organizedEfficiently created programs may add lot of value

Disadvantages of Off-the-Job Training:It is not directly in the context of jobIt is often formalIt is not based on experienceIt is least expensiveTrainees may not be highly motivatedIt is more artificial in nature

Off the Job Training Methods1. Classroom Lectures: It is a verbal lecture presentation by an instructor to a large

audience. Advantage It can be used for large groups. Cost per trainee is low.Disadvantages Low popularity. It is not learning by practice. It is One-way

communication. No authentic feedback mechanism. Likely to boredom.2. Audio-Visual: It can be done using Films, Televisions, Video, and Presentations etc.Advantages Wide range of realistic examples, quality control possible,.Disadvantages One-way communication, No feedback mechanism. No flexibility fordifferent audience.

3. Simulation: creating a real life situation for decision-making and understanding theactual job conditions give it. Following are some of the simulation methods of trainings

a. Case Studies: It is a written description of an actual situation and trainer issupposed to analyze and give his conclusions in writing. The cases aregenerally based on actual organizational situations. It is an ideal method topromote decision-making abilities within the constraints of limited data.

b. Role Plays: Here trainees assume the part of the specific personalities in acase study and enact it in front of the audience. It is more emotional

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orientation and improves interpersonal relationships. Attitudinal change isanother result. These are generally used in MDP.

c. Sensitivity Trainings : This is more from the point of view of behavioralassessment, under different circumstances how an individual will behavehimself and towards others. There is no preplanned agenda and it is instant.Advantages increased ability to empathize, listening skills, openness,tolerance, and conflict resolution skills. Disadvantage Participants mayresort to their old habits after the training.

4. Programmed Instructions: Provided in the form of blocks either in book or ateaching machine using questions and Feedbacks without the intervention of trainer.Advantages Self paced, trainees can progress at their own speed, strongmotivation for repeat learning, material is structured and self-contained.Disadvantages Scope for learning is less; cost of books, manuals or machinery isexpensive.

5. Computer Aided Instructions: It is extension of PI method, by using computers.Advantages Provides accountabilities, modifiable to technological innovations,flexible to time. Disadvantages High cost.

6. Laboratory Training

Barriers to Effective Training:1. Lack of Management commitment2. Inadequate Training budget3. Education degrees lack skills4. Large scale poaching of trained staff 5. Non-coordination from workers due to downsizing trends6. Employers and B Schools operating distantly7. Unions influence

How To Make Training Effective?1. Management Commitment

2. Training & Business Strategies Integration3. Comprehensive and Systematic Approach4. Continuous and Ongoing approach5. Promoting Learning as Fundamental Value6. Creations of effective training evaluation system

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INDUCTION & ORIENATION

Definition 1: Planned Introduction It is a Planned Introduction of employees to their jobs, their co-workers and theorganization per se.

Orientation conveys 4 types of information:1. Daily Work Routine2. Organization Profile3. Importance of Jobs to the organization4. Detailed Orientation Presentations

Purpose of Orientation1. To make new employees feel at home in new environment2. To remove their anxiety about new workplace3. To remove their inadequacies about new peers4. To remove worries about their job performance5. To provide them job information, environment

Types of Orientation Programs1. Formal or Informal2. Individual or Group

3. Serial or Disjunctive

Prerequisites of Effective Orientation Program1. Prepare for receiving new employee2. Determine information new employee wants to know3. Determine how to present information4. Completion of Paperwork

Problems of Orientations1. Busy or Untrained supervisor2. Too much information3. Overloaded with paperwork

4. Given menial tasks and discourage interests5. Demanding tasks where failure chances are high6. Employee thrown into action soon7. Wrong perceptions of employees

What is the difference between induction and orientation?

Induction referred to formal training programs that an employee had to complete beforethey could start workOrientation was the informal information giving that made the recruit aware of the comfortissues - where the facilities are, what time lunch is and so forth.

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How long should the induction process take?It starts when the job ad is written, continues through the selection process and is notcomplete until the new team member is comfortable as a full contributor to theorganization's goals.

The first hour on day one is a critical component - signing on, issuing keys and passwords,explaining no go zones, emergency procedures, meeting the people that you will interactwith all have to be done immediately. Until they are done the newcomer is on the payroll,but is not employed.

After that it is a matter of just in time training - expanding the content as new duties areundertaken.

We only employ new people one at a time - how can we induct them?

There are some issues, which cannot wait - they vary according to your situation. Perhaps abuddy system on the job may be the best way to deal with these. Other subjects may be

incorporated with refresher training for current staff, or handled as participant in an outsideprogram. Perhaps some can wait until there are groups of people who have started in thelast few months.

This may take some creative thinking, but the answer is quite simple - until the new peopleare integrated then they are less useful. The math is often amazingly simple - not takingthe time to train consumes more time than the training would.

What levels of staff need induction?

Everybody. The CEO needs to know different things to the temporary concierge, buteveryone needs a planned program of induction and orientation.

PLACEMENT

Placement is allocation of people to jobs. It is assignment or reassignment of an employeeto a new or different job.

MULTI SKILLING

Multi Skilling is The Integrated Skills Program that has been developed to build on theexisting skills of the current work force to reduce redundancies and avoid downsizingsituations. The objective of this program is to gain total integration of skills.

The program is based around on-the-job & off-the-job competence. That is the ability todo the job on the shop floor (training to gain work experience) and off-the-job (training inthe classroom) to gain underpinning knowledge.

The program requires the individual to demonstrate competence in a number of differentskills and this competence is measured and assessed on the job.

Multi-skilling of course works best with more advanced skilled workers because theirindividual skills levels are developed enough where they can fluidly transition from one skillto the next without degradation of a skills performance. If you are multi-skilling and agreat percentage of your workers are having problems executing one of the skills effectivelyit is probably a good signal you need to go back to basics with that skill and pull it out of the multi-skilling sequences. Another advantage of multi-skilling is the positive effect of what is called "contextual learning". Contextual learning involves discovery and

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improvement from two skills, which don't, on the surface, appear to have a directrelationship.

The disadvantages of multi-skilling include the obvious danger of moving on to quicklytoward advanced skills and combinations without sufficiently drilling basic skills. Whilethere is a great desire to learn quickly I think this is one of the reason we are seeing betterskilled from some of the best workers. The consequence is that we become "partiallyskilled". The greater the number of partial skills we develop, the less chance we ever haveof reaching our full potential.

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PERFORMANCE APPRAISALS

Definition 1: Systematic Evaluation

It is a systematic evaluation of an individual with respect to performance on the job andindividuals potential for development.

Definition 2: Formal System, Reasons and Measures of future performance It is formal, structured system of measuring, evaluating job related behaviors andoutcomes to discover reasons of performance and how to perform effectively in future sothat employee, organization and society all benefits.

Meaning of Performance Appraisals

Performance Appraisals is the assessment of individuals performance in a systematic way.It is a developmental tool used for all round development of the employee and theorganization. The performance is measured against such factors as job knowledge, qualityand quantity of output, initiative, leadership abilities, supervision, dependability, co-operation, judgment, versatility and health. Assessment should be confined to past as wellas potential performance also. The second definition is more focused on behaviors as a partof assessment because behaviors do affect job results.

Performance Appraisals and Job Analysis Relationship

Job Analysis Performance Standards Performance AppraisalsDescribe the work andpersonnel requirement of a particular job.

Translate job requirementsinto levels of acceptable orunacceptable performance

Describe the job relevantstrengths and weaknessesof each individual.

Objectives of Performance AppraisalsUse of Performance Appraisals

1. Promotions2. Confirmations3. Training and Development4. Compensation reviews5. Competency building6. Improve communication7. Evaluation of HR Programs8. Feedback & Grievances

4 Goals of Performance Appraisals

General Goals Specific GoalsDevelopmental Use Individual needs

Performance feedbackTransfers and PlacementsStrengths and Development needs

Administrative Decisions / Uses SalaryPromotionRetention / TerminationRecognitionLay offsPoor Performers identification

Organizational Maintenance HR PlanningTraining Needs

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Organizational Goal achievementsGoal IdentificationHR Systems EvaluationReinforcement of organizational needs

Documentation Validation ResearchFor HR DecisionsLegal Requirements

Performance Appraisal Process1. Objectives definition of appraisal2. Job expectations establishment3. Design an appraisal program4. Appraise the performance5. Performance Interviews6. Use data for appropriate purposes7. Identify opportunities variables8. Using social processes, physical processes, human and computer assistance

Difference between Traditional and Modern (Systems) approach to Appraisals

Categories Traditional Appraisals Modern, Systems Appraisals

Guiding Values Individualistic, Controloriented, Documentary

Systematic,Developmental, Problemsolving

Leadership Styles Directional, Evaluative Facilitative, CoachingFrequency Occasional FrequentFormalities High LowRewards Individualistic Grouped, Organizational

TECHNIQUES / METHODS OF PERFORMANCE APPRAISALS

Numerous methods have been devised to measure the quantity and quality of performanceappraisals. Each of the methods is effective for some purposes for some organizations only.None should be dismissed or accepted as appropriate except as they relate to the particularneeds of the organization or an employee.

Broadly all methods of appraisals can be divided into two different categories.

Past Oriented Methods Future Oriented Methods

Past Oriented Methods

1. Rating Scales: Rating scales consists of several numerical scales representing jobrelated performance criterions such as dependability, initiative, output, attendance,attitude etc. Each scales ranges from excellent to poor. The total numerical scores arecomputed and final conclusions are derived. Advantages Adaptability, easy to use, lowcost, every type of job can be evaluated, large number of employees covered, no formaltraining required. Disadvantages Raters biases

2. Checklist: Under this method, checklist of statements of traits of employee in the formof Yes or No based questions is prepared. Here the rater only does the reporting orchecking and HR department does the actual evaluation. Advantages economy, ease

of administration, limited training required, standardization. Disadvantages Ratersbiases, use of improper weighs by HR, does not allow rater to give relative ratings

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3. Forced Choice Method: The series of statements arranged in the blocks of two or moreare given and the rater indicates which statement is true or false. The rater is forced tomake a choice. HR department does actual assessment. Advantages Absence of personal biases because of forced choice. Disadvantages Statements may be wronglyframed.

4. Forced Distribution Method: here employees are clustered around a high point on arating scale. Rater is compelled to distribute the employees on all points on the scale. Itis assumed that the performance is conformed to normal distribution. Advantages Eliminates Disadvantages Assumption of normal distribution, unrealistic, errors of central tendency.

5. Critical Incidents Method: The approach is focused on certain critical behaviors of employee that makes all the difference in the performance. Supervisors as and whenthey occur record such incidents. Advantages Evaluations are based on actual jobbehaviors, ratings are supported by descriptions, feedback is easy, reduces recencybiases, chances of subordinate improvement are high. Disadvantages Negativeincidents can be prioritized, forgetting incidents, overly close supervision; feedback maybe too much and may appear to be punishment.

6. Behaviorally Anchored Rating Scales: statements of effective and ineffectivebehaviors determine the points. They are said to be behaviorally anchored. The rater issupposed to say, which behavior describes the employee performance. Advantages helps overcome rating errors. Disadvantages Suffers from distortions inherent in mostrating techniques.

7. Field Review Method: This is an appraisal done by someone outside employees owndepartment usually from corporate or HR department. Advantages Useful for

managerial level promotions, when comparable information is needed, Disadvantages Outsider is generally not familiar with employees work environment, Observation of actual behaviors not possible.

8. Performance Tests & Observations: This is based on the test of knowledge or skills.The tests may be written or an actual presentation of skills. Tests must be reliable andvalidated to be useful. Advantage Tests may be apt to measure potential more thanactual performance. Disadvantages Tests may suffer if costs of test development oradministration are high.

9. Confidential Records: Mostly used by government departments, however itsapplication in industry is not ruled out. Here the report is given in the form of Annual

Confidentiality Report (ACR) and may record ratings with respect to following items;attendance, self expression, team work, leadership, initiative, technical ability,reasoning ability, originality and resourcefulness etc. The system is highly secretive andconfidential. Feedback to the assessee is given only in case of an adverse entry.Disadvantage is that it is highly subjective and ratings can be manipulated because theevaluations are linked to HR actions like promotions etc.

10. Essay Method: In this method the rater writes down the employee description in detailwithin a number of broad categories like, overall impression of performance,promoteability of employee, existing capabilities and qualifications of performing jobs,strengths and weaknesses and training needs of the employee. Advantage It isextremely useful in filing information gaps about the employees that often occur in abetter-structured checklist. Disadvantages It its highly dependent upon the writingskills of rater and most of them are not good writers. They may get confused successdepends on the memory power of raters.

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11. Cost Accounting Method: Here performance is evaluated from the monetary returns

yields to his or her organization. Cost to keep employee, and benefit the organizationderives is ascertained. Hence it is more dependent upon cost and benefit analysis.

12. Comparative Evaluation Method (Ranking & Paired Comparisons): These arecollection of different methods that compare performance with that of other co-workers.The usual techniques used may be ranking methods and paired comparison method.

Ranking Methods: Superior ranks his worker based on merit, from best toworst. However how best and why best are not elaborated in this method. It iseasy to administer and explanation.

Paired Comparison Methods: In this method each employee is rated withanother employee in the form of pairs. The number of comparisons may becalculated with the help of a formula as under.

N x (N-1) / 2

Future Oriented Methods

1. Management By Objectives: It means management by objectives and theperformance is rated against the achievement of objectives stated by the management.MBO process goes as under. Establish goals and desired outcomes for each subordinate Setting performance standards Comparison of actual goals with goals attained by the employee Establish new goals and new strategies for goals not achieved in previous year.

Advantage It is more useful for managerial positions.Disadvantages Not applicable to all jobs, allocation of merit pay may result in settingshort-term goals rather than important and long-term goals etc.

2. Psychological Appraisals: These appraisals are more directed to assess employeespotential for future performance rather than the past one. It is done in the form of in-depth interviews, psychological tests, and discussion with supervisors and review of other evaluations. It is more focused on employees emotional, intellectual, andmotivational and other personal characteristics affecting his performance. This approachis slow and costly and may be useful for bright young members who may haveconsiderable potential. However quality of these appraisals largely depend upon theskills of psychologists who perform the evaluation.

3. Assessment Centers: This technique was first developed in USA and UK in 1943. An

assessment center is a central location where managers may come together to havetheir participation in job related exercises evaluated by trained observers. It is more

focused on observation of behaviors across a series of select exercises or work samples.Assessees are requested to participate in in-basket exercises, work groups, computersimulations, role playing and other similar activities which require same attributes forsuccessful performance in actual job. The characteristics assessed in assessment centercan be assertiveness, persuasive ability, communicating ability, planning andorganizational ability, self confidence, resistance to stress, energy level, decisionmaking, sensitivity to feelings, administrative ability, creativity and mental alertnessetc. Disadvantages Costs of employees traveling and lodging, psychologists, ratingsstrongly influenced by assessees inter-personal skills. Solid performers may feelsuffocated in simulated situations. Those who are not selected for this also may getaffected.

Advantages well-conducted assessment center can achieve better forecasts of futureperformance and progress than other methods of appraisals. Also reliability, content validityand predictive ability are said to be high in assessment centers. The tests also make sure

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that the wrong people are not hired or promoted. Finally it clearly defines the criteria forselection and promotion.

4. 360-Degree Feedback: It is a technique which is systematic collection of performancedata on an individual group, derived from a number of stakeholders like immediatesupervisors, team members, customers, peers and self. In fact anyone who has usefulinformation on how an employee does a job may be one of the appraisers. Thistechnique is highly useful in terms of broader perspective, greater self-development andmulti-source feedback is useful. 360-degree appraisals are useful to measure inter-personal skills, customer satisfaction and team building skills. However on the negativeside, receiving feedback from multiple sources can be intimidating, threatening etc.Multiple raters may be less adept at providing balanced and objective feedback.

Ethics of Performance Appraisals / Legally defensible Performance Appraisals

Ethics of Procedures

1. Formal Standardized Performance Appraisal Systems2. Uniform to all employees, no illegal differentiations based on cast, religion etc.3. Standards formally communicated to all employees4. Freedom to review performance appraisal results5. Formal appeal process about ratings and judgments6. Written instructions and training to raters7. All personal decision makers should be aware of anti-discrimination laws.

Ethics of Contents

1. Content based on job analysis2. Traits based appraisals should be avoided3. Objectively verifiable data should be used

4. Constraints on performance beyond control should be prevented5. Specific job related dimensions to be used rather than single or global dimensions.6. Dimensions must be assigned weight to reflect relative importance in performance

score

Ethics of Documentation of Results

1. A thoroughly written record of evidence leading to termination should be maintained2. Written documentation of extreme ratings should be maintained3. Documentation should be consistent among the raters.

Ethics of Raters

1. The raters should be trained in how to use an appraisal system2. The rater must have opportunity to observe ratees first hand and review important

ratee performance products.3. Use of more than one rater is desirable to reduce biases.

Essentials of a Good Performance Appraisal System:1. Standardized Performance Appraisal System2. Uniformity of appraisals3. Defined performance standards4. Trained Raters5. Use of relevant rating tools or methods6. Should be based on job analysis7. Use of objectively verifiable data

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8. Avoid rating problems like halo effect, central tendency, leniency, severity etc.9. Consistent Documentations maintained10. No room for discrimination based on cast, creed, race, religion, region etc.

Problems of Rating:1. Leniency & Severity2. Central Tendency3. Halo Error4. Rater Effect5. Primacy & Recency Effect6. Perceptual Sets7. Performance Dimensions Order8. Spillover Effects9. Status Effect

Compensation and Incentives

I. Basic Factors in Determining Pay Rates Employee compensation refers to all forms of pay or rewards going to employees, whichinclude direct financial payments and indirect payments. Direct financial payments includewages, salaries, incentives, commissions, and bonuses. Indirect payments includefinancial benefits, like employer-paid insurance and vacations.

A. The Compensation Scenario in India In India, various legislations influence thestructure, compensation and payment of compensation. In general, only the nonmanageriallevel of employees and a section of workers in the informal sector of the Indian economy arecovered by this wage legislation. In recent times, compensation for managerial/executve levelemployees have gained attention in India due to the high growth rate and the scarcity of managerial talent. Compensation for central government executives are set by paycommissions, the most recent being the sixth pay commission. The Companies Act of 1956sets the framework for remuneration of top management of Indian companies. The EmployeeStock Option Secheme (ESOS) and the Employee Stock Purchase Scheme (ESPS) areregulated by the guidelines issued by the Securities Exchange Board of India (SEBI). Theminimum wage in India is fixed both by central and state governments, following the provisionsof the Minimum Wages Act, 1948. Other acts which provide for compensation and socialsecurity of the workers include the Payment of Bonus Act, Payment of Gratuity Act, EmployeeProvident Fund Scheme, etc. The Unorganized Workers Social Security Act, 2008, enabledcreation of the National Social Security Board to provide healthcare, relief during disability,maternity benefits, and old age protection to the unorganized sector. The Mahatma GandhiNational Rural Employment Guarantee Act (MNREGA) is another highly popular schemeaimed at providing guaranteed wage employment for a hundred days per financial year to arural household.

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B. Union Influences on Compensation Decisions Unions and labor relations lawsinfluence pay plan design. The rulings of the National Labor Relations Act underscored theneed for employers to involve union officials in developing the compensation package.

C. Corporate Policies, Competitive Strategy, and Compensation The basic thrust in payplans today is to produce an aligned reward strategy to create compensation plans that guideemployee behaviors in the desired, strategic direction. Distinguishing between high and lowperformers is a policy issue, as is seniority-based pay.

1. Salary Compression means longer-term employees salaries are lower thanthose of workers entering the firm today. To raise salaries, employers cangive raises based on longevity (plus skills), install a more aggressive merit payprogram, or authorize supervisors to recommend equity adjustments for selected employees who are both highly valued and victims of paycompression.

2. Geography Cost of living differences between cities can be considerable. There are

several ways that employers handle cost of living differentials.

D. Equity and Its Impact on Pay Rates External and internal equity are crucial in payrates. External equity refers to pay comparing favorably with rates in other organizations.Internal equity refers to employees viewing their pay as equitable given other pay rates in theorganization. Individual equity refers to the fairness of an individuals pay as compared withwhat his/her coworkers are earning for the same or very similar jobs in the company. Last,procedural equity refers to the perceived fairness of the processes and procedures used tomake decisions regarding the allocation of pay.

The New Workforce : Globalization and Diversity, CompensatingExpatriate Employees The question of cost-of-living differentials hasparticular significance to multinational firms. This section describeshome-based plans as well as host-based plans.

II. Establishing Pay Rates

The following five steps should be taken to ensure external and internal equity: 1) conducta salary survey; 2) conduct a job evaluation; 3) group similar jobs into pay grades; 4) priceeach pay grade by using wage curves; and 5) fine-tune pay rates.

A. Step 1. The Salary Survey

Introduction Virtually all employers conduct at least an informal telephone,newspaper, or Internet salary survey to price benchmark jobs and benefits.

1. Commercial, Professional, and Government Salary Surveys Manyemployers use surveys published by consulting firms, professionalassociations, or government agencies. In the United States, the Bureau of Labor Statistics (BLS) annually conducts area wage surveys, industry wagesurveys, and professional, administrative, technical, and clerical (PATC)surveys in a recently organized National Compensation Survey.

2. Using the Internet to Do Compensation Surveys A rapidly expanding arrayof Internet-based options makes it fairly easy for anyone to access publishedcompensation survey information. Several examples of sources of salary dataare provided.

3. Paycheck India Project Its a free internet based survey (www.paycheck.in)which provides market compensation related information about some jobs.

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B. Step 2. Job Evaluation

Purpose of Job Evaluation is to determine a jobs relative worth through a formaland systematic comparison of jobs to determine the worth of one job relative toanother. The basic principle is that jobs that require greater qualifications, moreresponsibilities, and more complex job duties should be paid higher than jobs with

lesser requirements.

1. Compensable Factors determine the definition of job content, establish howthe jobs compare to each other, and set the compensation paid for each job.Some employers develop their own compensable factors, while most usefactors popularized by packaged job evaluation systems or by federallegislation.

2. Preparing for the Job Evaluation Job evaluation demands close cooperationamong supervisors, HR specialists, and employees and unionrepresentatives. The main steps include identifying the need for the program,getting cooperation, and choosing an evaluation committee to perform theactual job evaluation.

3. Job Evaluation Methods: Ranking is the simplest method, which ranks each job relative to all other jobs on some overall factor. The steps of the rankingmethod include: 1) obtaining job information; 2) selecting raters and jobs; 3)selecting compensable factors; 4) ranking jobs; and 5) combining ratings.

4. Job Evaluation Methods: Job Classification (or grading) is a simple, widelyused method in which you categorize jobs into groups. The groups are calledclasses if they contain similar jobs, or grades if they contain jobs that aresimilar in difficulty but otherwise different.

5. Job Evaluation Methods: The point method a more quantitative technique,involves identifying (1) several compensable factors, each having severaldegrees, as well as (2) the degree to which each of these factors is present inthe job. This method is discussed in more depth in the Appendix to Chapter 11.

6. Job Evaluation Methods: Factor Comparison is a quantitative technique,which is a refinement of the ranking method. It entails deciding which jobshave more of the chosen compensable factors. This method is described inmore detail in the Appendix to Chapter 11.

7. Computerized Job Evaluations use structured questionnaires and statisticalmodels. They can simplify job analysis, help keep job descriptions up to date,increase evaluation objectivity, reduce the time spent in committee meetings,and ease the burden of system maintenance.

C. Step 3. Group Similar Jobs into Pay Grades The committee will probably groupsimilar jobs into grades for pay purposes, instead of having to deal with hundredsof pay rates.

D. Step 4. Price Each Pay GradeWage Curves are typically used to help assignpay rates to each pay grade or job. They show the relationship between the valueof the job and the average wage paid for this job.

E. Step 5. Fine-Tune Pay Rates Fine-tuning involves correcting out-of-line rates

and developing pay ranges.

1. Developing Pay Ranges Most employers develop vertical pay (rate) rangesfor each horizontal pay grade. These pay ranges may appear as verticalboxes within each grade, showing minimum, maximum, and midpoint pay

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rates for that pay grade. You may depict the pay ranges as steps or levels,with specific corresponding pay rates for each step within each pay grade.

2. Correcting Out-of-Line Rates The wage rate for a job may fall well off the wage lineor well outside the rate range for its grade, which means that the average pay for the job iscurrently too high or too low, relative to other jobs in the firm. If the point falls well below the

line, a pay raise for the job may be required. If the point falls well above the wage line, a paycut or a pay freeze may be required.

III. Pricing Managerial and Professional Jobs

A. Compensating Executives and Managers

1. What Determines Executive Pay? Basic compensation elements for topexecutives include: base pay, short-term incentives, long-term incentives, andexecutive benefits and perks. Shareholder activism has tightened therestrictions on what companies pay top executives.

2. Elements of Executive Pay Executive Compensation emphasizes

performance incentives more than do other employees pay plans, sinceorganizational results are likely to reflect executives contributions moredirectly.

3. Managerial Job Evaluation The approach used by most large companies isto classify all executive and management positions into a series of grades,with salary ranges attached, to ensure some degree of equity among variousdivisions and departments.

B. Compensating Professional Employees Most employers use a market-pricingapproach instead of job evaluation, since its not easy to identify factors anddegrees of factors which meaningfully differentiate among the values of professional work.

IV. Competency-Based Pay

Introduction Increasingly, experts are moving away from basing pay on the value of the job and more toward paying for the competencies the job demands from thosewho fill it.

A. What is Competency-Based Pay? The company pays for the employees range,depth, and types of skills and knowledge, rather than for the job title he or sheholds.

B. Why Use Competency-Based Pay? Three reasons are given: 1) in a highperformance work system you want employees to be enthusiastic about learningand moving among other jobs; 2) you can enhance your strategic plans by payingfor skills that are critical for those plans; and 3) measurable skills, knowledge, andcompetencies are at the heart of performance management processes.

C. Competency-Based Pay in Practice contain four main components: 1) a systemthat defines skills and processes for tying those skills to pay; 2) a training systemfor acquiring skills; 3) competency testing system; and 4) a work design thatallows employees to move among jobs.

D. Competency-Based Pay: Pros, Cons, and Results There are a variety of prosand cons that are discussed, as well as implementation pitfalls.

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I. Money and Motivation

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Frederick Taylor made three contributions in the late 1800s: standards of outputdefining a fair days work, the scientific management approach, which emphasizedimprovement of work methods, and the use of financial incentives for those whoseoutput exceeded standards.

A. Linking Performance and Pay Compensation, shareholder value, and turbulence

are factors that characterize business today, and they have produced arenaissance for financial incentive/pay-for-performance plans.

B. Motivation and Incentives The law of individual differences means that peoplediffer in personality, abilities, values, and needs. They therefore react to differentincentives in different ways. Several theorists have contributed relevance todesigning incentive plans.

1. Frederick Herzberg Hygiene-motivator theory divides needs into two factors.Hygiene factors include such things as working conditions, salary, andincentives. Motivators include those factors that make the job moreintrinsically motivating, like challenge, feedback, and recognition.

2. Edward Deci found that extrinsic rewards could at timesactually detract from the persons intrinsic motivation

3. Victor Vroom says a persons motivation to exert some levelof effort is a function of three things: the persons expectancy (in terms of probability) that his or her effort will lead toperformance; instrumentality , or the perceived connection (if any) between successful performance and actually obtainingthe rewards; and valence , which represents the perceived valuethe person attaches to the reward.

C. Behavior Modification / Reinforcement Theory Psychologist B.F.Skinner proposed that to understand behavior, one mustunderstand the consequences of that behavior. Behavior modification means changing behavior through rewards or punishments that are contingent upon performance.

D. Employee Incentive and the Law the employer must comply with the overtimeprovisions of the Fair Labor Standards Act when designing and administering itsincentive plans. Certain bonuses are excludable from overtime pay calculations.The problem is that many other types of incentive pay must be included.

II. Individual Employee Incentive and Recognition Programs A. Piecework Plans Piecework is where you pay the worker a sum (piece rate) for

each unit he/she produces. Straight piecework entails a strict proportionalitybetween results and rewards regardless of output. With a standard hour plan, theworker gets a premium equal to the percent by which his/her performanceexceeds the standard.

B. Merit Pay As An Incentive Merit pay or raise is any salary increase the firmawards to an employee based on his/her individual performance. It is differentfrom a bonus in that it usually becomes part of the employees base salary,whereas a bonus is a one-time payment.

C. Incentives for Professional Employees Professional employees are those whosework involves the application of learned knowledge to the solution of theemployers problems, such as lawyers, doctors, economists, and engineers.

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Making incentive pay decisions for professional employees can be challengingbecause theyre usually paid well anyway.

D. Nonfinancial and Recognition-Based Awards The term recognition programusually refers to formal programs such as employee-of-the-month programs.Social recognition programs are more informal manager-employee exchanges,

including praise and approval. Performance feedback is similar, but providesquantitative or qualitative information on performance in order to change theperformance or maintain it. Most employers combine both financial and non-financial incentives to motivate employees.

E. Online and IT-Supported Awards There are many reasons to use Internet sitesto manage awards programs. The sites can offer a much broader range of products than most employers could catalog and offer themselves. And perhapsmost importantly, the whole process is expeditedits much easier to bestow anddeliver the awards.

III. Incentives for Salespeople

A. Salary Plan offered by some firms. Straight salary makes it simple to switch

territories or to reassign salespeople, and it can foster loyalty among the salesstaff. A disadvantage is that it can constrict sales and de-motivate potentiallyhigh-performing salespeople.

B. Commission Plan pays salespeople for results, and only for results; thus, theytend to attract high-performing salespeople who see that effort clearly leads torewards. But it may cause them to neglect non-selling duties like servicing smallaccounts, cultivating dedicated customers, and pushing hard-to-sell items.

C. Combination Plan Most companies pay salespeople a combination of salary andcommissions, usually with a sizable salary component. Combination plans givesalespeople a floor to their earnings, and still provide an incentive for superior performance. But they can become complicated, and misunderstandings canresult.

D. Maximizing Sales Force Results Setting effective quotas is an art. In todaysfast-changing business scene, sales quotas must become more flexible than theyhave been in the past. There is a tendency to set commission rates informally,without considering how much each sale must contribute to covering expenses.

IV. Incentives for Managers and Executives

A. Sarbanes-Oxley affects how employers formulate their executive incentiveprograms to inject a higher level of responsibilities into executives and boardmembers decisions.

B. Short-Term Incentives: The Annual Bonus is aimed at motivating the short-termperformance of managers and executives.

1. Eligibility usually includes both top and lower-level managers.

2. Fund Size refers to the total amount of bonus money the firm makes available. A nondeductible formula is where they use a straight percentage (usually of the companys net income) to create the short-term incentive fund. Adeductible formula assumes that the fund should start to accumulate only after the firm has met a specified level of earnings.

C. Individual Performance Typically, a target bonus (as well asmaximum amount) is set for each eligible position, and the actual award reflectsthe persons performance.

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D. Long-Term Incentives are used to inject a long-term perspectiveinto executives decisions.

1. Stock Options - account for over half of executives compensation. A stockoption is the right to purchase a specific number of shares of company stockat a specific price during a specific period of time; the executive thus hopes to

profit by exercising his/her option to buy the shares in the future but at todaysprice.

2. Broad-Based Stock Options Many companies have implemented broad-based stock option plans in which the potential appreciation is relativelymodest, but in which all or most employees can participate. With companiesnow having to show options as an expense when awarded, some firms arenow awarding stock rather than options.

3. Other Plans Stock appreciation rights permit the recipient to exercise the stockoption (by buying the stock) or to take any appreciation in the stock price in cash, stock, or some combination of these. A performance achievement plan awards shares of stock for theachievement of predetermined financial targets. In a restricted stock plan, shares are usually

awarded without cost to the executive, but selling the stock is restricted for a specified timeperiod.

E. Other Executive Incentives Companies provide various incentives to persuadeexecutives to remain with the firm, such as golden parachutes and loans.

F. Strategy and the Executives Total Rewards Package Few HR practices have asprofound or obvious an impact on strategic success as the companys long-termincentives. In creating the compensation package, you should: 1) define thestrategic context for the executive compensation program, including the internaland external issues that face the company, and the firms business objectives; 2)shape each component of the executive compensation package based on your strategic aims, and then group the components into a balanced plan that makessense in terms of these aims; 3) create a stock option plan that gives theexecutive compensation package the special character it needs to meet theunique needs of the executives and the company, and its strategy; 4) check theexecutive compensation plan for compliance with all legal and regulatoryrequirements and for tax effectiveness; and 5) install a process for reviewing andevaluating the executive compensation plan whenever a major business changeoccurs.

V. Team and Organization-Wide Incentive Plans

A. How to Design Team Incentives There are three approaches:

1. Members are paid based on one of three formulas all members receive thepay (a) earned by the highest producer, (b) earned by the lowest producer, or (c) equal to the average pay earned by the group.

2. Set a production standard based on the final output of the group as a whole.

3. Tie rewards to goals based on some overall standard of group performance.

B. Pros and Cons of Team Incentives A lot of our work today is organized aroundteams, so team incentives make sense to encourage cooperation and training.But exceptionally hard-working employees do not get paid according to their efforts, which may reduce motivation.

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C. Profit-Sharing Plans involve employees receiving a share of the companys annualprofits. There are several types of profit-sharing plans: cash plans, LincolnIncentive system, and deferred profit-sharing plans.

D. Scanlon and Other Gainsharing Plans

1. Scanlon Plan is an incentive plan developed in 1937 by Joseph Scanlon.The basic features of the plan include: philosophy of cooperation, identity,competence, involvement system, and sharing of benefits formula.

2. Other Gainsharing Plans are incentive plans that engage many or allemployees in a common effort to achieve a companys productivity objectives,with any resulting cost-savings gains shared among employees and thecompany.

Implementing a Plan The basic eight steps are: 1) establish general planobjectives; 2) define specific performance measures; 3) decide on a fundingformula; 4) decide on a method for dividing and distributing the employeesshare of the gains; 5) make the disbursement significant enough to get

participants attention and to motivate their behavior; 6) choose the form of payment; 7) decide how often bonuses are to be paid; and 8) develop theinvolvement system.

E. At-Risk Variable Pay Plans are plans that put some portion of the employeesweekly pay at risk, subject to the firm meeting its financial goals.

F. Employee Stock Ownership Plans (ESOP) are company-wide plans in which afirm contributes shares of its own stock or cash to purchase the stock to a trustestablished to purchase shares of the firms stock for employees.

VI. Designing Effective Incentive Plans

A. How to Implement Effective Incentive Plans Some guidelines tofollow to make your plan more effective: use common sense; link theincentive with your strategy; make sure effort and rewards are directlyrelated; make the plan easy for employees to understand; set effectivestandards; view the standard as a contract with your employees; getemployees support for the plan; use good measurement systems;emphasize long-term as well as short-term success; take the corporateculture into consideration; and adopt a comprehensive, commitment-orientedapproach.

B. Research Insight: The Impact of Financial and Non-FinancialIncentives In a study of the fast-food industry in the Midwest, researcherscompared performance over time in stores that had financial and non-financial incentives with those that did not. The results showed that theincentives improved employee and store performance and that theimprovements were sustained over time.

C. Incentive Plans in Practice: Nucor Most companies have severalincentive plans. Nucor, the largest steel producer in the United States hasthe highest productivity, highest wages, and lowest labor cost per ton of steelin the American steel industry.

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INCENTIVES BASED COMPENSATION

Incentives are monetary benefits paid to workmen in recognition of their outstandingperformance. They are defined as variable rewards granted according to variations in theachievement of specific results.

Advantages of Incentive based compensations

1. Incentives are important for inducement and motivation of workers for higherefficiency and greater output.

2. Employee earnings go up3. Enhanced standard of livings of employees4. Reduction in total unit cost of production,5. Productivity increases.6. Production capacity is also likely to increase7. Reduced supervision

Disadvantages of Incentive based compensation

1. Tendency of quality of products deteriorated due to increased output and low cost2. Employees may oppose introduction of new machines3. Workers demand for minimum wage limit may go up due to high incentive earnings4. Sometimes employees may disregard security regulations due to payment by results

approach adopted for higher incentive figures5. Overworking may affect employee health6. Employee jealousies with respect to high and low performers

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WORKERS PARTICIPATION IN MANAGEMENT

Broadly, workers participation in management means associating representatives of workers at every stage of decision-making. Participative management is considered as aprocess by which the workers share in decision-making extends beyond the decisions thatare implicit in the specific content of the jobs they do. This amounts to the workers havinga share in the reaching of final managerial decisions in an enterprise.

Definition 1: Association of Workers in decision-making process

Workers participation may be taken to cover all terms of association of workers and theirrepresentatives with the decision-making process, ranging from exchange of information,consultations, decisions and negotiations to more institutionalized forms such as thepresence of the workers members on management or supervisory boards or evenmanagement by workers themselves.

Scope of workers participationScope of workers participation ranges over three managerial decision-making stages.Social Decisions: Hours of work, welfare measures, work rules, safety, health, sanitationand noise control.Personnel Decisions: Recruitment and selection, promotions and transfers, grievancesettlements, work distributionEconomic Decisions: Methods of manufacturing, automation, lay offs, shut-downs,mergers and acquisitions and other financial aspects.

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Methods of Workers Participation in Management1. Board Level2. Ownership3. Complete Control4. Staff Councils5. Joint Councils6. Collective Bargaining7. Job Enlargement and Enrichment8. Suggestion Schemes9. Quality Circles10. Empowered Teams11. Total Quality Management12. Financial Participation

Prerequisites of Successful Participation1. Clearly defined and complementary Objectives2. Free flow of information and communication

3. Representatives of workers from workers themselves4. Outside trade union participation should be avoided5. Workers education and training6. No threat by participation7. Association at all levels of decision-making

Benefits of Participation1. Gives identity to an employee2. Motivates employee3. Self-esteem, job satisfaction and cooperation improves4. Reduced conflicts and stress5. More commitment to goals

6. Less resistance to change7. Less labor problems8. Better quality suggestions expected

UNIONS

Employee associations are popularly known as unions. However these unions are notconfined to only strikes and negotiations. Their role is much wider than this. Unions maketheir presence felt in recruitment and selection, promotions, training, termination or lay off.Many programs, which contribute to the Quality of Work Life (QWL) and productivity, areundertaken by management in consultation with and with the cooperation of the unions.Unions also participate in deciding wage and salary structure and negotiate revisions oncein 3 or 5 years.

Trade unions are voluntary organizations of workers or employers formed to promote theirinterests through collective action. Trade unions Act 1926 defines a trade union as acombination, whether temporary or permanent formed primarily for the purpose of regulating the relation between

1) Workmen and Employers2) Workmen and Workmen3) Employers and Employers

For imposing restrictive conditions on the conduct of any trade or business and includes anyfederation of two or more trade unions

Why do employees join Trade Unions?To protect themselves against exploitation by managementBy forceDissatisfaction

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Lack of PowerUnion Instrumentality

ROLE OF CONSTRUCTIVE AND POSITIVE UNION

Unions have a crucial role to play in Industrial Relations. Unions have following broad roleor objectives as mentioned below.

To redress the bargaining advantage of the individual worker vis--vis the individualemployer, by substituting joint or collective action for individual action.

To secure improved terms and conditions of employment for its members and themaximum degree of security to enjoy these terms and conditions.

To obtain improved status for the worker in his work or her work To increase the extent to which unions can exercise democratic control over

decisions, which affect their interests by power sharing at the national, corporateand plant levels.

The union power is exerted primarily at two levels. Industry level to establish jointregulation on basic wages and hours with an employers association. Plant level, where theshop stewards organizations exercise joint control over some aspects of the organization of work and localized terms and conditions of employment.

Unions are party to national, local and plant level agreements, which govern their actions toa greater or lesser extent, depending on their power and on local circumstances.

UNFAIR LABOR PRACTICES

Industrial Disputes Act 1947 specifies the following as unfair labor practices

To interfere, restrain, coerce workmen in the exercise of their right to organize,form, join or assist a trade union.

Threatening workmen with discharge or dismissal Threatening of lockout or closure Granting wage increases to undermine trade union efforts To dominate, interfere with or support financially or socially by taking active interest

in forming own trade union, and Showing partiality or granting favor to one of several trade unions to a non-

recognized trade union To establish employer sponsored trade unions To encourage or discourage memberships in any trade union by discriminating

workman by punishing or discharging, changing seniority ratings, refuse promotions,giving unmerited promotions, discharging union office bearers

To discharge or dismiss workmen by victimizing, not in good faith, implicating in

criminal case, for patently false reasons To abolish work of a regular nature To transfer workmen To show favoritism or partiality To replace workers To recruit workmen during legal strikes To indulge in acts of violence or force To refuse collective bargaining Proposing and continuing lockouts

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hrm notes sk

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