SPBA201

POSTGRADUATE COURSE
MBA

SECOND YEAR
THIRD SEMESTER

CORE PAPER - XI

HUMAN RESOURCE MANAGEMENT

INSTITUTE OF DISTANCE EDUCATION

UNIVERSITY OF MADRAS
MBA CORE PAPER - IX
SECOND YEAR - THIRD SEMESTER HUMAN RESOURCE MANAGEMENT

WELCOME
Warm Greetings.

It is with a great pleasure to welcome you as a student of Institute of Distance

Education, University of Madras. It is a proud moment for the Institute of Distance education
as you are entering into a cafeteria system of learning process as envisaged by the University
Grants Commission. Yes, we have framed and introduced Choice Based Credit
System(CBCS) in Semester pattern from the academic year 2018-19. You are free to
choose courses, as per the Regulations, to attain the target of total number of credits set
for each course and also each degree programme. What is a credit? To earn one credit in
a semester you have to spend 30 hours of learning process. Each course has a weightage
in terms of credits. Credits are assigned by taking into account of its level of subject content.
For instance, if one particular course or paper has 4 credits then you have to spend 120
hours of self-learning in a semester. You are advised to plan the strategy to devote hours of
self-study in the learning process. You will be assessed periodically by means of tests,
assignments and quizzes either in class room or laboratory or field work. In the case of PG
(UG), Continuous Internal Assessment for 20(25) percentage and End Semester University
Examination for 80 (75) percentage of the maximum score for a course / paper. The theory
paper in the end semester examination will bring out your various skills: namely basic
knowledge about subject, memory recall, application, analysis, comprehension and
descriptive writing. We will always have in mind while training you in conducting experiments,
analyzing the performance during laboratory work, and observing the outcomes to bring
out the truth from the experiment, and we measure these skills in the end semester
examination. You will be guided by well experienced faculty.

I invite you to join the CBCS in Semester System to gain rich knowledge leisurely at
your will and wish. Choose the right courses at right times so as to erect your flag of
success. We always encourage and enlighten to excel and empower. We are the cross
bearers to make you a torch bearer to have a bright future.

With best wishes from mind and heart,

DIRECTOR

(i)
MBA CORE PAPER - IX
SECOND YEAR - THIRD SEMESTER HUMAN RESOURCE MANAGEMENT

COURSE WRITERS

Dr. D. Gomathy
Associate Professor in Management Studies
Ethiraj Collge for Women,
Egmore,
Chennai - 600 008.

COORDINATION AND EDITING

Dr. B. Devamaindhan
Associate Professor in Management Studies
Institute of Distance Education
University of Madras
Chennai - 600 005.

Dr. S. Thenmozhi
Associate Professor
Department of Psychology
Institute of Distance Education
University of Madras
Chepauk Chennnai - 600 005.

© UNIVERSITY OF MADRAS, CHENNAI 600 005.

(ii)
 MBA DEGREE COURSE

SECOND YEAR

THIRD SEMESTER

Core Paper - XI

HUMAN RESOURCE MANAGEMENT

SYLLABUS
UNIT - I

Introduction of Human Resources Management: Importance of Human Resources,

Definition and Objectives of Human Resources Management, Qualities of a good HR
manager – Evolution and growth of Human Resource Management in India. Functions of
Human Resource Management. Strategic Human Resource Management (SHRM).

Human Resource Policies: Need, type and scope, Human Resource Accounting and Audit.

UNIT – II

Human Resource Planning and Development (HRP & D):

Human Resources Planning: Long and Short term planning, Job Analysis, Skills inventory,
Job Description, Job Specification and Succession Planning, Strategic Human Resource
Planning.

Recruitment and selection: Purposes, types and methods of recruitment and selection,
Relative merits and demerits of the different methods, Recruitment and Social Media.

Placement, Induction, Transfers, Promotions, Dismissal, Resignation, Exit Interviews,

Reduction of attrition rate.

UNIT - III

Training, Development & Career Management:

Importance and benefits of Training and Development, Types of Training Methods, Executive
Development Programs, Concept and process of Career Management.

(iii)
UNIT - IV

Performance Management:

Importance, process and Methods: Ranking, rating scales, critical incident method,
Removing subjectivity from evaluation, MBO as a method of appraisal, Performance
Feedback, Online PMS.

UNIT - V

Compensation Management: Wage and Salary Administration: Job Evaluation, Calculation

of Wage, Salary, Prerequisites, Compensation Packages, Cost of Living Index and
Calculation of Dearness Allowance, Rewards and Incentives: Financial and non-financial
incentives, Productivity – linked Bonus, Compensation Criteria, Rewards and Recognition.

Reference Books

1.      Ashwathappa,  K.,  Human  Resource  Management,  6th Edition, Tata McGraw-Hill

Education Pvt. Ltd., 2010.

2.      DeCenzo, D.A. and Robbins, S.P., Human Resource Management, 10th Edition, Wiley

India Pvt. Ltd., 2011.

3.      Dessler, G., Human Resource Management, 12th Edition, Pearson, 2011.

4.      Ivanecevich, J.M., Human Resource Management, 10th Edition, Tata McGraw-Hill

Education Pvt. Ltd., 2010.

5.      Mamoria, C.B. and Gankar,S.V., Personnel Management, Himalaya Publishing House,
2011.

6.      Noe, R.A.,  Hollenbeck, Gerhart and Wright, Fundamentals  of Human Resource

Management, 3rd Edition, McGrawHill Education Ltd., 2012.

(iv)
 MBA DEGREE COURSE

SECOND YEAR

THIRD SEMESTER

Core Paper - XI

HUMAN RESOURCE MANAGEMENT

SCHEME OF LESSONS

Sl.No. Title Page

1 Introduction to Human Resource Management 1

2 Evolution and Growth of HRM 13

3 Functions of HRM 25

4 Human Resource Policies 37

5 HR Audit & Accounting 46

6 Human Resource Planning 55

7 Recruitment 67

8 Selection 76

9 Induction 90

10 Promotion & Transfer 96

11 Training & Development 106

12 Career Management 118

13 Performance Management 126

14 Wage and Salary Administration 144

15 Reward System 153

(v)
 1

LESSON - 1
INTRODUCTION TO HUMAN
RESOURCE MANAGEMENT
Learning Objectives
After completng this lesson, you must be able to :

 define Human Resource Management

 list out the importance of Human Resource Management

 discuss the nature of Human Resource Management

 explain the scope of Human Resource Management

 outline the objectives of Human Resource Management

Structure
1.1 Introduction

1.2 Definition

1.3 Importance of Human Resource Management

1.4 Nature of Human Resource Management

1.5 Scope of Human Resource Management

1.6 Importance of Human Factor

1.7 Objectives of Human Resource Management

1.8 Qualities of Human Resource Manager

1.9 Challenges and Tasks of HR Managers

1.10 Emerging Issues in HRM

1.11 Summary

1.12 Keywords

1.13 Review Questions

2

1.1 Introduction
It is admitted universally that the human factor is the most vital and complex to handle.
Therefore, proper study of the subject is necessary. People are rational and reasonable – but
not always. Only a professionally qualified person will be able to tackle both the situations.
Understanding people is a rare science and art. Therefore an organized study is a must. People
are individually different in their abilities, ambitions, background, etc. People behave differently
as individuals and as groups. The human element has negative potential also – means if they
are not treated well they can damage the organization. On the other hand if they are treated
well they can give performance which is far more than proportionate to the inputs given to them.
This concept is known as “Output more than proportionate to the input”. Only human beings are
capable of this.

1.2 Definition
Human Resource Management refers to employing people, developing their resources,
utilizing, maintaining and compensating their services in tune with the job and organizational
requirements with a view to contribute the goals of the organisation, individual and society

According to Leon C.Megginson the term Human Resource refers to the total knowledge,
skills, creative abilities, talents and aptitudes of an organisation’s work force, as well as the
value, attitudes and beliefs of the individuals involved.

According to Flippo “HRM is concerned with the procurement, development,

compensation, integration and maintenance of Human Resources in an organization towards
accomplishment of organization goals. Therefore, HRM is the planning, organizing, directing
and controlling of the performance of those operative functions”.

1.3 Importance of Human Resource Management

There has to be a specialized department to deal with human functions. Otherwise the
remaining departments will pull the human functions in different directions. Only a full scale
Human Resources department can make proper policies and implement them also. Bridge
between management and workers. Spokesman of the organization to the outside world. The
liaison function with all agencies like district administration, public, judicial authorities, police,
etc. – particularly with the government. Handling people who carry sensitive information is a
very specialized job. Otherwise the organization would suffer. The HR Dept. is the custodian of
 3

many secrets and confidential information about people and the orgn. The HR Dept. is also a
great co-coordinator many aspects of day today Organisationalmatters.

1.4 Nature of Human Resource Management

The nature of the personnel management has been highlighted in its following features :

1. Inherent Part of Management

Personnel / Human resource management is inherent in the process of management.

This function is performed by all the managers throughout the organisation rather than by the
personnel department only. If a manager is to get the best of his people, he must undertake the
basic responsibility of selecting people who will work under him. He must also take interest in
training and motivating the employees and of appraising their performance for improving their
quality.

2. Pervasive Function

Personnel management is a pervasive function of management. It is performed by all

managers at various levels in the organisation. In other words, every manager from managing
director to the foreman is required to perform the personnel function on a continuous basis. It is
not a responsibility that a manager can leave completely to someone else. However, he may
secure advice and help in managing people from experts who have special competence in
personnel management and industrial relations.

3. Basic to all Functional Areas

Personnel management permeates all the functional areas of management such as

production management, financial management, and marketing management. That is, every
manager from top to bottom, working in any department has to perform the personnel functions.
Though the personnel department is created under the supervision of a person designated as
‘Personnel Manager’, it should not be assumed that the other managers are relieved of this
responsibility.

4. People Centred

Personnel management is people centred and is relevant in all types of organisations. It

is concerned with all categories of personnel from top to the bottom of the organisation. The
broad classification of personnel in an industrial enterprise may be as follows :
4

(i) Blue collar workers (i.e. those working on machines and engaged in loading,
unloading, etc.) and white collar workers (i.e. clerical employees).

(ii) Managerial and non-managerial personnel.

(iii) Professionals (such as Chartered Accountant, Company Secretary, Lawyer, etc.)

and non-professional personnel.

5. Personnel Activities or Functions

Personnel management involves several functions concerned with the management of

people at work. It includes manpower planning, employment, placement, training, appraisal
and compensation of employees. For the performance of these activities efficiently, a separate
department known as Personnel Department is created in most of the organisations.

6. Continuous Process

Personnel management is not a ‘one shot’ funtion. It must be performed continuously if

the organisational objectives are to be achieved smoothly. To quote G.R. Terry, “The personnel
function cannot be turned on and off like water from a faucet; it cannot be practised only one
hour each day or one day a week. Personnel management requires a constant alertness and
awareness of human relations and their importance in everyday operations”.

7. Based on Human Relations

Personnel management is concerned with the motivation of human resources in the

organisation. The human beings can’t be dealt with like physical factors of production. Every
person has different needs, perceptions and expectations. The managers should give due
attention to these factors. They require human relations skills to deal with the people at work.
Human relations skills are also required in training, performance appraisal, transfer, and
promotion of subordinates. If the personnel function is performed properly, the human relations
in the organisation will be cordial.

1.5 Scope of Human Resource Management

In order to achieve the above objectives, personnel / human resource management
undertakes the following activities :

(i) Human Resource or Manpower planning, i.e., determining the number and kinds of
personnel required to fill various positions in the organisation.
 5

(ii) Recruitment, selection and placement of personnel, i.e., employment function.

(iii) Training and development of employees for their efficient performance and growth.

(iv) Appraisal of performance of employees and taking corrective steps such as transfer
from one job to another.

(v) Motivation of workforce by providing financial incentives and avenues of promotion.

(vi) Remuneration of employees. The employees must be given sufficient wages and
fringe benefits to achieve higher standard of living and to motivate them to show
higher productivity.

(vii) Social security and welfare of employees.

(viii) Review and audit of personnel policies, procedures and practices of the organisation.

The field of personnel management is very wide as is obvious from the fact that it is called
by several terms such as ‘labour management’; ‘manpower management’; ‘human relations’;
‘human resources management’ and so on. The Indian Institute of Personnel Management has
laid down the scope of personnel management as follows :

(i) The welfare aspect concerned with working conditions and amenities such as
canteens, creches, housing, personal problems of workers, schools and recreation.

(ii) The labour or personnel aspect concerned with recruitment, placement of employees,
remuneration, promotion, incentives, productivity etc.

(iii) The industrial relations aspect concerned with trade union negotiation, settlement
of industrial disputes, joint consultation and collective bargaining. All these aspects
are concerned with human element in industry as distinct from the mechanical.

1.6 Importance of Human Factor

(1) Human Resource in the Nation’s Well-being: A nation with abundance of physical
resources will not benefit itself unless human resources make use of them. In fact
human resources are solely responsible for making use of national resources and
for the transformation of traditional economies into the modern and industrial
economies. Lack of organization of human resources is largely responsible for the
backwardness of the nation. Countries are underdeveloped because their people
are underdeveloped.
6

(2) Man vis-à-vis Machine: Most of the problems in organizations are human and
social rather than physical, technical or economic. No industry can be rendered
efficient as long as the basic fact remains unrecognized that it is principally human.
It is not a mass of machines and technical processes but a body of men.

(3) Personnel Management and General Management: One of the fundamental areas
of management is the management of human resources. In the management of
five Ms – Men, Money, Materials, Machines and Methods – the management of
men is not only fundamental but also dynamic and challenging. Successful
management depends not solely, but significantly upon the ability to predict and
control human behaviour. Among other things, if a company is economically
successful, it means, the management has been able to manage human resources
effectively,

(4) Human Resource Accounting: It is a measurement of the cost and value of human
resources to the organization. Human Resource Management is said to be effective
if the value and contribution of human resources to the organization is more than
the cost of human resources. It helps the management to utilize human resources
most economically and efficiently. It also helps the managers in making sound
decisions in personnel matters by providing required information. Thus, it is a very
useful control technique.

(5) Significance of knowledge: The three important areas of human resources are
skill, ability and knowledge. According to P.F.Drucker, “Knowledge is the only
meaningful resource today”.

 People provide knowledge to organizations

 People spread knowledge across the company
 People convert knowledge into efficient action
 Continuous innovation is possible only with knowledgeable employees
 Knowledge only can generate originality of service
 Customer needs can be anticipated through knowledge.
 Organisational capabilities can be leveraged through Knowledge.
 Knowledge is the only core competence for coping with change.
 7

1.7 Objectives of Human Resource Management

a. Social objectives

b. Organization objectives

c. Functional objectives

d. Personal objectives

e. General objectives

A) Social Objective

To the ethically and socially responsible to the needs and challenges of the society while
minimizing the negative impact of such demands upon the organization.

B) Organization Objectives

To recognize the role of HRM in bringing about organization effectiveness. To accomplish

to objective of an organization.

C) Functional Objective

To maintain the departments, contribution at level appropriate to the organization need.

D) Personal Objective

To assist employee in achieving their personal growth at least in so for as these goals
enhance the individual contribute to the organization.

E) General Objectives

i. To utilize the available human resource effectively.

ii. To maintain a sound organization structure and desirable working relationship among
all the members of organization.

iii. To help the organization to achieve the goals efficiently and effectively by providing
skilled and motivated employee.

iv. To maintain and develop the quality of work life.

v. To communicate HR polices to the entire employee.

vi. To establish and maintain mutual relation between employees and management.

vii. To the ethically and socially responsible to the need of society.

8

1.8 Qualities of Human Resource Manager

1. Good Communication.

2. Educational Qualification.

3. Discriminating Skill.

4. Leadership Qualities.

5. Fair and honest in his dealings.

6. Ability to take a decision independently.

7. Professional altitude.

8. Basic Qualification.

9. Experience (of his/her own field)

10. Personality.

11. Risk taking

12. Innovative ideas

13. Maintain mutual relationship

Some desirable personality traits of an effective HR manager are as under;

1. Insight in Human Nature

He must be able to understand various kinds of people and to get along with them at all
levels. He should possess immense tact, practical mind, amiable disposition and sober
temperament. He should be trained in behavioural sciences. The three disciplines comprising
the core of behavioural science are anthropology, psychology and sociology.

2. Freedom from bias

He should be neither pro-management nor pro-labour. He should be pro-profession and

should judge and advise on issues without fear or favour on the merits of the matter under
consideration. He should be known for his honesty, integrity, strength of characteristic balance,
justice and fair play.
 9

3. Passion for Anonymity

He should be a credit-passer and not a credit-grabber. Since the personnel manager

mostly plays a staff role, he can achieve his results only through line managers. These calls for
a willingness to let credit for success go to them. He is best when people barely know that he
exists.

4. Communication skill

A HR manager has not only to ‘sell’ his ideas to line people above him but alos he is
required to address several oral and written communications to people below him. The two
groups which are different in culture, status, education and knowledge differ in their
communication requirements also. Workers with poor education may not understand literary
expressions of difficult language. They will prefer communication in their own colloquial language.
Therefore, a HR manager must possess linguistic facility.

5. Leadership and organizational skills

A HR manager must also be a good leader and good organizer to be able to motivate the
workers. He must possess emotional stability, adaptability and decisiveness.

1.9 Challenges and Tasks of HR Managers

1. Changing technology leading to obsolescence of present skills and technique.

2. Economic and industrial policy changes leading to tough competition from

multinational companies.

3. Changing international environment insisting on free flow of goods and services

throughout the world.

4. Changing profile of workers, e.g., increased educational level, rising share of women
in the work force, increased emphasis on fulfillment of psychological needs.

5. Changing needs and expectations of customers rendering the existing processes

and products obsolete.

1.10 Emerging issues in Human Resource Management

(i) Increasing Size of Workforce : The size of organizations is increasing. A large
number of multinational organizations have grown over the years. The number of
10

people working in the organization has also increased. The management of increased
workforce might create new problems and challenges as the workers are becoming
more conscious of their rights.

(ii) Increase in Education Level : The governments of various countries are taking
steps to eradicate illitercy and increase the education level of their citizens. Educated
consumers and workers will create very tough task for the future managers.

(iii) Increasing Aspirations of Employees : Considerable changes have been noted

in the worker of today in comparison to his counterpart of 1950s. The workers are
becoming more aware of their higher level needs and this awareness would intensify
further in the future workers. The managers would be required to evolve appropriate
techniques to satisfy the higher level needs of workers and thus motivate them.

(iv) Technological Advances : With the changes coming in the wake of advanced
technology, new jobs are created and many old jobs become redundant. There is a
general apprehension of immediate unemployment. In the competitive world of today,
industry cannot hope to survive for long with old technology. The problem of
unemployment resulting from modernisation will be solved by properly assessing
manpower needs and training of redundant employees in alternate skills. This is a
difficult process and it may hurt some people but there is no escape. But change
and modernisation have to be accepted if industry has to grow and develop.

(v) Changes in Political Environment : There may be greater Government’s

interference in business to safeguard the interests of workers, consumers and the
public at large. Government’s participation in trade, commerce and industry will
also pose many challenges before management. The Government may restrict the
scope of private sector in certain areas in public interest. It does not mean chances
of co-operation between the Government and private sector are ruled out. In fact,
there will be more and more joint sector enterprises. The Government will also like
to see that interest of workers in industrial enterprises are adequatly protected.

(vi) Changing Psycho-Social System : In future, organisations will be required to

make use of advanced technology in accomplishing their goals while satisfying
human needs. In the traditional bureaucratic model, the organizations were designed
to achieve technical functions with a little consideration given to the psycho-social
system. But future management would be required to ensure effective participation
of lower levels in the management of the organization system. Further, an
 11

organisational model will have to be designed whose roots are deeply entrenched
in ‘democratic humanistic system’.

(vii) Computerised Information System : In the past, the automation of manufacturing

processes had a major effect upon the systems of production, storage, handling
and packaging etc. More recently, there has been and in the future there will be the
impact of the revolutionary computerised information system on management. This
revolutionary development would cover two primary areas of personnel management
which are as follows :

1. The use of electronic computers for the collection and processing of data, and

2. The direct application of computers in the managerial decision making process.

In future, computerised information systems will have an increasing impact at the

coordinative and strategic levels in the organizations. This is not to suggest that the computers
will supplant altogether the present-day decision-making functions of managers. Instead, they
would provide the means for the accumulation and transmission of the necessary information
to managers for taking decisions.

(viii) Mobility of Professional Personnel : Organisations will expand the use of

“boundary agents” whose primary function will be achieving coordination with the
environment. One interesting fact will be an increase in the mobility of various
managerial and professional personnel between organizations. As individuals
develop greater technical and professional expertise, their services will be in greater
demand by other organisations in the environment. Professional mobility may be
one of the primary forces helping to increase effective interface between
organisations.

(ix) Change in Legal Environment : Many changes are taking place in the legal
framework within which the industrial relations system in the country is now
functioning. It is the duty of the HR or personnel executive to aware of these changes
and bring about necessary adjustments within the organisation so that greater
utilisation of human resources can be achieved. This, indeed, is and would remain
a major challenge for the personnel executive. In fact, in the wake of the national
approach in consonance with the egalitarian national aspirations, it is the responsibility
of the personnel executive to anticipate the changes and prepare the organisation
to face them without any breakdown in its normal functioning.
12

(x) Management of Human Relations : On the ‘industrial relations’ front, things are
not showing much improvement even after so many efforts by the government in
this direction. Though a large number of factors are responsible for industrial unrest
but a very significant cause is the growth of multi-unions in industrial complexes
having different political affiliations. Under the present conditions, it appears that
inter-union rivalries would grow more in the coming years and might create more
problems in the industry.

1.11 Summary
This lesson has dealt with the nature, scope and objectives of Human Resource
Management. The qualities of Human Resource managers, the importance of human factor,
challenges and tasks of Human Resource managers and emerging issues in Human Resource
Management have also been discussed to provide the students and overall view of Human
Resource Management.

1.12 Keywords
Human Resource Management

Manpower Planning

Recruitment

Selection

Training

1.13 Review Questions

1. Discuss the nature, scope and objectives of Human Resource Management.

2. Explain the importance of human factor in management.

3. State the qualities of HR managers.

4. Discuss the challenges and emerging issues in Human Resource Management.

 13

LESSON - 2
EVOLUTION AND GROWTH OF HRM
Learning Objectives

After completing this lesson, you must be able to

 discuss the evolution of HRM

 outline the contribution of Kautilya

 list out the stages in growth of HRM

 distinguish HRM and Personnel Management

Structure
2.1 Introduction

2.2 Evolution of HRM

2.3 Kautilya's Contribution

2.4 Stages in the Evolution and Growth of Human Resource Management

2.5 Differences between Personnel Management and Human Resource

Management

2.6 Strategic Human Resource Management

2.7 Summary

2.8 Keywords

2.9 Review Questions

2.1 Introduction
The evolution of Human Resource Management is discussed in this lesson. The importance
of labour officers were recognied as early as 1929. The appointment of officer to solve labour
and welfare problems. In 1920's the growth of the subject, but this could not be implied because
of the difficult condition which followed on 1st world war. In 1931, the royal commission
recommended the appointment of labour welfare officer's deal with the selection of workers
and settlement of grievance. In 1948, factory Act, made appointment of welfare officers
14

compulsorily in industrial establishment after IInd world war during 1960, professional became
to talk new technologies about HRM and HRD. In 1990's the emphasis shifted to human values,
then the American society for personnel administration was renamed as society for HR.

Human Resource concept has emerged from the following:

 Slave concept: Labour was treated as a commodity.

 Master-servant concept: Workers were no more than the servants.

 Welfare concept: Mgt showed their willingness to improve the wellbeing of workers.

 Paternalistic concept: Mgt tended to manifest ‘ father like’ ‘attitude like’ ‘do the job
I tell you to do as I look to your problems’.

 Philanthropic concept: This concept is based on the philosophy that the workers
are human beings.

 Human resource concept: Workers are regarded as the most valuable assets of an
organization and the success of the organization depends on the development of
HR.

2.2 Evolution of HRM

1. Health and happiness (prior to 1931)
 In the early part of 20th century and prior to that, no department was in existence in
the organizational setting, to look into the aspect relating to employee requirement,
handling grievances, motivation and employee development.

 Some companies created health and happiness department with officers/executives

who were identified as non-performers/non-achievers.

2. Welfare (1931- 1946)

 The royal commission of labour submitted its report in 1931.

 The commission recommended for appointment of labour officers in an organization

to deal with recruitment of labour, in order to stop corrupt practices in industry,
particularly in the area of selection and also to look into welfare aspects of the
workers.
 15

3. Personnel administration (1947-1959)

 The vital labour laws which ensured providing welfare, social security, health and
safety measures to workers were enacted.

 Some of such laws which prompted companies to open new departments under the
nomenclature’ personnel administration department’ for dealing with personnel
matter, welfare, health and safety problems, industrial disputes etc..

4. Personnel management (1960-1983):

 This period showed state of unity and solidarity amongst workers.

 Five central trade unions (INTUC,AITUC,HMS,UTUC,CITU) emerged in the industrial

settings with different charter of demands.

 Workers manifested their conscious activity to extend schemes for their growth,
development, training.

5. Human resource management (1984 onward)

 A new approach-HRM approach has emerged due to change in the product market
environment arising out of stiff competition amongst indigenous and multinational/
transnational companies and also change in the organization climate for growth
and development.

 it is a change / development driven by product market condition which demands

quality service and product at the reasonably lowest price.

2.3 Kautilya's Contribution

In India, Kautilya has observed that there existed a sound base for systematic management
of human resources as early as the fourth century B.C. The Govt. then took active interest in
the operation of public and private sector enterprises and provided systematic procedures for
regulating employer-employee relationship. Sharma has described the contribution of Kautilya
in the field of “Staffing and Personnel Management” in the form of table reproduced below:
16

Table 2.1 Kautilya’s Contribution To Staffing & Personnel Management

Modern Management concept Kautilya’s contribution

Job Descriptions Very elaborate job descriptions of

superintendents are laid down in terms of their
responsibilities.

Job Qualifications i. For high officials the qualifications in terms

of family background and personality traits
are laid down very precisely.
ii. For the lower officials a decreasing degree

Selection Procedure i. Reference, ii. On the job test iii. Spy

information; and iv. Discussion by various
steps envisaged in the selection procedure
for high officials.

Executive Development i. An elaborate training programme for the king

is laid down.

ii. For lower officers the need for training has

been emphasized.

Incentive system (stick and Monetary incentives and punishments in the

carrot approach) form of penalties for controlling the performance
and conduct of employees and citizens.

Performance Evaluation Regular supervision and espionage are the two

methods of perf ormance and conduct
evaluation.
 17

2.4 Stages in the Evolution and Growth of HRM

Some authorities have preferred to study the growth of personnel management on the
basis of classification given in the following figure:

Figure 2.1 Stages of the Evolution of Human Resource Management

Industrial
Industrial Scientific
 Paternalistic Era Psychological
Relations Era Management Era  
Era

Personnel Behavioural Human relations

Welfare Era
Specialists Era Science Era Era

This classification is rather very broad. We would like to describe the chronological growth
of the science of Personnel Management somewhat on the following lines:

(i) Era of Industrial Revolution

(ii) Era of Trade Unionism

(iii) Era of Social Responsibility

(iv) Scientific Management Era

(v) Industrial psychological Era (including Human Relations Era)

(vi) The Behavioural Science Era; and

(vii) The Personnel specialists and Welfare Era

I. Era of Industrial Revolution

Modern Personnel Management has evolved from a number of significant inter-related

developments, which date back to the beginning of what is popularly known as the Industrial
Revolution or Evolution. The Industrial Revolution consisted essentially in the development of
machinery, the use of mechanical energy and the consequent establishment of factories
employing large number of people – all resulting in a tremendous increase in the productive
power of man. The factory system gradually replaced the “Putting out” or “Cottage system”.
18

The Industrial Revolution brought about a greatly expanded mass production of goods. Science
and Technology began to be applied to all aspects of the work of modern industrial corporations.

The new industrial era brought about materialism, discipline, monotony, job displacement,
impersonality, work interdependence and related behavioural phenomena. The benefits of the
Industrial Revolution, however, have far outweighed the costs of increasing industrialization.
Economically, the Industrial Revolution brought about great increases in output and in the
accumulation of goods and capital. In turn, business and commerce were greatly accelerated,
owners, and entrepreneurs did well, but the average citizen fared poorly. Labour was considered
a commodity to be bought and sold.

II. Era of Trade Unionism

Shortly after the advent of the factory system, groups of employees began to get together
to discuss their common problems. Initially, these problems arose out of child labour, long
hours of work, and poor question of employee benefits and services became the major concern.
Workers joined together on the basis of their common interests to improve their lot. The basic
philosophy underlying trade unionism was that “through strength and collective support the
management could be forced to listen to the workers and redress their grievances”. The weapon
used was that of strikes, slow downs, walkouts, picketing, boycotts, and sabotage. Sometimes,
even physical force was used.

This trade unionism, however, did influence the personnel management in such fields of
activity as “the adoption of employee grievances handling systems, the acceptance of arbitration
as a means of resolving conflicts of rights, disciplinary practices, the expansion of employee
benefit programmes, the liberalization of holidays and vacation time, clear definition of job
duties, job rights through seniority and the installation of rational and defensible wage structures.

III. Era of Social Responsibility Feeling

In the past, employees were not very sympathetic towards their workmen. It was Robert
Owen (1913) who for the first time adopted somewhat paternalistic attitude towards his
employees. He was a British businessman, reformer and humanitarian. He believed that “the
principal social and economic environment influence the physical, mental and psychological
development of workers”. Therefore, in order to increase productivity, it was necessary to improve
 19

the conditions of employees by removing them from an adverse environment or by changing

the environment with the provision of more satisfactory living and working conditions.

He regarded the workers like children who must be cautiously guided, trained and protected.
He, therefore, advised his brother manufacturers to devote as much attention to their vital
machine (i.e. workers) as they did to their inanimate machines. By doing so, profits would be
maximized. Adam Smith emphasized that “if each individual worked for his own economic self-
interest, the society would gain”. These views were supported by Charles Babbage. He held
the view that “hard work and high productivity were a source of good wages for the worker and
higher profits for the employer”. But he denounced any unionization of workers.

IV. The Scientific Management Era

The Scientific Management movement owes its origin to F.W. Taylor (1856-1925) who is
known as the Father of Scientific Management. He started his experiments in the industry in the
Midvale and Bethlehem plants in 1885. He developed the “four great principles of management”.
Viz.

i. the development of true science of each job

ii. a scientific selection of the right person for the job

iii. training a person to perform his job in a scientific manner and

iv. friendly co-operation between the management and the men.

The Scientific Management movement has had a great influence on employee-employer

relationships and on management in general. The use of his approach improvement management
methods, procedures and standards and strengthened production and supervision. Taylor’s
approach was accepted by labour and management because it placed a strong emphasis on
the mutual benefits of productivity: the organization produced more and thus increased its
profits, while workers made more money and lived better lives.

Henry Gantt and Frank and Lilian Gilbreth modified Taylor’s views. Henry Gantt propounded
“Task and Bonus Wage” system, which removed the penalties provided under Taylor’s wage
system. Under Gantt’s system, the worker was paid a guaranteed hourly rate, a bonus of 20%
20

if he reached the standard output, and a high piece-rate for output that was above the standard
output. Further, the foreman was given a bonus for each man who was successful.

Frant Gilbreth made an extensive use of motion pictures of task being performed in order
to analyse body movements. From these studies, he formulated the “laws of efficient motion”.
Lilian Gilbreth worked closely with her husband and is credited with the publication of Psychology
of Management (1914), the first book relating to the application of Psychology to the principles
of Scientific Management.

V. Industrial Psychological Era

The development of Industrial psychology owes its origin to Hugo Munsterberg who is
known as the Father of Industrial Psychology. His contributions to industrial management were
particularly notable in respect of his analysis of jobs interms of their mental and emotional
requirements and in terms of the development of testing devices. Advances were made in
selection, placement, testing, and research practices. Industrial psychology introduced the
“matching of employees to jobs, for different jobs require different skills and abilities”. It
emphasized the use of psychology in the fields of personnel testing, interviewing, attitude
measurement, learning theory, training, fatigue and monotony study, safety, and job analysis.

The human relations movement is an outcome of reaction against the impersonality of

scientific management. Top management personnel began to realize that “human resources
are the most valuable assets that any organization possesses and that, without these, other
resources are useless”. Experiments were conducted at the Hawthorne plant of the Western
Electric Company in Chicago during the late 1920s and early 1930s by Elton Mayo (1818-
1949), F.Roethlisberger and W.J.Dickson of the Hardvard Graduate School of Business
Administration. They concluded that “human and social factors, not physical variables, accounted
for the productivity began to be analysed in such behavioural terms as ‘team-work’, ‘participation’,
‘cohesiveness’, loyalty and espirit de corps, instead of interms of engineering alternative.

VI. The Behavioural Era

The behavioural science movement is an outgrowth of the human relation studies and
began around 1955; and its major impact lasted some 10 to 15 years. The behavioural sciences
include Anthropology, Economics, History, Sociology, Psychology, etc. The research in these
disciplines has provided the subject matter for Personnel Management.
 21

Abraham Maslow (1954) propounded a theory regarding an individual “hierarchy of needs”

– also known as “Deficit Theory of Motivation”. He stated that there is a series of needs some of
which are lower in the scale or system of values, in individual or social and some are higher.
Higher needs cannot be satisfied or even felt, while the lower needs remain unsatisfied. “ A
satisfied need is not a motivator”. Herzberg advocated Two- factor Theory of Motivation. According
to Herzberg, there are satisfiers and dissatisfiers in a job for the individuals. Herzberg labeled
satisfiers motivators, and he called the dissatisfiers hygiene factors. Taken together, they became
known as Herzberg’s Two-factor theory of motivation. The hygiene factors include Company
policy and administration, Technical supervision, salary Interpersonal relations and Working
conditions. The motivators include Achievement, Recognition, Work itself, Responsibility and
Advancement .The hygiene factors prevent dissatisfaction, but they do not lead to satisfaction.
By themselves, the hygiene factors do not motivate. Only the motivators motivate humans on
the job.

Douglas McGregor formulated two contrasting kinds of management beliefs or views

about the nature of man at work. His ‘ Theory X’ stands for the set of tradition, beliefs generally
held, while ‘Theory Y’ is concerned with a different philosophy or understanding of men at work.
His Theory X (or Hard Approach) involves strict supervision, coercion, and threat which might
breed organized worker protest, restriction of output, etc, and his theory Y (or Soft or Permissive
Approach) might be exploited by the subordinates, and therefore, he suggests a via media that
of the carrot and stick approach to motivate work people”. The behavioural science approach
has led to the development of some sound management practices, such as the two-way
communication, participation of employees in decision – making, MBO, and importance of social
relationship of informal groups, acceptance of work place as a social system, management
development, adjustment to change etc.

VII. Personnel Specialist & Welfare Era

The emphasis now is on ‘management of human resource’. The Personnel Management

has now passed through vast changes. Beginning with ’Welfare work’, its responsibilities have
grown wider and deeper. The responsibilities of the present day Personnel Management include
manpower planning, manpower selection, training and development, wage and salary
administration, employee benefit schemes and services, performance appraisal, safety and
accident prevention, promotion of good industrial relations etc.
22

2.5 Differences between Personnel Management and Human

Resource Management
S.NO PERSONNEL MANAGEMENT HUMAN RESOURCE MANAGEMENT

1 It is a routine maintenance oriented HRM place emphasis on the continuous

administration function development of people at work place.

2 Personnel management is mainly HRM is proactive function concern with

reactive and response to the demand future needs and act accordingly.
of an organization wherever they arise.

3 Personnel takes a narrow of its scope HRM undertakes system view in which
and objectives concentrate mainly on attempt is made and only to make
improving efficiency of the personal, people efficient but, to create
without emphasing the relevant of organizational cultural to utilize the
efficiency in the organizational context. efficiency.

4 Clear rule and procedure. Business needs.

5 Monitoring Nurturing.

6 Corporate plan is marginal Corporate plan is central.

7 Speed of decision is slow. Speed of decision is high.

8 Standardization is high Standardization is low.

9 Pay is based on job evaluation. Pay is based on job performance

10 Division of labour. Division of work is a team work.

11 Labour management focus of Labour Management focus on individual

collective bargaining. control.

12 Indirect communication. Direct communication.

13 Transactional leadership Transformational leadership.

14 Labour is treated as a tool. People are treated as assets.

15 Interests of organization are uppermost. Mutuality of interest.

 23

2.6 Strategic Human Resource Management

The goal of Strategic Management in an organisation is to deploy and allocate resources
in a way that gives it a competitive advantage. Strategic Management is a process for analyzing
a company’s competitive situation, developing the company’s strategic goals and devising a
plan of action and allocation of resources that will help a company achieve its goals.

Strategic Human Resource Management is the pattern of planned human

resourcedeployments and activities intended to enable an organisation to achieve its goals. It is
seen as a partner in organizational success. Strategic HR framework aims to leverage and or
align HR practices to build critical capabilities that enable an organisation to achieve its goals.

Stages
 Strategic HRM, therefore is concerned with the following

 Analyse the opportunities and threats existing in the external environment.

 Formulate strategies that will match the organisation’s strengths and weaknesses
with the environmental threats and opportunities. (make a SWOT analysis of
organisation)

 Implement the strategies so formulated

 Evaluate and control activities to ensure that organisation’s objectives are duly
achieved.

Strategic Human Resource management focuses on human resource programs with long
term objectives. Instead of focusing on internal human resource issues, the focus is on addressing
and solving problems that effect people management programs in the long run and often globally.
Therefore the primary goal of strategic human resource manager is to identify the key HR
areas where strategies can be implemented in the long run to improve the overall employee
motivation and productivity.

Key Features of SHRM

Hr policy and practices are directly linked and aligned with the overall organizational
strategic aims, vision and organizational growth.

HR interventions are supportive and inbuilt , linking various functions and objectives to
the overall business of the organisation.
24

The accountability and responsibility of the HR functions is interwined with the various
functions and hierarchy levels.

The way in which people are managed, motivated and deployed and the availability of
skills and knowledge will shape the business strategy.

2.7 Summary
The different stages in the evolution of human resource management and also the various
factors which contributed for the growth of human resource management in India have been
discussed in detail in this lesson.

2.8 Keywords
Master-Servant concept

Paternalistic concept

Slave concept

Welfare concept

2.9 Review Questions

1. Discuss the evolution of human resource management as a separate discipline in
India.

2. What are the factors responsible for the growth of human resource management in
India?

3. Distinguish between Personnel Management and HRM.

 25

LESSON - 3
FUNCTIONS OF HRM

Learning Objectives
After reading this lesson, you must be able to discuss

 the HRM functions as classified by Edwin Flippo

 the functios of HRM according to Dale Yoder

 Punekar’s classification of HR functions.

 the functions of HRM as classified by Indian Institute of Personnel Management and

North Cott.

Structure

3.1 Introduction

3.2 Flippo’s Classification

3.3 Dale Yoder’s Classification

3.4 Punekar’s Classification

3.5 IIPM’s Classification

3.6 North Cott’s Classification

3.7 Summary

3.8 Keywords

3.9 Review Questions

3.1 Introduction
Different management thinkers and writers have classified the functions of Human
Resources Management in different pespectives. Some of the classifications have been
discussed below which will provide the students an insight into the important roles and functions
of HR Managers.
26

3.2 Flippo’s Classification

1. Management Functions
a) Planning

b) Organising

c) Directing

d) Controlling

2. Operative Functions

a) Procurement

b) Development

c) Compensation

d) Integration

e) Maintenance

f) Separation

A brief elaboration of these functions are as follows

Planning: For the Personnel Manager, planning means the determination in advance of
a personnel programme that will contribute to goals established for the enterprise. Presumably,
the process of goal establishment will involve the active and enlightened participation of the
personnel manager, with his or her expertise in the area of human resources.

Organising: After a course of action has been determined, an organization must be

established to carry it out. An organization is a means to an end. Once it has been determined
that certain personnel functions contribute towards the firm’s objectives, the personnel manager
must form an organization by designing the structure of relationships among jobs, personnel
and physical factors.

Directing: Atleast in theory, we now have a plan and an organization to execute that plan.
It might appear that the next logical function would be that of operation, doing the job. But, it has
been found that a “Starter” function is becoming increasingly necessary. In his definition, this
function was labeled “direction”, but it may be called by other name such as “motivation”,
“actuation”, or “command”. At any rate, a considerable number of difficulties are involved in
getting people to go to work willingly and effectively.
 27

Controlling: Controlling means the observation of action and its comparison with plans
and the correction of any deviations that may occur, or at times, the realignment of plans and
their adjustment to unchangeable deviations. Control is the managerial function concerned
with regulating activities in accordance with the personnel plan, which in turn was formulated on
the basis of an analysis of fundamental organization goals.

Procurement: This first operative function of personnel management is concerned with

the obtaining of the proper kind and number of personnel necessary to accomplish organization
goals. It deals specifically with such subjects as the determination of human resources
requirements and their recruitment, selection and placement.

Development: After personnel have been obtained, they must be to some degree
developed. Development has to do with the increase of skill, through training, that is necessary
for proper job performance.

Compensation: This function is defined as the adequate and equitable remuneration of

personnel for their contributions to organization objectives. Compensation is one of the most
important functions of personnel management. In dealing with this subject we shall consider
only economic compensation.

Integration: It is concerned with the attempt to effect a reasonable reconciliation of

individual, societal, and organizational interests. It rests upon a foundation of belief that significant
overlappings of interests do exist in our society. Consequently, we must deal with the feelings
and attitudes of personnel in conjunction with the principles and policies of organizations, such
as grievances, disciplinary action, and labour unions.

Maintenance: If we have executed the foregoing functions well, we now have a willing
and able work force. Maintenance is concerned with the perpetuation of this state. The
maintenance of willingness is heavily affected by communication with employees. The physical
condition of the employees’ health and safety should be maintained.

Separation: If the first function of personnel management is to secure the employee, it is

logical that the last should be the separation and return of that person to society. Most people
do not die on the job. The organization is responsible for meeting certain requirements of due
process in separation as well as assuring that the returned citizen is in as good shape as
28

possible. It is concerned with such types of separations as retirement, layoff, discharge and
dismissal.

3.3 Dale Yoder’s Classification

1. Staffing

Screening, interviewing, recruitment, testing, personnel records, job analysis, job

description, job specification, promotion, transfer, job enlargement, etc.

2. Personnel Maintenance

Counseling, personnel appraisals, inventories, turnover control, health services and

accident prevention, employee benefits and services, etc.

3. Labour Relations

Group relationships with organized or unorganized employees negotiation, contract

administration, grievances, arbitration third-party involvement, mutual aid pacts, etc.

4. Training / Development

Job training, supervisor and foreman training, manager and executive development, pre-
employment and special purpose training, retraining, etc.

5. Compensation

Wage and salary surveys, incentive pay plans, profit sharing, stock ownership, financial
and non-financial rewards, job enrichment, wage and salary controls, etc.

6. Employment Communications

House organ, employee handbook, rumour control, listening attitude, morale and
expectation surveys, feedback analysis etc.

7. Organisation

Structural design, planning and evaluation, innovation utilization of formal and informal,
reducing conflict, overcoming resistance to organizational change, etc.
 29

8. Administration

Explanation and interpretation of options – authoritative, consultative, participative, self-

management styles assistance in charge etc.

9. Personnel Policy and Planning

Defining organizational goals, policy guidelines, and strategies, identifying, translating,

and complying with public human resource policy, forecasting human resource needs, selecting
optional courses, etc.

10. Review, Audit, Research

Programme reporting and recording, evaluation of policies and programmes. Theory

testing, innovation, experimentation, cost / benefit studies, etc.

3.4 Punekar’s Classification

Functions of employee welfare and personnel administration

A. Employee welfare

I. Conditions of work environment

(i) Working conditions

a. Temperature

b. Ventilation

c. Lighting

d. Dust, smoke, fumes and gases

e. Noise

f. Humidity

g. Hazard and safety complex devices.

(ii) Factory sanitation and cleanliness

a. Provision of urinals in factories

30

b. Provision of spittoons

c. Provision for the disposal of waste and rubbish

d. Provision for water disposal (drainage)

e. Provision of proper bathing and washing facilities

f. Cleanliness, white-washing and repair of buildings and workshops; and

g. Care and maintenance of open spaces, gardens, roads, etc.

(iii) Welfare Amenities

a. Provision and care of drinking water

b. Canteen services

c. Lunch

d. Rest room

e. Crèches

f. Cloak rooms; and

g. Other amenities.

II. Employees’ Health Services

(i) Factory Health Services

a. Medical examination of employees

b. Factory dispensary and clinic treatment;

c. First aid and ambulance room;

d. Treatment of accidents; and

e. Health education and research.

(ii) Recreation

a. Playgrounds for physical recreation (athletics, games, gymnastics, etc) and

b. Social and cultural recreation (music, singing, dancing, drama etc.).

(iii) Workers’ Education

a. Education to improve skills and earning capacity,

b. Literacy;
 31

c. Library, pictorial education, lecture programmes, and

d. Workers’ educational scheme and its working.

(iv) Economic services

a, Employees’ co-operative societies;

b. Grain shops and fair price shops; and

c. Housing co-operatives.

(v) Housing for Employees and Community services

(vi) Study of the working of welfare Acts: a. Factories Act; b. Employees’ State Insurance
Act; and c. Minimum wages Act.

(vii) Social work in Industrial setting: a. Family planning b. Employees counseling.

B. Personnel Administration

I. Recruitment

(i) Recruitment Procedures

a. Recruitment of personnel;
b. Knowledge of sources of employee supply;
c. Receiving applicants, interviews;
d. Investigation of references; and
e. Physical tests, trade tests and aptitude tests.

(ii) Job Analysis, Job Descriptions, and Job Specifications

II. Manpower Planning

(i) Placement

a. Job Assignment;
b. Job enlargement; and
c. Personnel development.
32

(ii) Introduction

a. Introduction to Supervisor

b. Introduction to Job and work place

c. Introduction to colleagues

d. Introduction to welfare activities and other facilities

e. Authorities and procedures

f. Service conditions; and sponsor system (follow-up interviews).

(iii) Wage and Salary Administration (Job Evaluation)

a. Wage scales, increments and E.B

b. Salary and Wage standardization

c. Incentives, payments and allowances

d. Working hours and over-time

e. Profit-sharing, bonus

f. Holidays, leave

g. Executive compensation plans; and

h. fringe benefits and perquisites.

(iv) Discipline

a. Instances of indiscipline and misconduct

b. Causes of indiscipline;

c. Domestic Enquiry;

d. Handicaps of management in the maintenance of discipline and enforcement of certain

rules; and

e. Shop floor supervision and its responsibilities.

 33

(v) Transfer and promotion

a. The procedure to be adopted

b. Causes of transfer and promotion

c. Personnel for transfer and promotion; and

d. Records of transfer and promotion.

(vi) Merit rating and Evaluation of Employees

a. Assessment techniques; and

b. Counselling.

(vii) Motion, Time and Work study

(viii) Prevention of Losses

a. Material loss;
b. Work loss; and
c. Time loss.

(ix) Administration in relation to

a. Absenteeism;
b. Late coming;
c. Loitering; and
d. Employee turnover, its causes, incidence, effects, remedies, and statistical analysis.

(x) Personnel Training and Development: Training Programmes for

a) Apprentices
b) Workers Courses and Equipment;
c) Foremen and Supervisors (TWI) Training Staff colleges and
d) Junior Executives; and Training centres
e) Management staff
34

(xi) Personnel Records and Statistics:

a. Accident records;
b. Employee turnover studies;
c. Absenteeism and indebtedness;
d. Wage levels and cost of living; and
e. Research into industrial relations and personnel management problems.

III. Retirement

(i) Provident fund and pension plans

(ii) Gratuity provisions

(iii) Exit interviews

(iv) Long service awards; and

(v) Retirement plans, housing, medical aid, etc.

IV. Study of the Working of

(i) Apprentice Act

(ii) Employment Exchanges (Compulsory notification of vacancies) Act

(iii) Payment of wages Act

(iv) Payment of Bonus Act

(v) Shops and Establishments Act and

(vi) Employees’ Provident Fund Act

3.5 IIPM’s Classification

The Indian Institute of Personnel Management (IIPM), Calcutta, classifies the functions
of Personnel Management into the following categories.

1. Improvement of Industrial Relations

2. Promotion of Joint consultation

 35

3. Helping Management to formulate a labour policy and improving communication between

Management and Employees.

4. Advising the Management on the fulfillment of statutory obligations relating to safety,

health and welfare of the employees.

5. Improving factory amenities and welfare provisions, and

6. Advising the Management on the training and further education of employees.

3.6 Northcott’s Classification

Northcott gives the functions of Personnel Management thus:

1. Employment;

2. Selection & Training;

3. Employee services

4. Wages;

5. Industrial Relations;

6. Health and safety Education; and

7. Education.

3.7 Summary

The various functions of HRM as classified by Edwin Flippo, Dale Yoder, Punekar, Indian
Institute of Personnel Management and North Cott have been discussed in detail to enable the
students for understanding perspectives of different management writers.

3.8 Keywords
Compensation

Directing

Organising

Planning
36

Procurement

Separation

3.9 Review Questions

1. Discuss the functions of HRM.

2. “Every manager is a HR Manager in his or her own department” Elucidate.

3. Explain the managerial and operative functions of HRM.

 37

LESSON - 4
HUMAN RESOURCES POLICIES
Learning Objectives
After completing this lesson, you must be able to

 list out the objectives of policy

 describe the characteristics of a policy

 explain the types of policies

 discuss the steps in formulation of HR policies.

Structure

4.1 Introduction

4.2 Objectives of Policy

4.3 Characteristics of Policy

4.4 Types of Policies

4.5 Formulation of Human Resource Policies

4.6 Guidelines for Framing Policies

4.7 Scope and Coverage of HR Policies

4.8 Summary

4.9 Keywords

4.10 Review Questions

4.1 Introduction
‘A policy is a guideline for action.According to Calhoon, “Human Resources policies
constitute guide to action. Their genesis (origin) lies in organisational values, beliefs and
philosophy”.

Bombrick – “Policies are the statements of the organisations overall purposes and plans
of action – in various areas like Human Resources, finance, marketing, etc.”
38

A policy is a pre-determined course of action established to guide the performance of

work towards accepted objectives.

4.2 Objectives of Policy

 They set out clear ideas about how to proceed in a given situation

 They provide guidelines for planning and execution of day to day activities

 They are the vital link between the mission and objectives on the one hand and the
practical realities on the other hand

 They help the management to maintain consistencies and uniformity

 They channelize the efforts of the people towards the goals of the organization

 They set up standards or norms for measuring performance

4.3 Characteristics of Policy

Policies tend to predecide issues, avoid repeated analysis, and give a unified structure to
other types of plans. Thus, policies are not simple statements, they have certain purpose behind
them. A statement should have the following characteristics in order to be accepted as a policy:

1. Policy is an expression of intentions of Top Management : It should present the

principle that will guide the organisational actions. Most of the policy statements reflect a
faith in the ethical values of the society.

2. Policy is stated in broad terms : The purpose of a policy statement is to serve as a

guide to practice now and in future; so it should be stated in the broadest possible terms.

3. Policy is long lasting : A policy should be formulated after taking into account the long-
range plans and needs of the organisation.

4. Policy is developed with the active participation of all human resources : Policy
formulation calls for serious thinking and participation of all the top executives. Policies
live longer than people who frame them. Basic organisational policies are framed in such
a manner that they apply to all members of the organisation alike from top to bottom. The
policies should also get approval of the highest authority in the organisation.
 39

5. Policy is in writing : Policies take concrete shape when they are put into writing. This will
ensure uniformity in application. In case of disagreement at lower levels, written policy
serves as the final reference point. Written policies ensure continuity and greater conformity.

6. Policy is linked with objectives : A policy is derived from specific objectives and it
facilitates their achievement.

4.4 Types of Policies

A business enterprise may have the following kinds of policies :

1. Functional policies : Policies may be set up in the key areas of the enterprise like
production, purchase, finance, personnel and marketing. Such policies are known as
functional policies.

2. Internal policies : Internal policies include those initiated by managers at various levels
to guide the subordinates. Such policies are closely related to the organisational objectives.
They differ in their nature and scope depending upon the level of management where
they have been formulated. They can be sub-classified into three categories :

a. Basic policy : It is used primarily by the top managers and is very broad in scope.
It is applicable to the organisation as a whole.

b. General policy : It affects the middle level managers and is more specific than a
basic policy. It is used mainly by the middle level managers.

c. Departmental policy : It is highly specific in nature and is applicable at the lowest

level of the management to provide a guide in the day-today activities.

3. External policies : External or imposed policies include those policies arising to meet
the various pressures and requests of forces outside the enterprise such as government,
trade unions and trade associations.

4. Appealed policies : Such policies are formulated on the basis of the suggestions and
complaints received from the employees. This happens when the subject-matter of a
suggestion or complaint is exceptional in nature and is not covered by the existing policies.
Such policies are sometimes incomplete. So it is better to replace them by the originated
policies.
40

5. Stated or explicit policies : Such policies are usually in writing and form a part of enterprise
manual. They are definite and generally rigid.

6. Unstated or implied policies : These policies are not recorded in writing even though
they are followed at every level. Sometimes they are not stated orally but are inferred
from the behaviour of the managers. That is why they are known as implied policies. An
implied policy is generally flexible in nature.

4.5 Formulation of Human Resource policies

Personnel policy reflects the needs and aspirations of employees. If the values that policy
represents are short of employees’ expectation, it will be difficult to put such policy into action.
Therefore, the top management should obtain advice of personnel manager to develop policies
and objectives on all important matters affecting personnel activities. The personnel policies
should be flexible enough to offer sufficient scope for departmental to meet different situations.
A company operating in various parts of the country or a company having global operations
must adjust its policies in such a way so as to enable ther regional managers to develop specific
gudelines to meet the requirement of their areas.

In formulating personnel policies, the first step is to specify clearly the areas needing
policies. The policies are needed in various areas of personnel management such as recruitment,
employment, training, fixation of wages, placement, transfer and promotion, performance
appraisal, welfare, etc. In order to formulate policies is these areas, a committee may be set up.
The committee will undergo the following steps to formulate personnel policies :

1. Preliminary investigation : Fact finding is usually delegated to a specialist who through

questionnaires, interviews and other methods collect data from inside and outside the
organisation. The facts should be dependable, diverse and qualitatively superb. When
the investigation stage is over, the policy committee should have a sure ground to proceed
further in this matter. The committee should also be aware about the following factors :

a) Labour legislation : The laws of the land in general and labour legislation in particular
govern the several aspects of personnel matters. Policies should be in conformity
with the laws of the country.

b) Social values and customs : These are the accepted codes of behavious of any
community which a policy should take into account.
 41

c) Employees aspirations : Personnel policies reflect the intentions of the top

management of the company as regards management of human resources. These
intentions should aim at satisfying the hopes and aspirations of the people who
work in the organisation.

2. Environment scanning : The policy committee should carefully analyse the information
available with it. The whole information may be divided into internal environment and
external environment. Internal environment deals with physical resources, human
resources, organisational structure, workers management relations, manpower inventory,
values, etc. External environment relates to social, political, economic and technological
conditions in the country. Monitorin and predicting the environmental changes are important
for policy formulation. This will help in identifying alternative policies.

3. Identification of policy areas : In formulating policies, it is essential to specify clearly

the areas needing policies. We can classify policies into two broad groups. The first
group deals with policy formulation in various managerial functions, namely, planning,
organising, staffing, directing and controlling. The second groups involves policy formulation
in functonal areas of business, namely, production, marketing, finance, personnel etc.
Whatever may be the area, the process of policy formulation is the same. The benefit of
specifying area needing policies is that it will help in collecting right type of information.
The information may be collected from past practices, stated objectives, Government
policies, trade associations, trade unions and other sources.

4. Analysis of alternative policies : This stage in policy formulation deals with examination
of alternative policies in the light of their contribution to the organisational goals. That
policy alternative should be selected which is likely to yield the best possible results for
the organisation. The policy must be tested before it is given a final shape. Comments
and suggestions should be received from the personnel at the lower levels.

5. Participation of lower levels : The ultimate choice of the policy should be made with the
active participation of those who use and live with the result it gives. Those who have put
in their contribution at the suggestion and fact finding stage will feel committed to it.
Opportunity for upward communication should be given to employees to respond
constructively to the policy. This will offer an opportunity to gauge their thinking. The
management can reasonably expect that those who have not testified against the proposed
42

policy will abide by it. If a group of employees is not convinced, the management should
examine their views in detail.

There are two major benefits of workers’ participation in policy formulation. Firstly, it will
ensure that policies are realistic because they possess the first hand knowledge of
organisational climate. Secondly, since policies are to be used by the subordinates, their
participation in the formulation process would encourage ready acceptance by them.

6. Approval of top management : Policy formulation committee should report to the top
management its considered opinion integrating the members’ judgements and findings.
The personnel manager has a key role to play in this matter. He may be the principal
spokesman of the committee; he should take adequate precaution to ensure correct
timing and presentation of the report so that the top executives find it acceptable.

7. Implementation of a policy : The authority required to adopt and launch a policy definitely
rests with the top management. Top management alone can decide whetehr the policy
adequately represents theorganisational objectives or not. Many managements hesitate
to release the policy accepted by them for fear of making commitments. Release of policy
is essential unless the management does not mean what it pretends to mean. Such a
situation will create not only confusion but also lack of confidence in management’s
pronounced commitments.

8. Policy appraisal : The representatives of management who are guided by organisation’s

policy and other employees affected by a given policy decision can develop the experience
needed to appraise its appropriateness and usefulness. Any serious difficulty with a new
or revised policy should be reported to the top management along with the constructive
suggestions. The upward communication will take place if employees have learnt that
they can receive attention and get action from higher management by participating in this
way.

4.6 Guidelines for Framing Policies

 Policies should correspond to the general objectives and philosophy of the
management

 They should be within the legal framework of the country – particularly labour laws.
 43

 It should help growth of the organization as well as the individuals

 Policies should be stable but should not become rigid. It should provide for flexibility
in genuine cases

 The policy should be relevant both in the short term and long term

 They should be reasonable, acceptable and ethically (morally) sound

 They should be dynamic and should adapt to change

 It should correspond well with the policies of other functional areas within the
organization.

4.7 Scope and Coverage of HR Policies

1) Employment Policies
 Preferred source of recruitment

 Reservation

 Professional period-Probation period-Training Period

 Lay off and Rehiring

 Lenth of services

2) Training and Development

 Objective of traiing

 Method of training

 Orientation of employees

3) Transfer and Promotion

 Basis of transfer

 Periodicity of transfer

 Promotion from within or outside the organisation

 Seniority required for the promotion

 Relative weightage to seniority and merit in promotion

44

4) Compensation
 Job evaluation system

 Minimum wage and salary

 Method of wage payment

 Profit sharing and incentive plans

 Non monetary rewards

5) Working Conditions
 Working hours

 Number and duration of rest intervals

 Overtime work

 Shift work

 Safety provisions and Preventions

 Leave rule

6) Employee services and welfare

 Transportation, medical and housing facilities

 Grievance handling

 Suggestion Schemes

4.8 Summary
This lesson has focussed on the characteristics of a policy, various steps in the formulation
of human resource policies and also personnel policies in different aspects of HRM.

4.9 Keywords
Employment Policies

Employee Services and Welfare

Training and Development

Transfer and Promotion

Working Conditions
 45

4.10 Review Questions

1. How are HR policies formulated in an organisation?

2. Explain HR policies in various human resource areas of an organisation.

3. List out the characteristics of Policy.

46

LESSON - 5
HR AUDIT & ACCOUNTING
Learning Objectives

After completing this lesson, you must be able to

 list out the steps in Human Resource Audit Process

 discuss the benefits of Human Resource Audit

 explain the methods of Human Resource Valuation

Structure
5.1 Introduction

5.2 Human Resource Audit Process

5.3 Benefits of HR Audit

5.4 Human Resource Accounting

5.5 Methods of Valuation of Human Resources

5.6 Summary

5.7 Keywords

5.8 Review Questions

5.1 Introduction
The HR audit is an overall quality control check on HR activities in a division or company
and an evaluation of how these activities support the organisation’s stratergy.

Before starting the audit process

1. Determine who will conduct the audit.
(Internal vs External)

2. Secure senior management commitment.

a. Are they ready to fix what’s broken, even if it costs?

b. Do they agree with the methodology?

 47

c. Will they allow access to all departments/information?

d. Will they publicly support the process?

3. Define the parameters

§ who will be audited?

§ What do you want to audit?

§ What audit tools will you use?

§ How will the process be rolled out?

§ How will results get reported?

§ Who will get the results?

5. Introduce the audit process to managers.

5.2 Human Resource Audit Process

Step 1: Defining Audit Statements
 Determine whether legal, functional or strategic audit.

 Determine the area of HR audit where auditor wants to audit.

 Determining the every aspects of the each area.

 Areas like quality of lifecycle, team based work system and other contemporary
issues on HR are should be considered.

Step 2: Accessing Current Practices

 It is much objective in nature

 Collection of data and information from current policies and procedures,employee

surveys,interviews with key customers, Human Resource Information system, reports
issued to regulatory departments, statistics, etc.

Step 3: Analysis of Results

 The purpose of analysis is to sort through the areas of strength and opportunities
for improvement in order to take positive action steps to improve effectiveness of
the HR function.
48

 Examining different indices, ratio.

 Finding out strength and weakness point and opportunity for improvements.

Ratios to be analyzed are

 Turnover rate

 Job attendance rate

 Overtime rate

 Position/vacancy rate

 Error/scrap rate

 Training and development rate

 Grievance rate

Step 4: Preparing Audit Report

 Table of contents

 Preface

 Statement of objectives, methodology, scope and techniques used

 A clear and in-depth analysis of the data and information, furnished area-wise.

 Evaluation, discussion and analysis

 Appendix

 Bibliography

5.3 Benefits of HR Audit

 Create an HR business plan.

 Streamline HR work processes.

 Develop user-friendly HR systems.

 Identifies the contribution of the personnel departments to the organization.

 Improves the professional image of personnel department.

 Encourages greater responsibility and professionalism among members of the

personnel department.
 49

 Clarifies the personnel department duties and responsibilities.

 Find critical personnel problems.

5.4 Human Resource Accounting

 Human Resource Accounting is the process of assigning, budgeting, and reporting
the cost of human resources incurred in an organization, including wages and salaries
and training expenses.

 Human Resource Accounting is the activity of knowing the cost invested for
employees towards their recruitment, training them, payment of salaries & other
benefits paid and in return knowing their contribution to organization towards it’s
profitability.

 “Human Resource Accounting is the process of identifying and measuring data

about human resources and communicating this information to interested parties.”
- American Accounting Society Committee on HRA

Advantage

The major benefits of HR accounting are

 It offsets uncertainty and change, as it enables the organization to have the right
person for the right job at the right time and place.

 It provides scope for advancement and development of employees by highlighting

strength and weakness in the workforce.

 It helps individual employee to aspire for promotion and better benefits.

 It aims to see that the human involvement in the organization is not wasted and
brings high returns to the organization.

Disadvantage

  No  specific  procedure  for  finding  cost  and  value  of  human  resources  of  an
organization

 Form and manner of including HRA value in the financial statement is not clear

 Employee with a comparatively low value may feel discouraged

50

 The life of human resources is uncertain and therefore ,valuing them under
uncertainty seems unrealistic

 Human resource costs

5.5 Methods of Valuation of Human Resources

1. Historical Cost Method

Leebrumet and eric g flamhotz According to this method, the actual cost incurred on
recruiting, selecting, training, placing and developing the human resources of an enterprise is
capitalized and amortized over a period of time

 The cost of recruitment ,selection and placement are acquisition costs while cost
of orientation and training are learning costs

 Historical cost method = Recruitment cost + selection cost + Orientation Costs +

Training Costs + Development Costs

2. Replacement cost method

 Renis likert and eric g flamhotz The cost of replacing employees is used as the
measure of company’s human resources.

 The human resources of a company are to be valued on the assumptions as to

what it will cost the concern if existing human resources are required to be replaced
with other persons of equivalent experience and talent.

 In this method the cost of recruiting, selecting, training etc. of new employees to
reach the level of competence of existing employees are measured.

3. Standard Cost Method

 David watson This method establish of a standard cost per grade of employee,
updated every year.

 Replacement costs can be used to develop standard costs of recruitment, training

and developing individuals, such standards can be used to compare actual results
with those planned.
 51

4. Opportunity cost method

   This method was first advocated by  Hekimian and Jones 

 Opportunity cost means a calculation of what would have been the returns if the
money spent on human resources was spent on something else.

5. Present value method

 The Lev and Schwartz Model Under this method the future earnings of various
grades of employees are estimated upto the age of retirement and are disclosed at
the rate of cost of capital to obtain their at present value.

T  E t 
 Vr 
t  r i  r 

Where Vr = value of an individual or r years old

I = the individual s annual earnings up to retirements age

T = retirement age

r = discount rate specific to the person

t = active year of service

6. Unpurchased goodwill model

 Roger.h.hermanson The Unpurchased Goodwill method assumes that a business

will earn a normal rate of return on resources.

 if actual earning exceeds the normal rate it is termed as super profit.

 When the super profit is capitalized then it will become the value of human resources

7. Adjusted discounted future wage

 This model is based on assumption that a relationship can be established between
employees salary and his value to the organization.

 In this the present value of discounted wages of future is calculated for each year
for coming 5 years.

 The present value is further adjusted by efficiency ratio.

52

8. Certainty equity model

 Pegin ogan According to this approach, the certainty with which the net benefits in
future will accrue should also be taken into account, while determining the value of
human resources.

 Net benefit from each employee.

 Certainty factor at which the benefits will be available.

 The net benefits from all employees multiplied by their certainty factor will give
certainty-equivalent net benefits.

n L 1
1
K kj   V
j 1 k t 1  r k aj
Where, L = end of estimated useful life of the employee for the organisation; j = jth
individual, j = 1, 2, 3, 4,… n; r = a discount rate external to the organisation (risk free):V a. =
certainty-equivalent net benefits generated by human resources, t = sometime period from 1 to
L which is a point in the useful life of employee to which the certainty-equivalent net benefits
that occur after t are discounted; kkj = adjusted total net present values of human resources in a
professional service organisation.a = k + t.

9. Asset multiplier method

 W.j giles and.j.robbinson

 This method is based on the assumption that there is no direct relationship between
cost incurred on the individual and his value to the organization at any particular
point of time.

 In this method organization employees are divided into four categories namely top
management, middle management, supervisory management and operative or
clerical employees.

10. Flamholtz’s Stochastic Rewards Valuation Model

 Stochastic process means the progress of an individual through organisational roles
during his service life.

 This model directly measures an individual’s conditional value and expected

realizable value.
 53

 This model assumes that an individual generates value as he takes different roles
in the organisation.

11. Management By Objective

 According  to  Peter  F.  Drucker,  measurement  is  very  impor­tant  aspect  in
management. However, human resource management has been weak in respect
of mea­surement due  to its qualitative variables such as  feelings, attitudes, job
satisfaction, etc.

 Experts have suggested the use of MBO to measure the qualitative variables of
human resources.

 eg Employee costs per unit of production/service shall be held (at Base year) and
indexed to as a percentage of fixed and semi-variable costs

12. Ratio analysis

 In this approach, the important performance indicators that concern the personnel
function are used. Cost of recruitment training, etc., are the examples of personnel
function.

Cost of Recruitmen t
 Cost of Recruitmen t :
No. of Recruiters hired/Reta ined
 Recruitment Cycle Time:

Number of Separations
 Cost of Turnover :  100
Average Number of Employees

Training Costs
 Cost of Training :
Number of Employees Trained

13. Human resources productivity

 Human resources productivity is expressed as the ratio of organization’s outputs

i.e., goods and services to its inputs, i.e., physical, financial and human resources.

 One way to control the costs of human resource is increasing the productivity of
employees working in the organization.

 Thus, when the percentage increase in personnel productivity is higher than

percentage increase in personnel costs, per unit costs of personnel will be reduced.
54

14. Human resources reports and budget:

 Personnel reports provide useful information regarding manpower utilization.

 These can be used for controlling human resource costs. Personnel budget is a
personnel programme expressed in monetary terms for key areas such as employee
compensation, facilities, training, development etc.

 A comparison of actual costs with budgeted costs helps the manager take corrective
measures to control the personnel costs.

5.6 Summary
The HR audit is an overall quality control check on HR activities in a division or company
and an evaluation of how these activities support the organisation’s stratergy. There are four
steps in Human Resource Audit process. They are defining audit statements, accessing current
branches, analysis of results and preparing audit report. Human Resource Accounting is the
process of assigining, budgeting and reporting the cost of Human Resources incurred in an
organisation. Various methods of valuation of Human Resources are also explained.

5.7 Keywords
Human Resource Auditing

Human Resource Audit

Opportunity Cost

Present Value

Replacement Cost

Standard Cost

5.8 Review Questions

1. Discuss the steps in Human Resource Audit Process.

2. What are the benefits of Human Resource Audit ?

3. What is Human Resource Accounting ?

4. Explain the methods of valuation of Human Resources.

 55

LESSON - 6
HUMAN RESOURCE PLANNING
Learning Objectives

After completing this lesson, you must be able to

 define Human Resource Planning

 list out the objectives of Man Power Planning

 describe importance of Human Resource Planning

 discuss the factors affecting Human Resource Planning

 explain the steps in Human Resource Planning Process

Structure
6.1 Introduction

6.2 Definiton

6.3 Objectives of Manpower Planning

6.4 Importance of Human Resource Planning

6.5 Factors affecting Human Resource Planning

6.6 Human Resource Planning Process

6.7 HR Supply Forecast Techniques

6.8 HR Demand Forecast Techinques

6.9 Steps in Procurement of Human Resources

6.10 Summary

6.11 Keywords

6.12 Review Questions

6.1 Introduction
The process by which a management determines how an organisation should move from
its current manpower position to its desired manpower position. Through planning, a management
strives to have the right number and the right kind of people at the right place, at the right time,
56

to do things which results in both the organisation and the individual receiving the maxium long-
range benefits.

6.2 Definition
HRP includes the estimation of how many qualified people are necessary to carryout the
assigned activities, how many people will be availbale, and what if anything, must be done to
ensure that personnel supply equals personnel demand at the appropriate point in the future.

The process of forecasting an organisation’s future demand for and supply of, the right
type of people in the right number. It is only after this, that the HRM department, can initiate the
recruitment and selection process. HRP is a sub-systems in the total organisational planning.

6.3 Objectives of Manpower Planning

 To ensure optimum use of HR currently employed

 To determine future recruitment level

 To provide control measures to ensure that necessary resources are available as

and when required

 To anticipate redundancies and avoid unnecessary dismissals.

 To forecast future skill requirements to serve as a basis for training and developemnt
programmes

 To assess future housing needs of employees

 To cost the manpower component in new projects

 To decide whether any of the enterprise activities

6.4 Importance of Human Resource Planning

 Future personnel needs

 Coping with change

 Creating highly talented personnel

 Protection of weaker sections

 57

 International strategies

 Foundation for personnel functions

 Increasing investment in HR

 Resistance of change and move

 Other benefits

1. Future personnel needs: Planning is significant as it helps determine future personnel

needs. Surplus or deficiency in staff strength is the result of the absence or defective
planning. All public sector enterprises find themselves over staffed now as they never had
any planning of their personnel requirements.

2. Coping with change: HRP enables an enterprise to cope with changes in competitive
forces, markets, technology, products and government regulations. Such changes generate
changes in job content, skill demands and number and type of personnel.

3. Creating highly talented personnel: As was mentioned earlier, jobs are becoming highly
intellectual and incumbents are getting vastly professionalized. The hr manager must use
ingenuity to attract and retain qualified and skilled personnel.

4. Protection of weaker sections: In matters of employment and promotions, sufficient

representation needs to be given to SC/ST candidates, physically handicapped, children
of the socially and politically oppressed and backward-class citizens.

5. International strategies: International expansion strategies depend upon HRP. The

departments ability to fill key jobs with foreign nationals and the re-assignment of employees
from within or across national borders is a major challenge facing international business.

6. Foundation for personnel functions: Manpower planning provides essential information

for designing and implementing personnel functions such as recruitment, selection,
personnel movement and training and development.

7. Resistance to change and move: There is a growing resistance among employees to

change and move. There is also a growing emphasis on self-evaluation and on evaluation
of loyalty and dedication to the organization. All these changes are making it more difficult
for the organization to assume that it can move its employees around anywhere and
anytime it wants.
58

6.5 Factors affecting Human Resource Planning

 Strategy and type of organisation

 Organisational growth cycles and planning

 Environmental uncertainties

 Time horizons

 Type and quality of forecasting information

 Nature of jobs being filled

 Off-loading the work

6.6 Human Resource Planning Process

HRP essentially involves forecasting personnel needs, assessing personnel supply and
matching demand-supply factors through personnel related programmes. The planning process
is influenced by overall organizational objectives and the environment of business.
 59

1.Organizational objectives and policies: HR plans need to be based on organizational

objectives. In practice this implies that 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.

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.

2. HR demand forecast: Demand forecasting is the process of estimating the future

quantity and quality of people required. The basis of the forecast must be the annual budget
and long-term corporate plan translated into activity levels for each function and department.

Good reasons for conducting demand forecasting:

 Determine what staff mix is desirable in the future.

 Prevent shortages of people where and when they are needed most.

v Forecasting techniques: Forecasting techniques vary from simple to sophisticated

ones. The techniques are,

§ Managerial judgment

§ Ratio trend analysis

§ Work –study techniques

§ Flow models

3. HR supply forecast: 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.

The supply analysis covers,

 Existing human resources

 Internal sources of supply

 External sources of supply

60

4. HR plan implementation: Implementation requires converting an hr plan into action. A

series of action programmes are initiated as a part of hr plan implementation. Some such
programs are recruitment, selection, placement, training and development.

5. Control and evaluation: Control and evaluation represents the fifth and final phase in
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.

6.7 HR Supply Forecast Techniques

1. Skills Inventories

Skills inventories consolidate information about non-managers in the organization. Because

the information from skills inventories is used as input into transfer and promotion decisions
they should contain information about each employees current job.

2. Staffing Tables

Pictorial representations of all organisational jobs, along with the numbers of employees
currently occupying those jobs and future (monthly or yearly) employment requirements.

3. Markov Chain Analysis

Approach to employment forecasting .It is used for developing a matrix.To show the
probability of an employee’s moving from one position to another or leaving the organisation. A
full treatment of HRM applications of Markov analysis is found in management science or
operations management literature.It begins with analysis of staffing levels of one period to
another. Markov analysis can help identify the probability of lower retention

But doesn’t suggest any particular solution to the potential problem.

4. Replacement Chart

It is another forecasting tool that can be enhanced with an HRIS.A replacement chart is
used primarily with technical, professional, and managerial employees. It displays summary
data about individuals currently in the organization. It is concise map that can be readily reviewed
to pinpoint potential problem areas in terms of HRP.
 61

5. Succession Planning

Its purpose is to identify and develop people to replace current incumbents in key positions
for variety of reasons:

 Superannuation
 Resignation
 Promotion
 Growth
 Diversification
 Creation of new position,etc.

Succession can be within or without the organization.Succession by people within gives a

shared feeling among employee that they can grow as the organization grows.They should
look inward to identify potential and make efforts to groom people to high
responsibilities.Organization may search for outside talents in some cases such as qualified
person not available,planning to major expansion, etc.

6.8 HR Demand Forecast Techniques

1. Delphi Technique

The Delphi technique is a set of procedures originally developed by the rand corporation
in the last 1940s.Its purpose is to obtain the most reliable consensus of opinion of a group of
experts.

It consists of intensive questioning of each expert through a series of questionnaires to

obtain data that can be used to make educated forecasts. The procedures are designed to
avoid direct meetings between the experts. In order to maximize independent thinking.A person
who serves as intermediary in the questioning send the questionnaires to the experts and asks
them to give their best estimates.The intermediatery prepares a summary of the results.
Calculating the average response and the most extreme answers.Then the experts are asked
to estimate the number again. The responses tend to narrow down.The average number is
then used as the forecast.
62

2. Nominal Group Technique

This can be used in situations were experts estimates may not be satisfactory. It uses
several experts opinion coupled with group brainstorming to generate better decisions.A silent
generation of individual ideas is followed by an open discussion.They then try create the best
solution.

Its an effective forecasting tool for environments and problems more complex than an
individual can master. Its helps to offset domination by single person.

3. Trend Analysis

A quantitative approach to forecasting labour demand based on an organisational index

such as sales.

4. Management Forecast

The opinins(judgements) of supervisors, department managers or others knowledgeable

about the organisation’s future employment needs.

6.9 Steps in Procurement of Human Resources

 Determination of the kind or quality of personnel needed:

 Job Analysis

 Job Description

 Job Specification

 Determination of the quantity of personnel requried

 Manpower planning

 Recruitment, selecion and induction

Job Analysis

It is the process by means of which a description is developed of the present method and
procedure ofdoing a job, physical conditions in which the job is done, relations of the job to
other jobs and other conditions of employment. Various point on which information may be
gathered for Job Analysis are as follows:
 63

 Job Title

 Alternative Title

 Work performed

 Equipment used, Tools and Materials used

 Reports and records made

 Relation of the job to other jobs

 Education

 Experience

 Physical and mental efforts required

 Visual attention required

 Responsibility

 Discomforts and harzards

 Supervision given and received

How to obtain data for Job Analysis?

 Questionnaire

 Checklist

 Interview

 Observation

 Participation

 Techincal conference

 Self – recording or diary

 Critical incident

 Uses of Job Analysis

 It provides a complete knowledge about jobs

It is the first step in selection process and it is the best means of discovering the essential
traits A satisfactory evaluation of job is not possible without a comprehensive job analysisJob
64

analysis uncover many organisational ills. It help to rearrange the work flow and revise existing
procedure Reveal the required skills and knowledge for doing a job and determines the training
needs When considering for promotion, Job analysis may facilitate comparison of his current
responsibilities with those of the post fo r which he is being considered It helps in developing
app ropriate design of job for improved efficiency and productivity .

Job Description

It lists job titles, duties, machin es and equipment involved working conditions, surroundin
g a job, etc. It defines the scope of job activities, major responsibility, and positioning the job i n
the organization. It provides the worker, analyst, and super visor with a clear idea of what the
worker must to do meet the demand of the job. It also provides both organizational information
and functional information.

Content / Components of Job Description

 Job Identification or organizational position

 Job summary

 Job duties and responsibilities

 Relation to other jobs

 Supervision (Received and Giv en)

 Machine, tools and equipments used

 Working conditions

 Hazards

Job Specifications

Job specifications list the human qualities and qualifications necessary to do the job.Job
specifications defines the human traits and experience are necessary to do the job. It portrays
what kind of person to recruit and for what qualifies that person should be tested.

Content of Job specification

 Physical characteristics

 Health, age, strength

 Size, height, weight, voice

 65

 Eye, hand and foot co-ordination

 Psychological characteristics

 Judgment

 Resourcefulness

 Analytical

 Mental concentration and alertness

 Personal characteristics

 Emotional stability

 Appearance

 Good and pleasing manner

 Leadership and initiative

 Smell, hearing and adaptability

 Responsibility

 Other features of a demographic nature

6.10 Summary
Human Resource Planning is an estimate required to find the number of people needed
for an organisation. The objectives, importance and factors influencing Human Resource Planning
are explained in this lesson. The steps in Human Resource Planning are listed out. The Human
Resource Demand and supply Forecasting techniques are detailed.

6.11 Keywords
Job Analysis

Job Description

Human Resource Planning

Nominal Group Technique

Replacement Chart

Trend Analysis
66

6.12 Review Questions

1. What are the Objectives of Manpower Planning?

2. List out the factors affecting Human Resource Planning.

3. Explain the Human Resource demand forecasting techniques.

4. Discuss the steps in Human Resource planning Process.

 67

LESSON - 7
RECRUITMENT
Learning Objectives

After reading this lesson, you must be able to discuss:

 the various factors affecting recruitment

 the internal and external sources of recruitment

 the modern techniques of recruitment

Structure

7.1 Introduction

7.2 Definition

7.3 Factors affecting Recruitment

7.4 Sources of Recruitment

7.5 Modern Techniques of Recruitment

7.6 Summary

7.7 Keywords

7.8 Review Questions

7.1 Introduction
Recruitment, selection and placement are the three distinct but not mutually exclusive
stages in the selection process. They are interdepentent and not independent of one another.
Recruitment is the process of generating applications and identifying potential candidates for
various positions in an organisation through different sources of manpower supply.

7.2 Definition
Recruitment is defined as “a process to discover the sources of manpower to meet the
requirements of the staffing schedule and to employ effective measures for attracting that
68

manpower in adequate numbers to facilitate effective selection of an efficient workforce”. Edwin

B.Flippo defined recruitment as “the process of searching for prospective employees and
stimulating them to apply for jobs in the organisation.”

7.3 Factors affecting Recruitment

Both internal and external factors affect recruitment. The internal factors include

1. Company’s pay package

2. Quality of work life

3. Organisational Culture

4. Career Planning and Growth

5. Company’s Size

6. Company’s Products / Services

7. Company’s Growth rate

8. Role of Trade unions

9. Cost of Recruitment

10. Company’s Name and Fame

The external factors include

1. Socio-economic factors

2. Supply and Demand factors

3. Employment rate

4. Labour Market conditions

5. Political, Legal and Governmental factors like reservations for SC/ST/BC and sons of soil

6. Information system like Employment Exchanges / Internet.

Recruitment Policy : Recruitment Policy of any organsiation is derived from the personnel
policy of the same organization. The following factors should be taken into consideration in
formulating recruitment policy.

1. Government Policies

2. Personnel Policies of the competing Organisations

 69

3. Organisation’s Personnel Policies

4. Recruitment Sources

5. Recruitment needs

6. Recruitment costs

7. Selection criteria, preference etc.,

7.4 Sources of Recruitment

The sources of recruitment are broadly divided into internal sources and external sources.
Internal sources are the sources within an organization. External sources are sources outside
organizational pursuits.

There are two important internal sources of recruitment, namely, transfer and promotions
which are discussed below :

1. Transfer : It involved the shifting of an employee from one job to another, one department
to another or from one shift to another. Transfer is a good source of filling vacancies with
employees from overstaffed departments or shifts. At the time of transfer, it should be ensured
that the employee to be transferred to another job is capable of performing it. In fact, transfer
does not involve any drastic change in the responsibilities, pay and status of the employee.
Transfers or job rotations are also used for training of employees in learning different jobs.

2. Promotion : It leads to shifting an employee to a higher position, carrying higher

responsibilities, facilities, status and pay. Many companies follow the practice of filling higher
jobs by promoting employees who are considered fit for such positions. Filling vacancies in
higher jobs from within the organisation has the benefit of motivating the existing employees. It
has a great psychological impact over the employees because a promotion at the higher level
may lead to a chain of promotions at lower levels in the organisation.

Advantages of Internal Sources

Filling vacancies in higher jobs from within the organisation or through internal transfers
has the following merits :

1. Employees are motivated to improve their performance.

2. Morale of the employees is increased.
70

3. Industrial peace prevails in the enterprise because of promotional avenues.

4. Filling of jobs internally is cheaper as compared to getting candidates from external
sources.
5. A promotion at a higher level may lead to a chain of promotions at lower levels in the
organisation. This motivates the employees to improve their performance through
learning and practice.
6. Transfer or job rotation is a tool of training the employees to prepare them for
higher jobs.
7. Transfer has the benefit of shifting workforce from the surplus departments to those
where there is shortage of staff.
Drawbacks of Internal Sources

Internal sources of recruitment have certain demerits also. These are listed below :

1. When vacancies are filled through internal promotions, the scope for fresh talent is
reduced.
2. The employees may become lethargic if they are sure of time bound promotions.
3. The spirit of competition among the employees may be hampered.
4. Frequent transfers of employees may reduce the overall productivity of the
organisation.

Some organisations completely overlook the value of recruitment from within. It is not
only reasonable but wise also to let the existing employees know of vacancies by internal
advertisement. Now it is being realised that a good source of supply for higher posts is the
personnel already in the organisation. The existing talented employees may be given adequate
training to be eligible for promotion to higher positions in the organisation.

External Sources

Every enterprises has to tap external sources for various positions. Running enterprises
have to recruit employees from outside for filling the positions whose specifications cannot be
met by the present employees, and for meeting the additional requirements of manpower. The
following external sources of recruitment are commonly used by the big enterprises :

1. Direct Recruitment : An important source of recruitment is direct recruitment by placing

a notice on the notice board of the enterprise specifying the details of the jobs available.
 71

It is also known as recruitment at factory gate. The practice of direct recruitment is generally
followed for filling casual vacancies requiring unskilled workers. Such workers are known
as casual or badli workers and they are paid remuneration on daily wage basis.

This method of recruitment is very cheap as it does not involve any cost of advertising
vacancies. It is suitable for filling casual vacancies when there is greater rush of work or
when a number of permanent workers are absent.

2. Casual callers or unsolicited applications : The organisations which are regarded as

good employers draw a steady stream of unsolicited applications in their offices. This
serves as a valuable sources of manpower. If adequate attention is paid to maintain
pending application folders for various jobs, the personnel department may find the
unsolicited applications useful in filling the vacancies whenever they arise. The merit of
this source of recruitment is that it avoids the costs of recruiting workforce from other
sources.

3. Media advertisement : Advertisement in newspapers or trade and professional journals

is generally used when qualified and experienced personnel are not available from other
sources. Most of the senior positions in industry as well as commerce are filled by this
method. The advantage of advertising is that more information about the organisation,
job descriptions and job specifications can be given in advertisement to allow self-screening
by the prospective candidates. Advertisement gives the management a wider range of
candidates from which to choose. Its disadvantage is that it may bring in a flood of
response,and many times, from quite unsuitable candidates.

4. Employment agencies : Employment exchanges run by the government ar regarded as

a good source of recruitment for unskilled, semi-skilled and skilled operative jobs. In
some cases, compulsory notification of vacancies to the employment exchange is required
by law. Thus, the employment exchanges bring the job givers in contact with the job
seekers. However, in the technical and professional area, private agencies and professional
bodies appear to be doing most of the work. Employment exchanges and selected private
agencies provide a nation-wide service in attempting to match personnel demand and
supply.

5. Management consultants : Management consultancy firms helps the organisations to

recruit technical, professional and managerial personnel. They specialise in middle level
72

and top level executive placements. They maintain data bank of persons with different
qualifications and skills and even advertise the jobs on behalf their clients to recruit right
type of personnel. These days, professional bodies of accountants, engineers, etc. also
help their members to get suitable placement in industrial organisations.

6. Educational institutions or campus recruitment : Jobs in commerce and industry have

become increasing technical and complex to the point where school and college degrees
are widely required. Consequently, big organisations maintain a close liaison with the
universities, vocational institutes and management institutes for recruitment to various
jobs. Recruitment from educational institutions is a well-established practice of thousands
of business and other organisations. It is also known as campus recruitment. Reputed
industrial houses which require management trainees send their officials to campuses of
various management institutes for picking up talented candidates doing MBA.
Organisations which seek applicants for continuing apprenticeship programme usually
recruit from technical institutions or polytechnics offering vocational courses.

7. Recommendations : Applicants introduced by friends and relatives may prove to be a

good source of recruitment. In fact, many employers prefer to take such persons because
something about their background is known. When a present employee or a business
friend recommends some one for a job, a type of preliminary screening is done and the
person is placed on a job. Some organisations have agreements with the trade unions to
give preference to blood relations of existing or retired employees if their qualifications
and experience are suited to fill the vacant jobs.

8. Labour contractors : Labour contractors are an important source of recruitment in some

industries in India. Workers are recruited through labour contractors who are themselves
employees of the organisation. The disadvantage of this system is that if the contractor
leaves the organisation, all the workers employed through him will also leave. That is
why, this source of labour is not preferred by many business, organisation. Recruitment
through labour contractors has been baned for the public sector units. However, this
practice is still common in case of construction industry.

9. Telecasting : The practice of telecasting of vacant posts over T.V. (Doordarshan and
other channels) is gaining importance these days. Special programmes like ‘Job Watch’,
‘Youth Pulse’, ‘Employment News’, etc. over the T.V. have become quite popular in
recruitment for various types of jobs. The detailed requirements of the job and the qualities
required to do it are publicised along with the profile of the organisation where vacancy
exists.
 73

The use of T.V. as a source of recruitment is less as compared to other sources. The
reasons for this are :

1. Telecasting is an expensive medium.

2. The advertisement for the job appears for a very short time and it is not repeated. The
candidates may not be able to understand it fully.

3. The candidates who don’t watch T.V. miss the information about job vacancies.

4. If there is a power failure in any area, the candidates living in such area miss the vacancies
telecast during the period of power failure.

Merits of External sources

The merits of external sources of recruitment are as under :

1. Qualified personnel : By using external sources of recruitment, the management can

make qualified and trained people to apply for vacant jobs in the organisation.

2. Wider choice : When vacancies are advertised widely, a large number of applicants from
outside the organisation apply. The management has a wider choice while selecting the
people for employment.

3. Fresh talent : The insiders may have limited talents. External sources facilitate infusion
of fresh blood with new ideas into the enterprise. This will improve the overall working of
the enterprise.

4. Competitive spirit : If a company can tap external sources, the existing staff will have to
compete with the outsiders. They will work harder to show better performance.
Demerits of External Sources

The demerits of filling vacancies from external sources are as follows :

1. Dissatisfaction among existing staff : External recruitment may lead to dissatisfaction

and frustration among existing employees. They may feel that their chances of promotion
are reduced.

2. Lengthy process : Recruitment from outside takes a long time. The business has to
notify the vacancies and wait for applications to initiate the selection process.
74

3. Costly process : It is very costly to recruit staff from external sources. A lot of money has
to be spent on advertisement and processing of applications.

4. Uncertain response : The candidates from outside may not be suitable for the enterprise.
There is no guarantee that the enterprise will be able to attract right kinds of people from
external sources.

7.5 Modern Techniques of Recruitment

1. Walk-in: The busy organizations and the rapid changing companies do not find time to
perform various functions of recruitment. Therefore, they advise the potential candidates to
attend for an interview directly and without prior application on a specified date, time and at a
specified place. The suitable candidates from among the interviewees will be selected for
appointment after screening the candidates through tests and interviews.

2. Consult-In: The busy and dynamic companies encourage the potential job seekers to
approach them personally and consult them regarding the jobs. The companies select the
suitable candidates from among such candidates through the selection process.

3. Head-hunting: The Companies request the professional organizations to search for

the best candidates particularly for the senior executive positions. The professional organizations
search for the most suitable candidates and advise the company regarding the filling up of the
positions. Head-hunters are also called search consultants.

4. Body Shopping: Professional organizations and the hi-tech training institutes develop
the pool of human resources for the possible employment. The prospective employers contact
these organizations to recruit the candidates. Otherwise, the organizations themselves approach
the prospective employers to place their human resources. These professional and training
institutions are called body shoppers and these activities are known as body shipping. The
body shopping is used mostly for computer professionals.

5. Business Alliances: Business alliances like acquisitions, mergers, and take-overs

help in getting human resources. In addition, the companies do also have alliances in sharing
their human resources on ad-hoc basis.
 75

6. Tele-Recruitment: The technological revolution in telecommunication helped the

organizations to use internet as a source of recruitment. Organisations advertise the job vacancies
through the world wide web (www) internet. The job seekers send their applications through e-
mail or internet. Alternatively, job seekers place their CVs in the World Wide Web / internet,
which can be drawn by the prospective employers depending upon their requirements.

7.6 Summary

This lesson has thrown light on the various factors affecting recruitment and both the
internal and external sources of recruitment. In addition, the students are exposed to some of
the modern techniques of recruitment in the liberalised context of business process.

7.7 Keywords

Campus recruitment

Canal Callers

Head Hunting

Promotion

Recruitment

Transfer

7.8 Review Questions

1. What are the factors affecting recruitment?

2. What are the various internal and external sources of recruitment?

3. Explain the modern techniques of recruitment widely used by todays organisations.

76

LESSON - 8
SELECTION

Learning Objectives

After reading this lesson, you must be able to discuss

 a basic selection model

 the selection process and methods

 reliability and validity of different kinds of selectiontests

 principles and types of interview, interview outcome and errors in interviewing.

Structure

8.1 Introduction

8.2 Definition

8.3 Basic Selection Model

8.4 Selection Process and Methods

8.5 Summary

8.6 Keywords

8.7 Review Questions

8.1 Introduction
Selection of right person for the right job is an important task of HR managers. Today’s
organisations are confronted with the twin problems of selection of qualifited, experienced and
competent people and retaining them for a longer period. In this lesson, the different aspects of
selection process and methods have been discussed as follows.

8.2 Definition
Selection, either internal (recruitment from within) or external (recruitment from outside)
is a deliberate effort of the organization to select a fixed number of personnel from a large
 77

number of applicants. Selection involves three distinct but not mutually exclusive stages viz.
recruitment, selection and placement. Recruitment is the generating of applications or applicants
for specific position through various sources of manpower supply.

After identifying the potential applicants, the next step is to evaluate their qualifications
and experience and make a decision. Selection refers to the process of offering jobs to one or
more applicants from the applications. Great attention has to be paid to selection because it
means establishing the “best fit” between job requirements on the one hand and the candidate’s
qualifications on the other. Faulty judgement can have far reaching impact on the organization’s
functioning.

8.3 Basic Selection Model

A basic selection model requires the identification of the most essential steps, from job
description, to the final acceptance and review of the selection technique. Blum and Nylon have
diagrammed the model. It is presented in the following figure 1 and is discussed in detail.

Figure 8.1 Selection Model

(1) Job Description


Identification of criterion Identification of predictor
variables (3) variables (2)

Performance measurement Performance measurement

on criteria (5) on predictor (4)

Correlation between
predictor & Criterion (6)

(8) Insignificant relationship (7) significant relationship
review the predictor & tentatively accept the
criterion variables predictor

(9) Try different predictor (10) Periodic review & incase

and criterion variables of insignificant relationship
78

Job Description

The most important aspect of any selection model is a description of the various
components of the job through job analysis. Those who are responsible for preparing a job
description can use one or many of the available methods to obtain data such as checklist
method, questionnaires, interviews and observation. Having looked into the process and
functioning of a job, its content description is prepared. The final step in the process is laying
down job specifications, abilities, skills and experience.

A well-thought-out job description has several advantages and serves various important
functions. Some of these are discussed below:

1. It helps to indicate very clearly the nature and content of the job to the applicant and
hence to remove uncertainties.

2. Rewards and punishments can be easily legitimized.

3. Job descriptions serve as an important basis for wage and salary administration

4. It is easy to identify the training needs of the employees.

Identification of Predictor variables: Predictor variables refer to the selection tools and
techniques that can predict successful performance on the job. For example, the major
components of a stenographer’s job are typing, shorthand, filing etc. Shorthand dictation, a
typing-speed test and some indicators of filing ability can identify their skill and measure their
proficiency. A good job description helps in identifying the predictors.

Identification of Criterion variables: Criterion variables refer to the indicators of

performance, criteria for evaluating success on the job. Though identification of both Predictor
and criterion variables is a simultaneous process in most cases, companies wait till the end of
the year to develop measures of on-the-job performance.

Performance measurement on predictor and criterion: Having identified the predictor

and criterion variables, the next logical step is, how to utilize them. In most cases, a quantitative
score is usually possible on both predictor and Criterion. This can be a test score, an interview
assessment score, which indicate the relative strength and merit of an applicant / employee.

Correlation between Poredictor and Criterion: To establish a degree of relationship

between predictor and criterion scores, a statistical method of co-efficient of correlation is used
to see if Predictor scores really predict the performance on the job. This is a fairly important
step because it demonstrates the job worthiness of predictors and criteria.
Decision to accept or reject a Predictor: Depending upon the degree of relationship
between predictor and criterion, a decision is made to accept or reject the Predictor. If the
 79

correlation is insignificantly low it indicates that the predictor cannot discriminate between the
potential and non-potential successful job performers, and hence it is worth rejecting this predictor.
On the other hand, if the relationship is high, it indicates that those who score high on the
predictor also perform better on the job. In this case, since the predictor can discriminate between
“good” and “bad” performers, it should be accepted.
Follow-up: Having decided to reject a given predictor, the next step is to look for another
predictor. Here we go back to step 2 and work downward. On the other hand, if the predictor is
accepted it should not be taken to be valid and reliable for a life time; the people who apply
might change, larger changes in the organization might necessitate changes in job and hence
the necessity to review the predictor continuously.

8.4 Selection Process and Methods

Figure 8.2 Framework for Procurement

Recruitment Job analysis

Sales forecast
Programme

Work-load & Work-force

Job description
analysis

Applicants Employee requistion Job specification

Screening Devices

  Applicantion blanks    
  Reference checks   
The Tests The
Individual
      Organisation
  Interviews    

  Physical examinations 

Induction
80

In order to initiate the procedure for selection, we must satisfy the three preliminary
requirements depicted in the following figure. First, there must be the authority to select, which
comes from the employment requisition, as developed through analysis of the workload and
workforce. Secondly, we must have a standard of personnel with which we can compare
prospective employees. This is represented by the job specification as developed through job
analysis. And finally, we must have job applicants form whom we can select the persons to be
hired.

A planned recruitment programme provides us with these applicants.

Though there is no standard method or procedure adopted by all firms, the following are
some of the widely used selection methods.

I. Application Blanks

II. Check of References

III. Psychological Tests

IV. Employment Interview

V. Physical Examination

VI. Induction or Placement

I. Application Blanks

In a sense the application blank is a highly structured interview in which the questions are
standardized and determined in advance. Besides, it tests the applicant’s ability to write, organize
his thoughts and present facts. It also provides interview leads. All application blanks essentially
require two broad categories of information.

a. Biographic data: This is concerned with such variables as age, sex, marital status and
number of dependants.

b. Education and past experience: There was a time when a college degree was sufficient
qualification for a job. Today, employers look at the grade point average, division and
percentage of marks as pre-requisites for a job. Although it is often said that the best
predictor of future work is part performance on the job, little has been done to utilize it
systematically for the selection process. No relationship is found between past work
 81

experience and academic performance. There is conflicting evidence on the relationship

between past and present work.

II. Check of References

References are letters of recommendation written by previous teachers or employers.

The general format is a paragraph or so on the person. The main difficulty is ascertaining the
accuracy of information given. A series of studies spread over two years reported very slight
relationship between references and performance measures.

III. Selection Tests

The basic assumption underlying the use of tests in personnel selection is that individuals
are different in their job-related abilities and skills and that these skills can be adequately and
accurately measured for comparison. Since many human abilities are complex and inter-related
they have to be understood in association with each other.

Kinds of Tests: Achievements, aptitude, interest, personality and intelligence tests are
used for Selection. The following section gives a brief description of each of them.

1. Achievement tests: Achievement tests measure a person’s potential in a given area.

One example is the trade test, which involves the performances of a sample operation
requiring specialized skill and believed to be satisfactorily answered by those who have
some knowledge of the occupation and trade. For College admissions, grades in previous
examinations are often used as indicators of achievement and potential for learning.

2. Aptitude tests: Aptitude tests measure ability and skills. Specific aptitude tests have
been designed for jobs that require clerical, mechanical and manual dexterities, abilities
and skills. Aptitude tests do not measure motivation.

3. Interest tests: Interest tests have been designed to discover a person’s area of interest
and to identify the kind of work that will satisfy him

4. Personality tests: Personality tests assess individual motivation and other patterns of
behaviour. Dimensions of personality such as interpersonal competence, self-confidence
ability to lead, patience, and ambition are more suitably measured by the personality test
than any other.
82

5. Intelligence tests: Intelligence tests are generally aptitude ones, although there is some
disagreement on this. The scores on intelligence tests are usually expressed as Intelligent
Quotient (IQ) which are calculated by the following formula.

Mental Age
IQ  x 100
Actual Age

The assumption here is that there are various forms of intelligences tests for various age
groups. Intelligence testing in industry is based on the assumption that if the organization can
get bright, alert employees quick at learning, it can train them faster than those who are less
well endowed.

Advantages of Selection Tests

1. Tests are standardized and unbiased tools.

2. They can be administered to a group, and to that extent they save on time and cost.

3. Being quantifiable, they yield themselves to scientific and statistical analysis.

4. Labour turnover will be reduced because man-job matching is scientific.

Limitations of Selection Tests

1. Selection tests cannot make a hundred percent prediction of an individual’s on-the job
success.

2. Candidates differ in their anxiety about tests

3. If the number of applicants is small, using selection tests may not be economical.

Reliability and Validity of Selection Tests

Reliability: For any predictor to be useful, it must possess an acceptable level of reliability
or consistency of measurement. This means that the applicant’s performance on any given
selection device should produce consistent scores each time the device is used. If an organization
uses tests to provide input to the selection decision, the tests must give consistent results. If the
test is reliable, any single individual’s score should remain fairly stable over time, assuming that
the characteristic it is measuring is also stable.
 83

Validity: High reliability may mean little if the selection device has low validity; that is, if
the measures obtained are not related to some relevant criterion, such as job performance. For
example, just because a test score is consistent is no indication that it is measuring important
characteristics related to job behaviour. It must also differentiate between satisfactory and
unsatisfactory performance on the job. We should be aware of three specific types of validity:
Content, Construct, and Criterion related.

Content validity: Content validity is the degree to which the content of the test, as a
sample, represents all the situations that could have been included: A simplified example of a
content valid test is a typing test for a secretarial position. Such a test can approximate the work
to be done on the job; the applicant can be given a typical sample of typing, and his or her
performance can be evaluated based on that sample. Assuming that the tasks on the test
constitute a random sample of the tasks on the job, the test is content valid.

Construct Validity: Construct validity is the degree to which a particular trait is related to
successful performance on the job. These traits are usually abstract in nature, such as a measure
of intelligence. This type of validity is usually conducted by observing various behaviours of the
applicant and measuring how these behaviours or traits relate to the job. It is the most difficult
type of validity to prove because you are dealing with abstract measures.

Criterion-related validity: Criterion-related validity is the degree to which a particular

selection device accurately predicts the important elements of work behaviour. These measures
reveal the relationship between some score (test) and job performance (e.g., production output
or managerial effectiveness). To establish criterion-related validity, one of two measures can be
used: Predictive validity and Concurrent validity.

Predictive validity: To validate the test predictively, an organization would give the test
(invalidated at this time) to all prospective applicants. The test scores would be recorded and
saved for future reference. The selection process would continue, the applicants being hired as
a result of successfully completing the entire process; the test score would have no bearing on
the case

At some prescribed date, usually one year from being hired, the new applicants would be
evaluated by their supervisors. The ratings of the evaluations would then be compared with the
initial test scores (stored in a file for over a year). At that time, an analysis would be conducted
to see if there was any relationship between test scores and performance evaluation (the measure
84

of success on the job). If no clear relationship exists, then the test may have to be revised.
However, if the organization can statistically show that the employees who scored below some
cut score (determined in the analysis) were unsuccessful performers (validity), then any future
applicant scoring below the cut score would be ineligible for employment. What happens to
those unsuccessful performers? They are handled like any other employee who has experienced
poor evaluations: training, transfer, discipline, or discharge.

Concurrent Validity: The concurrent validity method validates tests using current
employees as the subjects. Given the test, the scores from the current employees are immediately
analysed, revealing a relationship between the test scores and their previous performance
appraisals. Again statistically speaking, if there is a relationship between test scores and
performance, then a valid test has been found.

Predictive validity is clearly the preferred choice. Its advantage over concurrent validity is
that it can be used as a screening device, whereas concurrent validity acts on current employees.

IV. Employment interview

The interview consists of interaction between interviewer and applicant. If handled properly,
it can be a powerful technique in achieving accurate information and getting access to material
otherwise unavailable. If the interview is not conducted carefully, it can be a source of bias,
restricting or distorting the flow of communication.

Principles of Interviews

There are many principles of good interviewing, and it is helpful to classify them in some
manner to facilitate their retention. Perhaps the most useful means of classification is by the
typical sequence of functions that occur within the interview: (1) Preparation (2) Setting (3)
Conduct of the interview, (4) Close and (5) Evaluation.

Preparation: The following principles are applicable to all interviews.

1. Determine the specific objectives of the interview.

2. Determine the method of accomplishing the interviewing objective.

3. Inform yourself as much as possible concerning the known information about the
interviewee.
 85

Setting: The setting for an interview is of two types, physical and mental.

1. The Physical setting for the interview should be both private and comfortable.

2. The mental setting should be one of rapport.

Conduct of the Interview: This is the step in the process where most of the action takes
place. It is here that we obtain the information desired and supply the facts that the interviewee
wants to know.

1. The interviewer should possess and demonstrate a basic liking and respect for people.

2. Questions should be asked in a manner that encourages the interviewee to talk.

3. The interviewee must have the full attention of the interviewer.

Close: The interview should open, run and close smoothly without awkwardness and
embarrassment.

1. The interviewer should make some overt sign to indicate the end of the interview.

2. The interviewee should be given some type of answer of indication of future action.

Evaluation: When the door closes, the interviewer must immediately undertake the task
of evaluating the candidate while the details are fresh in mind. If notes have not been previously
taken, details should be recorded now. If a rating sheet has been provided for the structured
interview, entries and supporting information should be entered. Some decision must be reached
concerning the applicant.

In addition to evaluating the candidate, the interviewer should always evaluate himself or
herself at this point. Interviewing is largely an art, the application of which can be improved
through practice.

Kinds of Interviews

Four kinds of interviews for selection have been identified. These are:

1. Preliminary Interview: These interviews are preliminary screening of applicants to decide

whether a more detailed interview will be worthwhile. The applicant is given job details
during the interview to afford him freedom to decide whether the job will suit him.
86

2. Stress Interview: Stress interviews are deliberate attempts to create pressure to observe
how an applicant performs under stress. Methods used to induce stress range from frequent
interruptions and criticism of applicant’s opinion, to keeping silent for an extended period
of time. The most important advantage of the stress interview is that it helps to demonstrate
important personality characteristics, which would be difficult to observe in tension-free
situation.

3. Depth Interview: Depth interviews cover the complete life history of the applicant and
include such areas as the candidate’s work experience, academic qualifications, health,
interests, and hobbies. It is an excellent method for executive selection, performed by
qualified personnel. It is, however, costly and time consuming.
4. Patterned Inteview: Patterned interviews are a combination of direct and indirect
questioning of the applicant. What is to be asked is already structured. The interviewer
has certain clues and guidelines to areas, which should be probed deeply. The interviewer
also encourages the candidates to express the relevant information freely.

Interview outcome

The following figure shows the major background variables that are involved in the interview
outcome. For example, both the interviewer and interviewee have certain personal characteristics
(eg sex, age, race). These factors may influence their attitudes and motivation, and thus their
behaviour during the interview.

Advantages of Interviews

1. They give an opportunity to make adjustments on the candidates’ enthusiasm, and

intelligence.

2. They give an opportunity to assess “subjective aspects” of the candidate – facial expression,
manners, appearance, nervousness, etc.

3. It is the only way to witness how he interacts and how he responds; his way of thinking,
language proficiency, clarity in the presentation of ideas, the effects of his personality on
another.

4. It is perhaps the best way to set at the ‘will do’ features of performance – motivation,
initiative, creativity, stability, perseverance, work, habits, and judgements.
 87

Defects and Pitfalls in Interview

1. Interviewers have difficulty in establishing rapport with the applicants.

2. Interviewers do not have a clearly defined technique developed but tend to flounder looking
for clue or opening.

3. Questions are not carefully formulated to elicit from the applicants freely and fully desired
information.

4. Many interviewers do too much of the talking in an attempt to put the applicant at ease.

5. Many interviewers lack skill in bringing the interview to a close.

Figure 8.3 Interview outcome

Interviewer Background Interviewee Background

Variables (sex, age, race, Variables (sex, age, race,
social-economic status) social-economic status)

Attitudes, motivations, Attitudes, motivations,

perceptions, expectations, perceptions, expectations,
stereo types stereo types

Interviewer Interviewee
Interviewer Job information
behaviour &   behaviour &
behaviour & (experience,
appearance appearance
appearance brochures, etc.,)

Situational Situational
variables (Job variables (Job
market, previous market, previous
interviewees, interviewees,
etc.,) etc.,)

Interview outcome
88

Errors in Interviewing

There are certain common types of interviewing errors, which need to be guarded against.
Such errors are:

1. The Halo Effect: Under this type of error, one marked characteristic of the candidate
(either favourable or unfavourable) may be allowed to dominate the appraisal of his or her
entire personality. Physical appearance, his brilliant scholastic record, his fluency or lack
of it in language, etc., any of these qualities may create a halo effect. The interviewers
should assess the whole of the candidate’s personality and should not be led away by any
one trait or achievement. He should remember that good candidates come in all shapes,
ages, education, religion, caste, regionality etc.

2. Leniency: When a candidate is rated by two raters, their ratings may be different. One
may show consistent leniency by giving him high scores; the other may consistently rate
him by giving low scores. Leniency is usually associated with lack of confidence and
interest in rating. Toughness may be the result of exaggerated expectation, lack of contact
with people, and general rigidity of personality.

3. Projection: Error of projection arises when an interviewer expects his own qualities,
skills, opinions, and values in an applicant. And therefore, he may select the candidates
who very much resemble him in age, appearance, manners, opinion, voice and background.

4. Stereotyping: This type of error arises when the interviewers have already formed some
mental association between a particular trait, culture, or communal origin and a particular
type of personality. Therefore, objectivity is a desirable quality for an interviewer.

V. Physical Examination

Physical examination as a selection tool can vary from the comprehensive to the nominal,
depending upon the nature of the job. A comprehensive physical examination is necessary for
manual jobs and jobs for the physically handicapped. The most important function of physical
examination is protecting companies from employees filing compensation claims for injuries
and accidents caused by pre-existing ailments.

Though physical examinations are generally conducted, they often fail to detect complicated
diseases (firstly they are cursory, and secondly not enough is known about some ailments).
Hence, efforts should be directed towards safety.
 89

VI. Induction

If the physical examination has been passed successfully, the employee is hired. The
examination is the last step at which a rejection can be made, and thus it is the actual end of the
selection process. The induction function, however, immediately follows and is generally
considered to be a part of the selection procedure.

8.5 Summary
This lesson has focussed on the various selection processes and methods such as
application blanks, check of references, psychological tests, employment interview, physical
examination and induction or placement. The advantages and limitations of different kinds of
selection tests and interview techniques have been discussed in detail to enable the students to
understand and identify appropriate selection tools.

8.6 Keywords
Application Blanks

Interview

Induction

Physical examination

Psychological tests

Selection

8.7 Review Questions

1. Distinguish between recruitment and selection.

2. Discuss the significance and relevance of various selection processes and methods.

3. Discuss the relative merits and demerits of selection tests.

4. Explain the advantages and pittales of interview as selection method.

5. What are the various types of interview?

6. How are selection tests validated?

90

LESSON - 9
INDUCTION

Learning Objectives
After reading this lesson, you will be able to discuss

 induction process

 objectives of induction

 socialising the new employees

 advantages of induction

Structure

9.1 Introduction

9.2 Objectives of Induction

9.3 Induction Process

9.4 Socialising the New Employee

9.5 Advantages of Induction

9.6 Summary

9.7 Keywords

9.8 Review Questions

9.1 Introduction
Induction is the last stage in the selection process. Induction or orientation is part of the
socialisation process which enables the new recruits to adapt themselves to their respective
organisations and their cultures. Induction process assumes much significance with the
emergence of cross cultural behaviour in the liberalised global context of business environment.

Induction is concerned with the problem of introducing or orienting a new employee to the
organization. Induction has gained added importance nowadays, and is important both for the
supervisor and his new subordinates. Increasing emphasis on human relations, attitudinal aspects
 91

and high turnover in the first few months of employment necessitate the best arrangement
between the supervisor and the new subordinate to help the employee adjust and accept other
employees as co-workers. To aid this process, some organizations have extensive orientation
programmes, which help in visualizing the entire operation, culture, and relationships prevailing
in the organization.

9.2 Objectives of Induction

While introducing the new employee, the supervisor or manager should aim at:

 Putting the new employee at his ease

 Creating interest in his job and the company

 Providing basic information about working arrangements

 Indicating the standards of performance and behaviour expected of him. Making the
employee fee that this job, however small, is meaningful.

 Informing him about training facilities.

 Creating the feeling of social security

 Minimising the reality shock which would be caused due to incompatibility caused between
the employee expectations and actually what the company provides / offers regarding
pay, benefits, status, working conditions, responsibility, opportunity for growth, innovation,
creative ideas etc.,

9.3 Induction Process

The following steps may be identified as the stages of induction process.

 The head of the department welcomes the new employee.

 Introduction to the organizational / branch head by the head of the department.

 Departmental head introduces to all the employees of the department, describes the total
work of the department etc,
92

 Supervisor concerned introduces to his co-workers in that section / unit to the work /
job, material, machine.

 Providing information about the duties, responsibilities, rights, facilities, provisions,

welfare measures etc,

 Supervisor clarifies the doubts of new employee about the work.

9.4 Socialising the New Employee

Socialisation is a process of adaption. Organisation entry socialization refers to the

adaption that takes place when an individual passes from outside the organization to the
role of an inside member. Orientation is part of socialization and covers the activities involved
in introducing a new employee to the organization and to his or her work unit. Organisational
socialization attempts to adapt the new employee to the organization’s culture by conveying
to the employee how things are done and what matters. It is imperative that the new
employees accept the organisation’s pivotal standards. Managers can significantly influence
the degree to which new employees maintain their individuality and creativity or conform
totally to the traditions and customs of the organization.

The Socialisation Process

Evidence suggests the validity of the following assumptions:

1) Socialisation strongly influences employee performance and organizational stability.

2) New members suffer from anxiety.

3) Socialisation does not occur in a vacuum

4) People adjust in similar ways.

A Model: Socialisation can be conceptualized as a process made up of three stages:

Pre-arrival, encounter and metamorphosis. The process impacts on the new member’s
work productivity, commitment to the organization’s objectives, and his or her decision to
stay with the organization. The following figure depicts this process.
 93

Figure 8.1 A SoFigucialisation Model

Outcomes

Productivity

Prearrival Encounter Metamorphosis Commitment

Turnover

Figure 9.1 A Socialisation Model

Prearrival Stage: The pre-arrival stage explicitly recognizes that each individual arrives
with a set of organizational values, attitudes, and expectations. These cover both the work to be
done and the organization. The selection process is used in most organizations to inform
prospective employees about the organization as a whole.

Encounter Stage: Upon entry into the organization, the new members enter the encounter
stage. Here, the individuals confront the possible dichotomy between their expectations about
their job, their co-workers, their boss, and the organization in general – and reality. If expectations
prove to have been more or less accurate, the encounter stage merely provides for a reaffirmation
of the perceptions gained earlier. However, this is often not the case, Where expectations and
reality differ, the new employees must undergo socialization that will detach them from their
previous assumptions and replace these with the organisation’s pivotal standards. At the extreme,
new members may become totally disillusioned with the actualities of their job and resign.
Proper selection, including realistic job previews, should significantly reduce the latter occurrence.

Metamorphosis Stage: Finally, the new member must workout any problems discovered
during the encounter stage. This may mean going through changes – hence we call this the
metamorphosis stage.

We can say that metamorphosis is complete, and the entry socialization process, when
new members have become comfortable with the organization and their job. They have
94

internalized the norms of the organization and their work groups; they understand and accept
these norms. The new members feel accepted by their peers as trusted and valued individuals.
They are self-confident that they have the competence to complete their job successfully. They
understand the system-not only their own tasks but the rules, procedures, and informally accepted
practices as well. Finally, they know how they will be evaluated; that is, what criteria will be used
to measure and appraise their work. They know what is expected of them and what constitutes
a job “well done”. As the above figure shows, successful metamorphosis should have a positive
impact on the new employees’ productivity and their commitment to the organization, and reduce
their propensity to leave the organization.

Specific techniques of socializing new employees would include the use of mentors or
role models, orientation and training programmes, reward systems, and career planning. Specific
steps that can lead to successful organizational socialization would include the following:

1. Provide a challenging first job

2. Provide relevant training

3. Provide timely and consistent feedback

4. Select a good first supervisor to be incharge of socialization

5. Design a relaxed orientation programme

6. Place new recruits in work groups with high morale.

Such deliberate socialization strategies have tremendous potential impact on human

resources management and organizational effectiveness.

9.5 Advantages of Induction

1. First impression matters a good deal and results in less turnover

2. Newcomer adjusts himself to the work quickly, and it saves the time of the supervisor.

3. Reduces employee dissatisfaction and grievances

4. Develops a sense of belongingness and commitment.

 95

9.6 Summary
This lesson has covered the objectives of induction and socialisation process in an
organisation. Besides, a socialisation model has been suggested for reorienting a new employee
to the organisation and for successful organisational adaption process.

9.7 Keywords
Encounter stage

Induction

Metamorphous stage

Preannual stage

Socialisation

9.8 Review Questions

1. What are the objectives of Induction ?

2. Explain the Induction process.

3. Explain the socialisation process in an organisation.

96

LESSON - 10
PROMOTION AND TRANSFER
Learning Objectives

After completing this lesson, you must be able to

 define promotion and transfer

 list out the purpose and benefits of promotions

 explain the types of promotion and transfer

 discuss the categories of jon separation

Structure
10.1 Introduction

10.2 Promotion

10.2.1 Purpose of Promotion

10.2.2 Benefits of Promotion

10.2.3 Promotion Principles

10.2.4 Requirements of Promotion Policy

10.2.5 Advantages of Promotion Policy

10.2.6 Types of promotion

10.3 Demotion

10.3.1 Causes

10.3.2 Reasons

10.3.3 Demotion Policy

10.4 Transfer

10.4.1 Need and Purposes

10.4.2 Transfer Policy

10.4.3 Types of Transfer

 97

10.5 Job Separation

10.6 Summary

10.7 Keywords

10.8 Review Questions

10.1 Introduction
Once the employees are inducted into their job profile, they will get promotion in their
career. Let us discuss the concepts of promotion, demotion and transfer in this lesson.

10.2 Promotion
Promotions means an improvement high pay, prestige, position and responsibility of an
employee within his/her organisation. The new job is a promotion for the employee only when it
carries increased responsibilities and enhanced pay. According to Scotl and Clothier, “A promotion
is the transfer of an employee to a job which pays money or one that carries some preferred
status”.

10.2.1 Purpose of promotion

 To motivate employees to higher productivity.

 To attract and retain the service of qualified and competent people.

 To recognize and reward the efficiency of an employee.

 To increase the effectiveness of the employee and of the organization.

 To fill up higher vacancies from within the organisation.

 To build loyalty, morale and a sense of belongingness in the employee.

 To impress upon other that opportunities are available to them.

10.2.2 Benefits of Promotion

 Promotion of employees from lower ranks to higher positions benefits the organization
as well as employees:

 It places the employees in a position where an employee’s skill and knowledge can
be better utilized;
98

 It creates and increases the interest of the other employees in the company as they
believe that they will also get their turn;

 Promotion improves employee morale and job satisfaction;

 Ultimately it improves organizational health.

10.2.3 Promotion Principles

 Every organization has to satisfy clearly its policy regarding promotion based on its
corporate policy. The principles are:

 Systematic line of promotion channel should be incorporated,

 It should provide equal opportunities for promotion in all categories of jobs,

departments and regions of an organization,

 It should contain clear cut norms and criteria for judging merit, length of service,
potentiality etc.,

 Appropriate authority should be entrusted with the task of making a final decision,

 Favoritism should not be taken as a basis for promotion.

10.2.4 Requirements of Promotion Policy

 It must provide for a uniform distribution of promotional opportunities throughout
the organisation.

 It must tell employee in advance what avenues advancement exist.

 There should be some definite criteria for the selection of employees who are to be
promoted.

 All promotions should be finally sanctioned by concerned line heads.

 There must be suitable systems of follow-up, counseling and review.

10.2.5 Advantages of Promotion Policy

 It provides an opportunity for greater personal satisfaction and prestige

 It ensures uniformity and consistency in the treatment of employees.

 It offers opportunities to management to provide recognition and incentives to the

better employees.
 99

 It serves as an orderly, logical and prompt source of recruitment for management to

fill vacancies.

10.2.6 Types of Promotion

1. Horizontal Promotion

This type of promotion involves an increase in responsibilities and pay, and a change in
designation. But the employee concerned does not transgress the job classification. For example;
a lower division clerk is promoted as an upper division clerk. This type of promotion is referred
to as upgrading the position of an employee.

2. Vertical Promotion

This type of promotion involves a greater increase responsibility, prestige and pay, together
with a change in the nature of the job. A promotion is vertical when a canteen employee is
promoted to an unskilled job; the concerned employee naturally transgresses the job
classification.

3. Dry Promotions

Dry promotions are sometimes gives in time of increases in remuneration. Designation is

different but no change in responsibility. This promotion may be given one or two annual
increments.

10.3 Demotion
 Demotion refers to the lowering down of the status, salary and responsibilities of an
employee. Demotion defined as “reassignment of a lower level job to an employee with
delegation of responsibilities and authority required to perform that lower level job and
normally with lower pay “.

 Organizations use demotions less frequently as it affects the employee’s career prospects
and morale.

10.3.1 Causes

When departments are combined and job eliminated, employees are often required to
accept lower-level position. In-adequacy on the part of the employees in terms of job performance,
attitude and capacity.Changes in technology, methods and practices, old hands are unable to
100

adjust, because of ill health or personal reasons cannot do their job properly.Demotion is also
used as a disciplinary measure.

10.3.2 Reasons
 Unsuitability of the Employee to Higher Level Jobs: Employees are promoted based
on seniority and past performance. But some of the employees are demoted on these two
bases may not meet the job requirements of the higher jobs.

 Adverse Business Condition: Generally it force the organization to reduce quantity of

production, withdrawal of some lines of products. Consequently, organizations minimize
the number of employees.

 Junior employees will be retrenched and Senior employees will be demoted under such
conditions.

 New technologies and new methods of operation demand new and higher level skills. If
the existing employees do not develop themselves to meet these new requirements,
organization demote them to the lower level jobs where they are suitable.

 Employees are demoted on disciplinary grounds. This is one of the extreme steps and as
such organizations rarely use this measure

10.3.3 Demotion Policy

 Clear and reasonable list of rules should be framed.

 This information should be clearly communicated to employee.

 There should be a competent investigation of any alleged violation.

 If violation discovered, there should be a consistent and equitable application of the penalty,
preferably by the immediate supervisor. There should be a provision for review.

10.4 Transfer
A transfer implies a lateral movement of an employee in the hierarchy of positions with
the same pay and status. It may be either co-initiated or employee initiated.

— It refers to horizontal or lateral movement of an employee from one job to another

without any change in status and pay.

— It may be defined as a lateral shift causing movement of individuals from one

position to another.
 101

— Transfer may be within the same department or across department.

— Transfer may be temporary or permanent.

As per, Prof. Edwin Flippo, "A transfer involves a change in the job of an employee without
a change in responsibilities or remuneration.

10.4.1 Need and Purposes

— To satisfy Employee Needs: Employees may be transfer due to dislike of boss are
colleagues or personal problems.

— To Provide Relief: Transfers may made to give relief to employees who are overburdened
work.

— To Punish Employees: Employees doing undesirable activities are transfer to some other
job.

— To make the Employee versatile: Employees may be transferred to different jobs to widen
their knowledge and skills.

— To adjust the work force: Employees from the overstaffed plant or office may be transferred
where vacancies exist.

10.4.2 Transfer Policy

 What are the circumstances under which transfer will be made?

 Who is responsible for initiating and approving transfer?

 To which job can transfers be made?

 What is the organisation area over which transfer can be made? Can they be between
departments, divisions and plants or only within one sub-division?

 What is the effect of seniority on the different types of transfer?

 When two or more persons desire transfers to the same job what should be the basis
(Merit or Seniority) for transfer?

 What should be the rate of pay and other benefits to be received by the transferee on the
job to which he is transferred
102

10.4.3 Types of Transfer

1. Company Initiated

Production Transfer : Transfer from one department of an organisation to another

department in which labour requirements are declining. Such transfer avoids layoff of efficient
and trained employees by providing them with alternative positions in the same organisation.

Replacement Transfer: These are transfers of long-service employees to similar jobs in

other departments where they replace or bump employees with shorter services. The object of
this transfer is also to retain the efficient and trained employees as long as possible but in this
process some short service employees are affected.

Versatility Transfer: Transfers of workers from one job to another make them versatile.
Greater job satisfaction and help management in creating work force of all-rounder. Shifted to
other jobs, if necessary.

Shift Transfers:Transfer of employees from one shift to another on the same type of
work.

Penal Transfers:These are transfers made to punish employees for some indiscipline.

Remedial Transfer: These are transfers made to remedy some situation primarily
concerned with employee on the job. For example, his initial placement may be faculty, or he
may not get along with his superior or with other workers in the department or he may be getting
too old to continue in his present job or the type of job or working conditions may not be well
adapted to his present health or accident record, and so on.

2. Employee - Initiated Transfers (or) Personnel Transfer

Employee may initiate transfers for several reasons. They may want a change of bosses
or of locations. They may try to obtain more allowances or better working conditions which are
attached to a new position. They may want to join their friends and relatives or to avoid personal
conflicts with their present colleagues.
 103

10.5 Job Separation

Job separation means cessation of service or agreement with the organization for one or
other reasons.

Benefits

 Reduced labour cost

 Replacement of poor performers

 Increased innovation

Types of Employee Separation

 Involuntary separation: It occurs when an employer decides to terminate its relationship

with an employee

 Voluntary separation: A separation that occurs when an employee decides for personal
or professional reasons to end the relationship with an employer

1. Resignation: Resignation is the formal act of giving up or quitting one’s office position.It
is the formal notice to an employer of voluntary termination by an employee

Employee may resigns for:

 Better compensation and benefits

 Higher position / level

 Challenging role

 To move to a highly branded and reputed company

 Some resignations may enable the organization to rectify mistakes in hiring of employees

 The HR department should find the real causes of resignation so a EXIT INTERVIEW is
conducted.

2. Retirement : Retirement is the point where a person stops employment completely when
he attained the age of superannuation.
104

Types of Retirement

— Complusory retirement

— Premature retirement

— Voluntary retirement

VRS (GOLDEN HANDSHAKE) : Management prefer to pay hefty sums and reduce staff
strength than retaining surplus labour .Time saving method of trimming staff strength

3. Lay-off : layoff is the failure,refusal or inability on the part of any employer to give
employment to any number of workmen on account of shortage of raw material,breakdown of
machinery or for any other reason.

4. Retrenchment :Retrenchment means “discharge of surplus labour or staff” on account

of long period of layoff,automation of machines or similar other reasons.

Conditions for retrenchment

— The employee must be given one month notice in writing indicating the reasons for
retrenchment.

— The employee must be paid compensation equal to 15 days wages for completed
year of service.

— Notice should be in a prescribed manner.

4. Dismissal : The termination is initiated by the employer.Dismissal refers to terminating

the service of an employee by way of punishment for misconduct or unsatisfactory performance.

Reasons for dismissal

— Excessive absentism
— Serious misconduct
— False statement of qualification
— Theft of company’s property
 105

10.6 Summary
Promotion is an improvement in pay, position and responsibility of an employee within
his/her organisation. The purpose, benefits, principles and types of promotion are explained.
Demotion is the lowering down of the status, salary and responsibility of an employee. The
causes and reasons of demotion policy is listed out. The need for transfer policy is described.
The types of transfer is also discussed.

10.7 Keywords
Demotion

Job Separation

Promotion

Transfer

10.8 Review Questions

1. What is promotion ? Explain the types of Promotion.

2. What are the causes of demotion ?

3. List out the purposes of transfer.

4. Explain the types of transfer.

106

LESSON - 11
TRAINING AND DEVELOPMENT
Learning Objectives

After completing this lesson, you must be able to

 differentiate training and development

 list out the purpose of training

 discuss the objectives of training and development

 explain the process of training

 describe the techniques of training

Structure
11.1 Introduction

11.2 Differences between Training and Education

11.3 Inputs in Training and Development

11.4 Purpose of Training

11.5 Objectives of Training and Development

11.6 Training Process

11.7 Techniques of Training

11.8 Impediments to Effective Training

11.9 How to make Training Effective ?

11.10 Summary

11.11 Keywords

11.12 Review Questions

11.1 Introduction
Training is a process of learning a sequence of programmed behavior. It is an application
of knowledge. It gives people an awareness of the rules and procedures to guide their behavior.
 107

It attempts to improve their performance on the current job or prepare them for an intended job.
In simple terms, training and development refer to the imparting of specific skills, abilities and
knowledge to an employee.

According to Prof. Randall S.Schuler has defined training as, “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 attitude 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:

Training & Development Need = Standard Performance – Actual Performance.

11.2 Differences between Training & Development

Training & Development differ in four ways;

i) What is learned?

ii) Who is learning?

iii) Why such learning takes place?

iv) When learning occurs?

The difference may be stated thus;

Learning Training Development

Dimensions

Who ? Non-Managerial Personnel Managerial Personnel

What ? Technical & mechanial Operations Theoretical Conceptural Ideas

Why ? Specific Job-Related Purpose General Knowledge

When ? Short-Term Long-Term

108

TRAINING EDUCATION

Application Theoretical Orientation

Job Experience Class Room Learning

Specifc Tasks General Concepts

Narrow Perspective Broad Perspective

11.3 Inputs in Training and Development

1. Skills

Training is imparting skills to employees. A worker needs skills to operate machines, and
use other equipment with least damage and scrap. This is a basic skill without which the operator
will not be able to function. Training should also provide other skills like motor skills and
interpersonal skills.

2. Education

The purpose of education is to teach theoretical concepts and develop a sense of reasoning
and judgment. That any training and development program must contain an element of education
is well understood by HR specialist.

3. Development

Another component of Training & Development program is development which is less

skill-oriented but stresses on knowledge. Knowledge about business environment management
principles and techniques, human relations, specific industry analysis, and the like is useful for
better management of a company.

4. Ethics

There is need for imparting greater ethical orientation to a training and development
program. Unethical practices abound in marketing, finance and production functions in an
organization. If these personnel indulge in unethical practices the fault rests on the HR Manager.
It is his/her duty to enlighten all the employees in the organization about the need for ethics.

5. Attitudinal change
 109

Attitudes represent feelings and beliefs of individuals towards others. Attitudes affect
motivation, satisfaction and job commitment. Negative attitudes need to be converted into positive
attitudes. Nevertheless, attitudes must be change so that employees feel committed to the
organization are motivated for better performance, and derive satisfaction from their jobs and
the work environment.

6. Decision Making & Problem Solving

Learning related to decision making and problem solving skills seeks to improve trainees’
abilities to define and structure problems, collect and analyse information, generate alternative
solutions and make an optional decision among alternatives. Training of this type is typically
provided for potential managers, supervisors and professionals.

11.4 Purpose of Training

a. To improve productive

b. To improve quality

c. To help a company fulfils its future personnel needs

d. To improve organizational climate

e. To improve health and safety

f. Obsolescence prevention

g. Personal Growth.

11.5 Objectives of Training and Development

i. To familiarize the employee with the company’s culture.

ii. To enable the employee to do new jobs and prevent his skills from becoming obsolete.

iii. To increase the employees’ quantity and quality of output.

iv. To improve the employees’ performance for promotion to higher jobs (or) to prepare
the employees’ quality for promotion to higher jobs.

v. To reduce supervision, wastage and accidents.

vi. To teach the employee how to adjust better with different members of his role set.
110

11.6 Training Process

Organisational Objectives & Strategies

Assessment of Training Needs

Establishment of Training Goals

Devising Training Programme

Implementation of Training Programme

Evaluation of Results

1. Organizational Objectives & Strategies

The first step in the training process in an organization is the assessment of its objectives
and strategies. What business are we in? At what levels of quality do we wish to provide this
product or service? Where do we want to be in the future?

2. Assessment of Training Needs

Needs assessment diagnoses present problems and future challenges to be met through
training and development Organization that implement training programs without conducting
needs assessment may be making errors.

Various sources from which evidence of training needs may be gathered:

 Informal observation

 Performance appraisal

 Suggestion system

 Group discussion

 Questionnaire to trainees and supervisors

 111

 Accident rates and scrap

 Morale survey

 Test and Interview

 Analysis Reports

 Employee Counseling

3. Training & Development Goals Establishment

Without clear set goals, it is not possible to design a training and development programme
and after it has been implemented there will be no way of measuring its effectiveness. Goals
must be tangible, verifiable and measurable.

4. Designing Training & Development programme

Every Training & Development programme must address certain vital issues like;

1. Who are the trainers?

2. What Methods & Techniques?

3. What should be the level of training ?

4. What principles of learning?

5. Where to conduct the training?

Steps in Training Program

A Deciding the location and organizing training and other facilities.

B Scheduling the training program.

C Conducting the training program.

D Monitoring the training progress of trainees.

5. Implementation of the Training program

Once the training program has been designed, it needs to be implemented. Program
implementation involves action on the following lines:
112

6. Evaluation of the program

The last stage in the Training and Development process is the evaluation of results. Since
huge sum of money are spent on training and development how far the program has been
useful must be judged/determined to make it effective in the future. And it helps to determine
the results of the Training and Development program.

11.7 Techniques of Training

A. Training Methods for Operative

B. Training Methods for Executive

A. Training Methods for Operatives

Skills needs, size and tradition of the company, abilities of trainees, time and money,
experience of the company about the training activities that have been carried on in the past all
will affect the type of training.

1. Training on the Job:

This is an important type of training. It helps to learn to master the operations involved on
the actual job situation under the supervision of the immediate boss.

Advantages:

A It can be learned in a relatively short period of time say, a week or two.

B No elaborate program is necessary

C No line-staff conflict because his own supervisor

D Highly economical

E Not located in an artificial situation, either physically or psychologically.Therefore,

eliminates the possible problem of transfer to learning.

2. Job Rotation:

It involves the employee being sent through different jobs,thereby providing him a wider
exposure.
 113

3. Internship Training: It refers to a joint program of training in which schools and business
Co- operates to enable the students to gain a good balance between theory and practice.

4. Apprenticeship: It is used in those trade, craft and technical fields in which proficiency can
be acquired after a relatively long period of time in direct association with the work and under
the direct supervision of experts.

5. Vestibule School: A portions of this training is taken away from the line and assigned to staff
through a vestibule school. The responsibility to operate a vestibule school generally rests with
the personnel department. This training gets its name from the resemblance of the school to a
vestibule through which one passes before entering the main room of a house.

6. Simulators and Training Aids

Simulators are used to provide trainees with physical equipment that resembles to same
degree the equipment that is to be used on the job.

i. Methods of Training for Managerial Development / Executive Development:

A. Methods which aim at improving the Decision making Skills:

(i) Case Study Method

It is a written account seeking to describe an actual situation. Harvard Business School,

it aims at compelling the student to think actively, to analyse and sift evidence, to see beyond
the confines of his specialty and to communicate coherently.

(ii) Incident Method

Incident method has been introduced by Massachusetts Institute of Technology. This

method only presents a brief incident to provoke discussion in the class. The group then put
questions to the instructor to draw out of him the salient facts and additional information needed
to arrive at a reasonable solution or resolving of it.

(iii) In-basket Method

It is described as a dynamic training exercise simulating a real business situation. The

participants are divided into various teams which are placed in competition with each other in
resolving some problem information about which is supplied to all teams.
114

B. Methods which aim at Improving the Inter-Personal Skills of Executives

1. Sensitivity Training or Laboratory Training

This involves the use of a training –group, in which 10 to 15 persons are put into a face to
face situation. This group has no agenda, no established roles, no established norms of
performance. Members of the group are usually told that they can learn much about their own
behavior and that of others and about group behavior from continuous observation and analysis
of experience in the group.

2. Role Playing

In this method the instructor assigns parts taken from case materials to group members.
The role players attempt to act their parts as they would behave in a real life situation, working
without a script or memorized lines and improvising as they play the parts.

Role playing tends to be enjoyed by participants, it develops empathy and sensitivity in

them, it allows for their emotional release in a fairly harmless manner, it promotes insight and
emphasizes the importance of acceptability in decision – making.

3. Transactional Analysis

Introduced by Berne & further popularized by Harris and Jongewald. It provides an individual
with a practical and useful method for analysis and understanding of human behavior.

A transaction is nothing but a social intercourse between two or more people who encounter
each other. Analysis of any transaction can be done by analyzing the personality of an individual.

4. The Johari Window

This developed by Joseph Luft and Harry Ingham

 115

Open self: Willing to share his behavior, feelings and motives that he knows with others.
Both clear what he is doing, how he is doing and feeling and what his motives are.

Blind Self: Other People know what is happening to him but he is not aware of it.

Since, from his child hood.

Hidden Self: Individual knows to him but not known to others. He does not want to share
with others and learn to hide many feelings and ideas right from their childhood.

Unknown self: this part which is not known both to the individual and to others is called
‘Dark’. It can be reduced by special psycho-analysis techniques.

5. Building Emotional Intelligence

Many people are emotionally unintelligent i.e., they do not know how to handle their
emotions intelligently. This training brings or helping people in findings an intelligent balance of
their rational and emotional feelings. It is harmonizing head and heart.

6. Conference

Mutual problems from the subject of discussion in a conference. Participants pool their
ideas and experience in attempting to arrive at improved methods of dealing with these problems.
This method is most appropriate for the purpose of presenting new and sometimes complicated
material.

7. Autonomy Training

This training aims at developing the individual’s ability to manage his own training. It
involves leaving the trainee almost entirely on his own. First his workout what he would like to
learn, and then teach himself?

8. Training in International Culture and Etiquette

It makes an executive trans culture i.e. one can operate successfully in several culture.
He is taught to be low in ethno culture i.e. his predisposition to think that his home culture is the
best.
116

11.8 Impediments to Effective Training

1. Management commitments is lacking and uneven

2. Aggregate spending on training is inadequate

3. Educational Institutions Award Degrees but Graduates lack skills

4. Large-scale poaching of trained workers

5. No help to workers displaced because of downsizing

6. Employers and B-Schools must develop closer tipes

7. Organised labour can help

11.9 How to make Training Effective?

1. Ensures that the management commits itself to allocate major resources and
adequate time to training.

2. Ensures that training contributes to competitive strategies of the firm.

3. Ensures that a comprehensive and systematic approach to training exists, at all

levels on a continuous and ongoing basis.

4. Make learning one of the fundamental valves of the company

5. Ensure that there is proper linkage among organizational operational and individual
training needs.

6. Create a system to evaluate the effectiveness of training.

11.10 Summary
Training is a process of learning a sequence of programmed behavior. It is an application
of knowledge. It gives people an awareness of the rules and procedures to guide their behavior.
It attempts to improve their performance on the current job or prepare them for an intended job.
In simple terms, training and development refer to the imparting of specific skills, abilities and
knowledge to an employee. The differences between training and development are explained.
The purpose of training is listed out. The steps in training process are detailed. The techniques
of training are discussed.
 117

11.11 Keywords
Apprenticeship

Development

Education

Job Rotation

Training

11.12 Review Questions

1. Distinguish Training and Development

2. What are the steps in training process ?

3. Explain the methods of training.

4. What is Johari Window?

118

LESSON - 12
CAREER MANAGEMENT
Learning Objectives

After completing this lesson, you must be able to

 list out the characteristics of career planning

 explain the stages in career planning process

 describe the objectives of career planning

 discuss the advantages and limitations of career planning

Structure
12.1 Introduction

12.2 Characteristics

12.3 Objectives

12.4 Career Planning Terminology

12.5 Career Planning Process

12.6 Supporting Career Planning

12.7 Advantages of Career Planning

12.8 Limitations

12.9 Solution to Career Problems

12.10 Summary

12.11 Keywords

12.12 Review Questions

12.1 Introduction
A career is a sequence of positions or jobs held by a person during the course of his
working life. According to Flippo, “a career is a sequence of separate but related work activities
that provide continuity, order and meaning to a person’s life.”
 119

Career planning is the systematic process by which one selects career goals and the path
to these goals. From the organizations viewpoint, it means helping the employees to plan their
career in terms of their capacities within the context of organisation’s needs.

12.2 Characteristics
 Career planning is the process rather than an event.

 It is not an end in itself but an means.

 It is a continuous process.

 Career planning is individual’s responsibility.

 It is the responsibility of the organization to provide guidance and counseling to its

employee

 Integration of individual and organizational needs.

12.3 Objectives
 To attract and retain the right type of employees.

 To map out career of employees suitable to their ability.

 Better use of human resource.

 Stable workforce

 To utilize the managerial talent.

 Improve employee morale and motivation.

 To ensure that promising persons get experiences.

 To provide guidance and encourage employees.

 Higher productivity.

12.4 Career Planning Terminology

Wrether and Devishas defined various important terms in connection with career planning
as follows:
120

Career Goals

The future positions.

Career Path

The sequential pattern e.g. career path for various types of jobs

Ø junior clerk’!senior clerk’!assistant’!section officer’!head of the department

Ø Supervisor ’!assistant manager’! deputymanager’!manager’!general manager

Career Anchor

The basic drives are as follows:

§ Technical competence

§ Managerial competence

§ Security Autonomy

§ Creativity

§ Career development

Who is responsible for Career Planning ?

Career planning is individual’s responsibility. But it is the responsibility of the organization

to provide guidance and counseling to its employees in planning their careers and in developing
and utilizing their knowledge and skills.

12.5 Career Planning Process

Exploration

It’s a time of self exploration and an assessment of alternatives.

 121

Establishment

This stage includes being accepted by our peers, learning the job, and gaining tangible
evidence of success or failures in the real world.

Mid-Career

This is a time where one continues to improve one’s performance, level off, or begin to
deteriorate.

Late Career

For those who continue to grow through the mid-career stage, the late career stage usually
is a pleasant time when you are allowed the luxury to relax a bit and enjoy playing the part of the
elder statesman.

Process of Career Planning

 Identifying individual needs and aspirations.

 Analysing career opportunities.

 Identifying match and mismatch.

 Formulating and implementing strategies.

 Reviewing career plans.

Identifying Individual Needs and Aspirations

 Objective analysis of the hopes and aspirations.

 A human resource inventory of the organization is ascertained.

 Appraisal of employees is carried out .

 Such appraisal may reveal three categories of employees.

Analysing Career Opportunities

 Identify the career opportunities available within organisation.

 Analyze career demands in terms of knowledge, skill, experience, aptitude etc.

 Age balance.
122

Identifying Match and Mismatch

 For this purpose, specific jobs are related to different career opportunities.

 Helps to develop realistic career goals.

Formulating and Implementing Strategies

Strategies for dealing with mismatch are formulated and implemented.

Some of the strategies used are given below:

 Changes in the career system

 Changing employee needs and aspirations

 Seeking new basis for integration.

 Training and development.

Reviewing Career Plans

A periodic review of career plan is necessary

 To know whether the plans are contributing to effective utilization of human resources

 Indicate to employees in which direction the organization is moving

12.6 Supporting Career Planning

To realize the benefits, companies are supporting career planning through

 Career counseling

 Career education

 Career information

Career Counselling

Career planning may require advising and guiding employees in their possible career
paths and the direction in which they ought to be heading.Such advising and guiding is called
Career Counselling.

Career counseling involves:

 Employee self assessment

 Environmental assessment
 123

Career Education
 Employees are made aware of the need for and advantages of career planning.

 Workshops

 Seminar

 Career assistance program

Information about Career Planning

 Human resource information system(HRIS)

 Progression ladder

12.7 Advantages of Career Planning

 Career planning helps the employee know the career opportunities .

 Enables the employee to select the career most suitable to his potential and aptitude.

 Better image in the job market.

 Helps to retain hard-working and talented employees.

 Helps to improve morale and productivity.

 The organisation can identify the employee who can be promoted from within.

 Career planning anticipates the future vacancies.

 It facilitates expansion and growth of the enterprise.

12.8 Limitations
 It is not suitable for a very small organisation.
 Career plans for a period exceeding a decade may not be effective.
 It is not effective technique for a large number of employees
 Systematic career planning becomes difficult due to favoritism and nepotism in
promotions.
 Dual career opportunities:
 Low ceiling careers :some careers do not have much scope for advancement.
124

 Declining career opportunities: due to the influence of the technology or economic

factors.Solution for such a problem is career shift.
 The issues of life stages of the employee.

12.9 Solution to Career Problems

Employees can minimize the problem by

 Improving the dissemination of career information.

 Improving mechanisms for people to discover their own talents ,needs, and motives.

 Improving mechanism for career switching.

 Introducing necessary educational facilities.

The organisation can also minimise the problem by

 Improving human resource planning and forecasting systems

 Improving dissemination of career option information.

 Initiated career counseling.

 Developing effective internal and external assessment centre’s.

 Supporting educational and training programmes.

 Introducing more flexible reward and promotional systems.

12.10 Summary
Career Planning is a vital decision in Human Resource Management. The objectives and
characteristics of career planning are listed out. The stages in career planning process is
explained. Both advantages and limitations are also discussed .

12.11 Keywords
Career counselling

Career education

Establishment

Exploration
 125

12.12 Review Questions

1. What is career planning ? What are its characteristics?

2. List out the objectives of career planning.

3. Explain the process of career planning.

4. Discuss the advantages and limitations of career.

126

LESSON - 13
PERFORMANCE MANAGEMENT

Learning Objectives

After reading this lesson, you must be able to discuss

 traditional performance appraisal systems

 modern methods of performance appraisal

 the appraisal programme

 monitoring the effectiveness of the appraisal programme

Structure

13.1 Introduction

13.2 Traditional Performance Appraisal Systems

13.3 Modern Methods of Performance Appraisal

13.4 Management by Objectives

13.5 The Appraisal Programme

13.6 Monitoring the Effectiveness of the Appraisal Programme

13.7 Summary

13.8 Keywords

13.9 Review Questions

13.1 Introduction
Performance appraisal is the systematic assessment and evaluation of an individual or
employee’s work performance by the immediate superior. We will discuss both the traditional
as well as modern methods of perfo rmance appraisal system.
 127

13.2 Traditional Performance Appraisal Systems

The following are some of the important traditional performance appraisal systems:

1. Ranking
2. Person-to-person comparison
3. Grading
4. Graphic scales
5. Checklists
6. Forced-choice description
7. Behaviourally anchored rating scales
a. Expectations scales (BES)
b. Observation scales (BOS)
8. Essay description

We shall present briefly the rationale of each system and make some comparison of its
merit with those of other approaches.

1. Ranking: The oldest and simplest system of formal systematic rating is to compare one
person with all others for the purpose of placing them in a simple rank order of worth. In
doing this, the appraiser considers person and performance as an entity; no attempt is
made to systematically fractionise what is being appraised into component elements.

One of the objections to the ranking process is that we are asking the rater to perform an
impossible feat. The analysis of one person’s performance is not simple. Yet we are
asking the rater to compare several people simultaneously and turnout an accurate rank
order. Can the human mine handle all these variables at one time. To simplify this, the
paired comparison technique of ranking can be used. Each person can be compared with
every other person, one at a time. For example, suppose there are five employees.
Employee A’s performance is compared with B’s and a decision is made concerning whose
is the better performance. Then A is compared with C, D and E in order. The same approach
is used for the other personnel. Thus, the use of the paired comparison technique with
these five employees would mean a total of ten decisions, only two people being involved
in each decision. The number of decisions can be determined by the following formula.
128

N ( N  1)
Number of comparisons :
2

In this formula, N equals the number of personnel to be compared. The results of these
comparisons can be tabulated, and a rank created from the number of times each person
is considered to be superior.

2. Person-to-person-comparison: One of the first attempts to break the person’

performance apart and analyze its components was the person-to-person rating system,
used by the Army during World War I. Certain factors, such as leadership, initiative, and
dependability, were selected for purposes of analysis. A scale was designed for each
carefully defined factor. Instead of defining varying degrees of leadership. Particular people
were used to represent these degrees. The rated had to develop his or her own scale by
evaluating the leadership qualities of persons known in the past. The person who
demonstrated the highest degree of leadership was placed at the upper end of the scale
and particular other key people were assigned to the lowest and intervening degrees.
Thus a scale of persons was created for each selected factor.

This system of measurement is utilized today in job evaluation, being known as the “factor
comparison” system. Though it is highly useful in measuring jobs, it is of very limited use
in measuring people. The devising of scales would evidently be extremely complicated. If
each rater must use, for different degree definitions, particular people one has known the
ratings would not be comparable from one department to another.

3. Grading: In the grading system, certain categories of worth are established in advance
and carefully defined. For example, there may be three categories of personnel;
outstanding, satisfactory and unsatisfactory. Employee performance is then compared
with these grade definitions and the person is allocated to the grade that best describes
his or her performance. The employee can receive an O, S or U. There can, of course, be
more than three grades. This is the basic system of measurement that is used in the job
evaluation system, called “grade description”.

4. Graphic Scales: Perhaps the most commonly used traditional systematic method of
performance appraisal is that of establishing scale s for a number of fairly specific factors.
 129

It is an approach similar to that of the person-to-person system except that the degrees
on the factory scales are represented by definitions rather than by key people. Let us
consider the following example.

Performance factors Performance Rating

1. Quality of work

Unsatisfactory

Unsatisfactory

Unsatisfactory
(Accuracy skill,

Occasionally

Consistently

Consistently
Consistency

Sometimes
thoroughness,

Superior

Superior
neatness)

2. Dependability

requirements
Trustworthy
(follows
Supervision

Completely
supervision
Needs very
counted on
occasional

Ordinarily
follow-up
instructions,
Requires
Constant

can be
initiative, good
Needs

in job
little
safety habits,
punctuality and
attendance)

The rate can choose one of five degrees for each factor. The section of actors to be
measured is a crucial part of the graphic scale system. They are of two types:

1. Characteristics, such as initiative and dependability

2. Contributions, such as quantity and quality of work.

5. Checklists: To reduce the burden upon the appraisal a checklist system can be utilized.
The rater does not evaluate employee performance; it is merely reported. The evaluation
of the worth of reported behaviour is accomplished by the staff personnel department.

Example

Checklist for appraising Supervisors

Yes No

1. Does he or she usually volunteer good ideas? - -

2. Is a marked interest shown in the job? - -

130

3. Is consistent treatment meted out to all subordinates - -

4. Is equipment maintained in good condition?

5. Do subordinates show respect?

6. Are orders usually followed?

In this form a series of questions is presented concerning the subject employee and his
or her behaviour. The rater checks to indicate if the answer to a question about the employee
is yes or no. The value of each question may be weighted. The rater is not aware of the
specific values but can distinguish the positive questions from the negative and thus
introduce bias if desired.

One of the disadvantages of the checklist system is that it is difficult to assemble, analyze,
and weigh a number of statements about employee characteristics and contributions. In
addition, a separate listing of questions must be prepared for different types of jobs, since
those used for clerical positions cannot be used for management. The checklist approach
does have the advantage of requiring only a reporting of facts from the rater. One does
not have to distinguish among various degrees for each factor for each employee.

6. Forced-choice Description: One of the fundamental objectives of the forced-choice

approach is to reduce or eliminate the possibility of rater bias by forcing a choice between
descriptive statements of seemingly equal worth. For example, a pair such as the following
will be presented to the rater.

1. Gives good, clear instructions to subordinates

2. Cane be depended upon to complete any job assigned.

The rater is asked to select the one statement most characteristic of the ratee. The rater
is also forced to choose between statements that are seemingly equally unfavourable,
such as the following pair:

1. Makes promises that he or she knows cannot be kept

2. Shows favouritism toward some employees.

Only one of the statements in each pair is correct in identifying the better performance,
and this scoring key must be kept from the raters. There are certain primary disadvantage
 131

of the forced-choice system. First, it is difficult, if not possible, to keep the key secret.
Secondly, the system is a very poor one to use if employee development is to be
emphasized. Neither the rater nor the ratee can figure out from the form the desired
mode of behaviour, and in fact, if the form is shown to the ratee, he or she is usually
unable to accept it or the philosophy behind it. In addition, raters often object to being
forced to make decisions which they feel cannot or should not be made. Because of
these disadvantages, the use of forced-choice system is not widespread.

7. Behaviourally Anchored Rating Scales: There are tow types: (1) Behaviour Expectation
Scales (BES), where anchors are illustrations that help the rater to define as superior
average, or below average the behaviour of the employee and (2) Behaviour Observation
Scales (BOS), where the rater reports the frequency with which the employee engages in
the behaviour specified in the anchor.

Example

Behaviour observations Scales Waiter / Waitress

In completing this form, circle a 1 if the employee has exhibited this behaviour less than
50% of the time; a2 if 50 to 64% of the time; a3 if 65 to 79% of the time; a4 if 80 to 89% of the
time; and a5 if 90 to 100% of the time.

1. Uses the words “THANK YOU” and “PLEASE” when talking to customers Almost
never 1 2 3 4 5 Almost always

2. Smokes behind the customer

Almost never 1 2 3 4 5 Almost always

3. Stops talking to fellow employees as soon as a customer approaches.

Almost never 1 2 3 4 5 Almost always

4. Smiles when the customer asks for change

Almost never 1 2 3 4 5 Almost always

5. Complains about fellow employees within hearing distance of customers

Almost never 1 2 3 4 5 Almost always

132

8. Essay description: Perhaps in response to the complexities of rating scales and formats,
some organisations have reverted to simple essay descriptions of employee performance.
In one survey of 139 firms, the essay or discussion format was used by 47% of the
sample, ranking ahead of traditional graphic scales. One company asks the supervisor
to appraise over all performance as “marginal”, Component” or “excellent”, and then to
compose a narrative explaining this rating.

13.3 Modern Methods of Performance Appraisal

1. Assessment Centres

The concept of assessment centers was initially applied to military situations in the German
army in 1930s and the War Office Selection Board of the British army in 1960s. The basic purpose
of this method was to test candidates in a social situation, using a number of assessors and a
variety of procedures. From the army, this concept traveled to business field during 1960s. An
assessment center is a central location where managers come together and participate in a
number of simulated exercises, on the basis of which they are evaluated by a panel of raters. The
evaluation process goes through 2-3 days. The Task Force on Development of Assessment
Centre Standards has recommended that a technique can be considered as assessment center
only if it meets the following requirements.

1. Multiple assessment techniques must be used and at least one of these techniques must
be a simulation.

2. Multiple trained assessors must be used.

3. Judgements must be based on pooled information from all assessors.

4. Evaluation must be made at a time separate from the observation of behaviour.

5. Simulation exercises used in this method should first be tested for their reliability, validity
and objectivity.

6. The dimensions, attributes, characteristics, or qualities evaluated by the programme must

determined by an analysis of relevant job behaviour.
 133

Objectives of Assessment Centres

Burack and Smith have identified the following objectives of assessment centers:

1. To measure potential for first level supervision, upper management positions and
also higher level management positions.

2. To determine training and development needs of employees.

3. To select recent college students for entry level positions.

4. To provide more accurate human resource planning information

5. To make an early determination of potential.

6. To assist in implementing affirmative action goals.

2. 360- Degree Appraisal

Another method which can be used to appraise the performance of an employee is to use
360-degree appraisal. First developed and used in a more formal way by General Electric
Company of USA in 1992, this method has attracted attention of many more companies. In
India too, companies like Reliance Industries, Wipro Corporation, Infosys Technologies, Thermax,
Thomas Cook, etc., are using this method effectively. However, the concept of 360-degree
appraisal is now new. In many agricultural universities of India, this method has been in use
since 1980s in which a faculty member was appraised by himself, his head of department, his
students, and the farmers who came in contact with him. However, this method could not gather
momentum because of several technical problems.

360-degree appraisal is the process of systematically gathering data on person’s skills,

abilities and behaviours from a variety of sources – the manager, peers, subordinates and even
customers and clients. In 360-degree appraisal, appraisal of an employee is done by his superior,
his peers, his subordinates, and clients or outsiders with whom he interacts in the course of his
job performance. In 360-degree appraisal, besides appraising the performance of the assessee,
his other attributes such as talents, behaviour, values, and technical considerations are also
appraised. How appraisal information is collected from various sources in 360-degree appraisal
presented below:
134

Appraisal by Superior

In most of the traditional techniques, appraisal of an employee is done by the immediate

superior. In 360-degree appraisal, the superior appraises the employee on various dimensions
of the job as may be decided. There are three reasons why the immediate superior must appraise
the performance of his subordinate. First, he is more familiar with his subordinate’s performance.
Second, he understands more specifically where his particular subordinate lacks which may be
overcome by training and development. Third, because of the nature of authority relationship,
the superior is responsible for getting the things done which necessitates appraisal of his
subordinates. However, many biases are likely to emerge in his appraisal. Further, he may not
be aware fully about many behaviours of subordinates which may be important for appraisal.

Appraisal by Peers

Peers of an employee are in a better position to evaluate certain aspects of his behaviour.
Since the employee is more closely linked to his peers at the work place, they may be able to
appraise his contributions to the group efforts, interpersonal effectiveness, communications
skills, reliability, initiative, etc. However, in such an appraisal, biases are likely to emerge specially
if the appraisal results are used for deciding rewards. Further, appraisal may take the shape of
‘give and take’ in which there may be reciprocal appraisal, ‘you rate me good, I will do the same
for you’.

Appraisal by Subordinates

Subordinates can appraise their superior in terms of how he facilitates their working,
delegates authority, allocates work and resources, disseminates information, resolves
interpersonal conflicts and shows fairness to them. However how objective this appraisal is
depends on the liberty to which subordinates enjoy in appraising his superior.

Appraisal by Clients

An employee’s performance is evaluated by the clients who interact with the employee.
These clients may be suppliers of inputs or customers of outputs. These clients may rate the
employee in terms of his providing services to them, his cooperation, courtesy, dependability
and innovativeness. There are two problems which may emerge in this appraisal. First, there
 135

may be motivational problem in which clients may not be motivated to evaluate an employee
of the organization as they feel that this is not their responsibility. Second, the objectivity of
their evaluation is likely to be affected by how their own interest is served by the employee,
which may not reflect the true performance of the employee.

Role of HR Department in 360-degree Appraisal

The role of HR department in 360-degree appraisal is that of facilitator. The department

consolidates the appraisal inputs, identifies the points of consensus, and provides feedback to
the appraisee so as to overcome the weaknesses as identified in the appraisal. The presence
of a facilitator also acts as a buffer, preventing the appraise from attacking those who provide
hones inputs. 25 The department also devises action plans for overcoming those weaknesses.

Evaluation of 360-degree Appraisal

Table 13.1 Positive and negative aspects of 360-degree appraisal

Positive aspects Negative aspects

1. Greater Self-awareness of 1. The system may be utilized to

managers; reveals strengths and humilitate personnel.
weaknesses.
2. Response from colleagues may be
2. Reduced gab between self- biased.
assessment and colleagues’
assessment. 3. Linking rewards to appraisal may
turn to be unfair.
3. Teamwork thrives through peer
group assessment. 4. It ignores performances in terms
of reaching goals.
4. Facts about organizational culture
and ambience are brought to light. 5. The ratee may deny the true of
negative feedback.
5. Empowerment is facilitated.

6. Inflexible employees are forced to

initiate self-change.
136

The 360-degree appraisal is better as compared to many traditional techniques because

it examines an employee from different perspectives. Such an appraisal provides useful
information about him which can be used for developing him to overcome his deficiency. The
result can also be compared over the period of time for the same employee to find out whether
there has been any improvement in him. The 360 – degree feedback works best if the employee
concerned matches the data gathered with his own self-assessment.

However, 360-degree appraisal system is not free from limitations. Table presents the
possible positive and negative aspects of this system.

13.4 Management by Objectives

The process of management by objectives (MBO) revolves around the setting up of
organizational goals and the goals of various divisions and sub divisions. It is a never ending
process. The continuous nature of the process of MBO not only ensures sustained concentration
of efforts towards organisational objectives, but also helps in modifying objectives to suit the
changed situation. The steps in MBO are described below :

1. Setting of objectives : The first step while installing the system of ‘Management by
Objectives’ in an organization is to establish verifiable objectives for the organisation and
for various positions at various levels. In order to set objectives of the enterprises, a detailed
assessment has to be made of the various resources at its disposal. A market survey must
be conducted to know what types of goods and services are required by the community.
Proper forecasts should be made to estimate the demand and the business conditions in
the country. This detailed analysis would lead to highlighting of desirable objectives, both
long range and short range. An attempt should be made to set specific goals in various key
areas on which the survival and growth of the business depends. These are the objectives
which the top management will tend to achieve.
 137

Figure 13.1 Management by Objectives

The major activities of every enterprise are divided on some basis of departmentation.
The top management must determine the objective of every department. At this stage, the top
management should discuss the objectives with the departmental managers so that a statement
of agreed objectives may be evolved. Each department sets its both long range and short
range objectives with approval of top management. This process of setting objectives is repeated
at lower levels of management. At each level, objectives are set in verifiable units so that
performance of every department and individual may be reviewed after the end of a particular
period. Once this process is complete, there will exist a meeting of minds of each superior and
his subordinates as to what is to be accomplished and why it is to be accomplished.
138

2. Revision of organisation structure : When the goals for each individual are reset under
MBO, there is a considerable change in the job description of various positions. This may
call for a revision of the existing oganisation structure. The organisation charts and manuals
should be suitably amended to depict the change brought by the introduction of mangement
by objectives. The job descriptions of various jobs must define their objectives,
responsibilities and authority. They must clearly lay down the relationship with other job
positions in the organisation.

3. Establishing check points : Management by objectives ensures periodic meetings

between the superior and the subordinate to review the progress towards the
accomplishment of targets of the subordinate. For this, the superior must establish check
points or standards of performance for evaluating the progress of the subordinate. The
standards should be defined quantitatively as far as possible and the subordinate must
understand them fully. This practice should be followed by every superior for each of his
subordinates and it should lead to key result analysis as targets or goals are represented
in terms of results. The key result analysis should be reduced into writing. It should contain
the following information :

1. The overall objectives of the job of the subordinate.

2. The key results he must achieve to fulfill his objectives.

3. The long-term and short-term priorities of tasks he must adhere to.

4. The scope and extent of assistance he may expect from his superior and related
departmental managers and the assistance he must extend to other departments.

5. The nature of information and reports he will receive to carry out self evaluation.

6. The standards by which his performance shall be evaluated.

4. Appraisal of performance : While informal performance appraisal of a subordinate is

done by his immediate superior almost everyday, formal appraisal at periodic intervals, usually
once or twice a year, does ensure that a through evaluation of a manager’s performance is
done and his achievements are carefully analysed against the background of prevailing
circumstances and given objectives. The design and format of the performance review form will
depend on the nature of the enterprise.

The important benefit of MBO is that it does away with the judgmental role of the supervisor.
The performance of every individual is evaluated in terms of the standards or end results clearly
 139

agreed to by the superior and the subordinate. Wherever MBO has been introduced, it has led
to greater satisfaction, more agreement, greater comfort and less tension and hostility between
th superiors and the subordinates. Under MBO, the superior does not evaluate the individual
concerned but his performance in terms of the standards set in advance. Moreover, the
performance review is aimed to assist the subordinate to improve his performance in the future.
It also helps in setting goals for the next period.

Limitations of MBO

The limitations which make the implementation of MBO difficult are as follows :

1. Poor planning : One of the major weaknesses often seen in MBO is poor planning of
the programme prior to implementation. Implementors must be well trained. They must know
how to involve all levels of management and obtain their support.

2. Lack of training : There is generally lack of training and knowledge on the part of the
supervisor in implementing the programme. Many are prone to sit down with the subordinate,
dictate the goals and targets with no input permitted from the subordinate, and then demand
they be met in a specified time. Whether they are realistic goals or not does not enter the
picture. No consideration is given to any outside factors over which the subordinate has no
control or influence. In this type of environment, there can’t be two-way communication because
of the outer-imposed objective. This stab at MBO will destroy morale, initiative and goods results
faster than anything else in the enterprise.

3. Lack of follow-up : Lack of follow-up by the superior at the appropriate time is another
hurdle in the successful implementation of MBO. In practice, superiors have many things to do.
It is most easy to procrastinate. The superior must get with the subordinate at the appropriate
time. The subordinate is prepared to tell the boss exactly what has been accomplished and
how. If the superior delays the meeting, the subordinate will think this is just one of the those
mangement programmes that everyone got so hepped up over and has now gone down the
drain. Job effort probably will be relaxed since the superior does not appear to attach much
importance to a review of results. Needless to say, this may affect his prformance in a negative
way.

4. Inflexibility : Management by objectives may tend to introduce inflexibility in the

organisation. Since goals are set after every six months or one year, the superior may not like
140

to modify them in between because of fear of resistance from the subordinate. There may arise
a need to revise the goals at lower levels to achieve the long range objectives of the enterprise.
The manager must handle such a situation properly. Some managers give more emphasis on
goal setting. But they should remember that they are also to perform other functions of
managemen like organising, directing and control.

13.5 The Appraisal Programme

More important than the rating form or method is the quality of the rater. Certainly adequate
time and attention must be given to the Selection and design of a rating system, but even more
time and effort must be expended in deciding such questions as who is to rate, how he or she
should be trained, and now the accuracy of the ratings can be maintained.

Who is to Rate?

In most situations, the rater is the immediate superior of the person to be rated. Because
of frequent contact he or she is most familiar with the employee’s work. Supervisor ratings are
often reviewed and approved by higher management, thereby maintaining hierarchical control
over the appraisal process.

When to Rate?

The most frequent rating schedules are semiannual and annual. New employees are
rated more frequently than older ones. The practice of one insurance company calls for ratings

(1) annually on the employee’s anniversary date,

(2) after first 6 months of employment

(3) upon promotion or with 3 months after promotion

(4) when the job occupied has been reevaluated upward (5) upon special request, as
when the employee’s termination.

Training of the Rater

The initial training of raters must incorporate complete explanations of the philosophy
and nature of the rating system. Factors and factor scales, if any, must be thoroughly defined,
analyzed and discussed in conference sessions. Though training should be positive in nature,
it has been found advisable to stress certain negative aspects of the rating process and to warn
the raters about the more common errors of traditional rating in order that they may be on guard
against them. Among these errors are:
 141

1. The halo error

2. The Central tendency
3. Constant errors
a. too harsh
b. too easy
4. Miscellaneous errors
a. similar-to-me
b. contract
c. position
d. biases of sex, race, religion and
nationality.

The halo error takes place when the rater allows one aspect of a person’s character or
performance to influence the entire evaluation. No person is likely to be either perfectly good or
perfectly bad; one is generally better in some areas than in others. The best correction for the
halo error is education.

The central tendency error is evidenced when the rater marks all or almost all personnel
as average. There are “easy” raters and “tough” raters in all phases of life. There are teachers
who rarely award A’s and those who give them most of the class. These errors are known as
constant or systematic errors.

Because of the complexity of evaluating another human’s performance, there are a number
of miscellaneous errors to guard against. The “similar-to-me” mistake is a tendency for the rater
to judge more favourably those who appear to be similar to herself or himself. Unless corrected,
individuality and creativity may ultimately be eliminated. Contrast errors occur in the sequency
of ratings. If superior performers are rated first, average performers are likely to be rated down;
if poorer performers come first, the average performer will be rated more highly. There is also a
tendency to rate the occupant of a higher position more favourably than one in a lower position.
One must constantly emphasize the absolute necessity of guarding against prejudice and bias.
Finally, the supervisor must be trained to conduct the periodic appraisal interview.
142

13.6 Monitoring the Effectiveness of the Appraisal

Programme
Maintaining surveillance over the systematic appraisal programme is usually a job for a
staff personnel department. Systematic performance appraisal must be reliable, which means
that it must be accurate and consistent. The reliability of a rating system can be obtained by
comparing the ratings of two individuals for the same person. It can also be obtained by comparing
is the supervisor’s rating given now with another rating in the future, allowing for possible changes
that can be justified by facts. Ordinarily, the performance appraisal reliabilities, when determined,
range from 0.60 to 0.80.

Validity is concerned with the truthfulness of the measurement results. How can we be
sure that the ratings obtained are true and representative of the rate? Since reliability is a
prerequisite to validity ratings can be checked against certain objective evidence such as
production quantities, quality, and absenteeism. Sometimes validity is determined by comparing
the results of one system with those of another.

The ratings must be made by the immediate superiors of the ratees, but a staff department
can assume the responsibility of monitoring the system. The personal department should not
change any ratings. They do have the obligation to point out certain inconsistencies to the rater,
such as harshness, leniency, central tendency and inconsistencies.

13.7 Summary
The vaious traditional as well as modern methods of performance appraisal have been
discussed in this lesson. It deals with organising the appraisal programme effectively, identifying
the errors in the appraisal system and suggesting suitable measures to overcome the limitations.

13.8 Keywords
Checklist

Grading

Graphic Scale

Ranking

360 degree Appraisal

 143

13.9 Review Questions

1. Discuss the traditional methods or performance appraisal with their relative merits
and demerits.

2. Explain the features of 3600 performance appraisal system.

3. Explain the modern methods of performance appraisal. What are their merits and
limitations?

4. What are the errors in performance appraisal? How to make the appraisal system
more effective and transparent?
144

LESSON - 14
WAGE AND SALARY ADMINISTRATION

Learning Objectives

After reading this lesson, you must be able to discuss

 the concepts of wage and salary

 the wage determination process

 the factors affecting wage and salary administration

 principles of wage and salary administration

 the different methods of wage payment

Structure

14.1 Introduction

14.2 Wage Vs Salary

14.3 Wage Determination Process

14.4 Factors influencing Wage and Salary Structure

14.5 Principles of Wage and Salary Administration

14.6 Methods of Wage Payment

14.7 Summary

14.8 Keywords

14.9 Review Questions

14.1 Introduction
The basic purpose of wage and salary administration is to establish and maintain an
equitable wage and salary structure. Its secondary objective is the establishment and
maintenance of a n equitable labour – cost structure i.e. an optical balancing of conflicting
personnel interests so that the satisfaction of employees and employers is maximized and
conflicts minimized. The wage and salary administration is concerned with the financial aspects
of needs, motivation, and rewards.
 145

14.2 Wage Vs Salary

A “Wage” is the remuneration paid, for the service of labour in production, periodically to

an employee / worker. “Wages” usually refer to the hourly rate paid to such groups as production
and maintenance employees (“blue – collar workers”). On the other hand, ‘Salary’ normally

refers to the weekly or monthly rates paid to clerical, administrative and professional employees

(“white – collar workers”).

14.3 Wage Determination Process

The wage determination process is illustrated in the following diagram

Figure 9.1 Wage Determination Process

Job Wage
Analysis Legislation

Wage Surveys Wage

Job Job Analysis of Structure
Description & Relevant
Evaluation
Specification Organizational
Problems
Rules of
Administration

Performance Differential
Standards Employee
Appraisal

14.4 Factors influencing Wages and Salary Structure

1. The Organization’s Ability to pay: Companies that have good sales and, therefore,
high profits tend to pay higher wages than those which are incurring losses or earning low
profits because of the high cost of production or low sales. In the short – run, the economic
influence on the ability to pay is practically nil. All employers, irrespective of their profits or
losses, must pay no less than their competitors if they with to attract and keep workers. In the
long – run, the ability to pay is very important.
146

2. Supply and Demand for Labour: If the demand for labour is greater than the supply
of labour in the economy, wages will rise; but if the supply of labour is greater than the demand
for labour, the wages will be relatively low. This is because of the fact that people are willing to
work for low wages. If the supply of labour is equal to the demand for labour. The economy is
in fill – employment equilibrium. Full – employment equilibrium foes not represent 100%
employment level in the economy,. It includes voluntary unemployment. Certain sections of the
society remain voluntarily unemployed. But this condition is not a reality.

3. Prevailing Market Rate: This is also known as the “Comparable Wage” or “Going
wage rate”, and is the most widely used criterion. An organization’s compensation policies
generally tend to conform to the wage – rates payable by the industry and the community. This
is done by keeping in view the competition in the labour market and various labour legislations
and judicial decisions that require the adoption of uniform wage rates.

4. The Cost of Living: This criterion calls for pay adjustments based on increases or
decreases in an acceptable cost of living index. When the cost of living increases, workers and
trade unions demand adjusted wages to offset the erosion of real wages. However, living costs
are stable or declining, the management does not resort to this argument as a reason for wage
reductions.

5. The Living Wage: It means that wages paid should be adequate to enable an employee
to maintain himself and his family at a reasonable level of existence. However, employers do
not generally favour using the concept of a living wage as a guide to wage determination
because they prefer to base the wages of an employee on his contribution rather than on his
need.

6. Productivity: Productivity is another criterion, and is measured in terms of output per

man – hour. It is not due to labour efforts alone. Actually, productivity measures the contribution
of all the resource factors – men, machines, methods, materials, and management. No
productivity index can be devised which will measure only the productivity of a specific factor of
production. Another problem is that productivity can be measured at several levels – job, plant,
industry or national, economic level. Thus, although theoretically it is a sound compensation
criterion, operationally many problems and complications arise because of definitional
measurement and conceptual issues.
 147

7. Trade Union’s Bargaining power: Trade unions do affect rate of wages. Generally,
the stronger and more powerful the trade union, the higher the wages. A trade union’s bargaining
power is often measured in terms of its membership its financial strength and the nature of its
leadership. Strike is the most powerful weapon used by it.

8. Job Requirement: Generally, the more difficult and complex a job, the higher the
wages. The complexity of a job is measured on the basis of skill, effort, responsibility and
working conditions required.

9. Managerial attitudes: Theses have a decisive influence on the wage structure and
wage levels since judgment is exercised in many areas of wage and salary administration
including whether the firm should pay below, average, or above average rates, what job factors
should be used to reflect job worth, the weight to be given for performance or length of service
and so on. These matters require the approval of top executives. Lester observes, “Top
management desire to maintain or enhance the company’s prestige has been a major factor in
the wage policy of a number of firms. Desires to improve or maintain morale, to attract high –
caliber employees, to reduce turnover, and to provide a high living standard for employee as
possible also appear to be factors in management’s wage – policy decisions”.

10. Psychological and social factors: Psychological, persons perceive the level of wages
as a measure of success in life. People may feel secured, have an inferiority complex, seem
inadequate or feel the reverse of all these. They may or may not take pride in their work, or in
the wages they get. Therefore, these things should not be overlooked by the management in
establishing wage rates. Sociologically and ethically, people feel that “equal work should carry
equal wages”, that “Wages should be commensurate with their efforts”, that “they are not
exploited, and that no distinction is made on the basis of caste, colour, sex or religion”. To
satisfy the conditions of equity, fairness and justice, the management should take these factors
into considerations.

14.5 Principles of Wage and Salary Administration

The generally accepted principles governing the fixation of wages and salary are:

1. There should be a definite plan to ensure that differences in pay for jobs are based
upon variations in job requirements, such as skill, effort, responsibility and working
conditions.
148

2. The general level of wages and salaries should be reasonably in line with that
prevailing in the labour market.

3. The plan should carefully distinguish between jobs and employees.

4. There should be equal pay for equal work.

5. An equitable practice should be followed for the recognition of individual differences

in ability and contribution.

6. There should be a clearly established procedure for hearing and adjusting wage
complaints.

7. The employees and the trade union, if there is one, should be informed about the
procedure used to establish wage rates.

8. The wage should be sufficient to ensure for the worker and his family reasonable
standard of living.

9. The wage and salary structure should be flexible so that changing conditions can
be easily met.

10. Prompt and correct payments of the dues of the employees must be ensured and
arrears of payment should not accumulate.

11. Wage committees should be set up for revision of wages at periodic intervals.

12. The wage and salary payments must fulfill a wide variety of human needs, including
the need for self – actualization.

14.6 Methods of Wage Payment

I. Time or Day Wage System

Under this system, the worker is paid a certain sum for a fixed period of time that is, so
much per hour or day or month. The main advantages claimed for this system are the following:

1. It is simple in calculation.

2. The worker does not rush the job and spoil the quality through a temptation of earning
more.
 149

The following are however the drawbacks of this system

1. The worker being assured of a fixed payment for the time spent in not tempted to work
harder or more productivity, as he is not rewarded for the extra effort.

2. The superior workman often tries to protect his slower colleagues by slacking off himself.

3. The superior worker is discouraged as, although he is more productive, he is paid the
same amount. He therefore slackens off over a period of time.

II. The Piece – wage system

In this system, the worker is paid a fixed rate per unit produced or job completed. The
rate in normally developed on the basis of analysis of previous performance and establishment
average performance of a particular standard of workmanship

The following are some of the advantages claimed for this system

1. As the worker is paid more when he produces more, he is inclined to put forth his best
efforts. This results in increased productivity, which benefits both the employer and the
employee.

2. The employee helps management in avoiding delays through breakdowns and ensuring
the receipt of the proper quality of raw material as his own performance and ultimate
payments are likely to decline by reason of the operation of such factors.

3. This results in less supervision being required as the chances of the worker goofing off
are very less.

However, the following are some of the disadvantages of this system.

1. In this effort to produce more, the worker may disregard the spoiling of his tools and
machinery used by him for the production.

2. If he is paid merely on the basis of the number of units produced without regard to quality,
the quality of production is.

3. Particularly in the Indian context, once the worker has earned enough through this method,
he may be inclined to remain absent and take a holiday because of his savings.

4. This system may result in excessive fatigue as the employee tries to work his hardest and
at his maximum speed to earn as much as he can.
150

III. The Premium Bonus Method

Under this method, besides, being guaranteed a minimum wage based on a certain time
occupied by him, the employee is promised an extra reward in case the output during that time
period exceeds the standard prescribed. The amount so paid is either a fixed sum or is in
proportion to the actual extra output produced. There are a number of premium bonus plans.
But, all such plans have as their objective the speeding up of production. They constitute a
combination of the time wage and piece – wage systems: except that bonus or premium is
calculated in-terms of hours saved. The most popular of these systems will not be explained.

1. Halsey Premium Plan: Under this method, a standard output is fixed based on an average
workers’ result of past efforts. Every worker who produces this output within the prescribed
time is rewarded according to the time actually saved. This system thus encourages
every worker to try his best to earn the premium. The formula for the Halsey Scheme
may be written as:

Earning = time Wage + ½ W (S – T)

Where ‘W’ is the hourly wage – rate, ‘S’ the ‘Standard Time’ and ‘T’ the actual time taken
for the job or the standard output.

2. Rowan Scheme: In another time – bonus scheme known as ‘Rowan Scheme’, the
bonus, instead of being calculated on the basis of the value of the time saved, is estimated
on the basis of the ratio of the time saved to the standard time. Expressed in a formula,
the scheme may be presented as follows:

Earnings: Time Wage + W.T. (S – T /S)

Where the notations are the same as those given in the Halsey scheme

3. Taylor Differential Piece – Wage system: Under this system, a standard of work is
prescribed. A first class worker is expected to produce to finish this within a certain time.
Where the worker completes the work in this time, he is given rapid promotion. If he fails
in that attempt, his wages are proportionately cut. The daily task is here clearly laid down
for each worker and this standard is arrived at after care and deliberation. Thus, under
Taylor’s plan, the standard of output is fixed per hour or per day and two-piece – wage
 151

rates are prescribed. Workers who exceed the standard or attain it are paid at the higher
rate.

Those, whose output is less, receive the lower rate. The main object of this system seems
to be to encourage the best class of worker as against inducing workers of a lower caliber to
improve themselves. This system’s unpopularity is because of the severe penalty levied on the
worker who produces less than the standard output. Insecurity is caused for the workers, as
the system does not prescribe any basic guaranteed time – wage.

4. Emerson Efficiency system: In this system, the worker is allowed a certain time within
which he is required to complete his job or perform the operation involved. He is considered
100% efficient if he completes the job or operation within the prescribed time and is paid
a bonus of a certain percentage. If the worker takes longer than the prescribed time, he
receives a lower percentage as bonus in accordance with a graduated scale. Where the
worker takes more than 50% longer than the prescribed time, he is paid no bonus. However,
under this system, the worker’s daily wage is guaranteed.

5. The Gantt System: This system is similar to the Emerson system as there is a guaranteed
daily rate. However, here, there is no graduated scale and the worker receives his bonus
only if he attains the required standard of efficiency. The foreman is also given a bonus
under this system where the worker attains the required standard of efficiency. In this way,
friction between the worker and his foreman is sought to be eliminated. However, no bonus
is paid to a worker whose efficiency is less than 100%.

14.7 Summary

This lesson discusses the factors influencing wage and salary administration, principles
and various methods of wage payment. The wage determination process is also explained for
better understanding of the students.
152

14.8 Keywords

Cost of living

Day wage system

Productivity

Rowan Scheme

Salary

Wages

14.9 Review Questions

1. Distinguish between wage and salary.

2. Discuss the various factors influencing wage and salary structure.

3. State the principles of wage and salary administration.

4. Discuss the different methods of wage payment with their relative merits and
demerits.
 153

LESSON - 15
REWARD SYSTEM

Learning Objectives

After reading this lesson, you must be able to discuss

 the concept of Dearness Allowance

 the concept of Bonus and Profit sharing

 fringe benefit schemes

 employees stock option scheme

 financial and non-financial rewards

Structure

15.1 Introduction

15.2 Definition

15.3 Dearness Allowance

15.4 Bonus and Profit Sharing

15.5 Fringe Benefits

15.6 Employees Stock Option Scheme

15.7 Financial and Non-financial Rewards

15.8 Summary

15.9 Keywords

15.10 Review Questions

15.1 Introduction
Reward system is an essential element of compensation management. It is aimed at
motivating the employees for better performance. It consists of fringe benefits, perquisites,
executive compensation, financial and non-financial rewards. These aspects have been
discussed henceforth.
154

15.2 Definition
Rewards have been classified as monetary and non-monetary rewards, statutory and
non-statutory rewards, intrinsic and extrinsic rewards etc.,

15.3 Dearness Allowance

The system of payment of DA arose after War as a result of the steep rise in prices of
essential commodities like foodstuffs. In order to neutralize the high cost of living, a special
allowance was given, called Variously, and including the term, ‘Dear food allowance’. The DA
was to protect the wage earners’ real wage by neutralizing the increased cost of living the First
World. Therefore, the intent of DA was to give relief to the workers in inflationary conditions, by
trying to offset the cost of living with an additional allowance. Various methods are used for
linking DA with the cost of living index (e.g. the consumer prices index (CPI).

There are two systems of neutralization: the flat rate system of neutralization and the
escalating system linked to movement of consumer price index (CPI) numbers. The flat rate
system provides a lump sum payment to workers over a period of time to adjust for the growth
in inflation. This system is simple, easy to calculate and helps the management with its cash
flow planning. The rate of DA is related to the salary slabs, which is linked to a certain consumer
price index. Another variation is to fix DA as a percentage of a basic salary slab (e.g. if the basis
salary of a lecturer is Rs.8000 per month, the DA will be 74%).

However, with the rate of inflation increasing significantly, the workers wanted a more
immediate relief. Therefore, the systems of fluctuating DA come into being.

In such as system, an index such as the consumer price index (CPI) which is related to
the cost of basic necessities of living, forms. The basis of fixing the DA. The points of
neutralization are determined according to the fluctuations in the CPI. The main advantage of
the fluctuating DA concept is that it serves the basic purpose of neutralizing the increased cost
of living. There are number of practices followed by firms in the matter. The correlation between
the increase in the number of points of the index and the quantum of money is a variable that
has to be settled. Generally, the trend has been to estate it to slabs of pay so that the lower
slabs get a higher weightage and the higher slabs get a lower weightage.

Dearness allowance is also related to the ability to pay on the part of an industry. Both the
tribunals and the Supreme Court took into account a firm’s ability to pay, not only in terms of
basic wage, but also in terms of DA and the extent of neutralization. On the question of
 155

neutralization the unions wanted 100% neutralization while the employer would have liked to
vary that amount. On this the Supreme Court ruled that “dearness allowance must always be
on a sliding scale providing for an increase in the rate when the cost of living rises and decrease
when the cost of living false”.

15.4 Bonus and Profit Sharing

Bonus is any payment over and above the due remuneration to the employees. In practice,
the concept of bonus has got different meanings. It may be a payment as incentive for regular
attendance, for high output, for higher quality or for special services rendered by employees. It
may be a share in the profit which labour may consider as a right for industrial co-partnership.
It may be just a deferred wage payable to the employees. It may be an additional payment
depending on the management’s goodwill and not as a firth claimed by labour to share in the
profits.

The payment of annual bonus based on the profits has become very popular among the
industrial and commercial establishments. Incentive bonus based on productivity is emphasized
by the Government. The concept of bonus as a form of profit – sharing is not controversial. But
as a form of deferred wages, it is objected to by employers. As an ex-gratia payment at the
goodwill of management, it is objected to by labour organizations. Labour always prefers to
recognize bonus as deferred wages payable by a firm whether it is running in profit or loss.

The bonus commission advocated the payment of bonus as a share in the profits of the
company payable to workers. Payment of Bonus act, 1965, prescribed the formula for payment
of bonus to the employees. However, the term ‘bonus’ has not been defined in the Act. But it
has got a specific meaning, i.e., Profit – sharing bonus.

The workers and trade unions are not satisfied with the legal provisions of the payment of
Bonus Act, They demand bonus as deferred wage payments not dependent on the company’s
profitability. Employers are also dissatisfied as employees share only the profits and not the
losses. That is why bonus linked with productivity is suggested to reduce disputes between
workers and management over the issue of payment of bonus. It is more logical and satisfactory
to all other bonus plans. Productivity linked bonus has been implemented by the central
Government in its commercial and industrial establishments with good success. It is also gaining
wide acceptance by the private sector enterprises.
156

15.5 Fringe Benefits

These benefits are sometimes called “indirect benefits”. They are supplementary
compensation made in addition to wages to stimulate the interest of the workers and to make
the job more attractive and conducive. They are a substantial part of the wage and salary
structure. Broadly speaking, Belcher describes these benefits as “any wage cost not directly
connected with employees productive effort, performance, service or sacrifices”. Though these
benefits are not direct payment for productive effort, they are intended to act as incentives to
increase productive effort.

Cockman defines employee benefits as “those benefits supplied by an employer, to or

for, the benefit of an employee which are not in the form of wages, salaries and time – related
payments”. He divides benefits into two basic types: 1. Fringe benefits which include status
(Cars, entertainment facilities, holidays, foreign travel telephone), Security (insurance, medical
facilities, children’s education) and work benefits (office accommodation, secretarial services,
management training, company scholarships, etc) (2). Key benefits such as share schemes
profit sharing, retirement counseling and house purchase.

In India, we would look at fringe benefits as being of the statutory and non – statutory
types. Included in the former are the Employee provident fund scheme, Gratuity, or Pension
schemes, and Employees State Insurance Scheme (ESI)

The voluntary benefits provided are payment towards EPF Scheme not covered by
statutory requirements as also gratuity and pension fund contribution, medical facilities canteens,
uniforms, and recreational facilities.

Profit and other kinds of bonus, such as attendance bonus, service bonus are another
kind of fringe benefit. The other fringe benefits that are being provided, especially as a long –
term consideration, are loans for house purchases and for the education of children, leave
travel concession, fair price shops for essential commodities and loans to buy personal transport.

15.6 Employees Stock Option Scheme

Employee stock ownership plans had their beginning in the U.S.A. around 1910. But the
Great Depression of the 1930s offered a severe blow to those plans and most companies
discontinued the practice. After recovery, stock option plans in different forms were reintroduced
 157

in the U.S.A. and are quite popular these days. But in India, Employee Stock Option plans are
not popular as the Companies Act did not have any provision for the constitution of such plans.
It was in 1998 that the Government allowed the launching of stock option plans by the software
companies.

Employee stock option plans are basically for the executives. Under stock option plan,
the eligible executives are allotted company’s shares (known as sweat equity) below the market
price. They stand to gain if the performance of the company over the years is good and the
market value of the shares goes up. The companies which offer such a plan are able to attract
talented executives and also hold them over a long time. The executives who are offered shares
under the employee Stock Option Plan (ESOP) feel committed to the company and work for the
growth of the company. Because of possibility of gains in future, their motivational level is also
increased. But if the market value of the shares goes down due to political uncertainty, general
economic depression or some other reason, the employees holding shares under ESOP will be
the losers. It is because of this reason that many executives don’t prefer the Employee Stock
Option Plan as an incentive plan.

According to Edwin B. Flippo, “The typical employee ownership or stock option plan
provides a mechanism through which certain eligible employees many purchase the stock of
the company at a reduced rate. Eligibility is usually determined by wage level or length of
service or both. Though a few firms offer the stock at the market rate, most cut the price by 10
to 20 percent. The second typical feature is that provision is made for instalment buying. The
employee authorises a payroll deduction every month. Another feature of some plans is the
granting of a stock option - a right to purchase a certain amount of stock in the future at a stated
price. The stock option feature is more widely used in executive compensation plans than it is
with the rank and file or operative employees.

Features of Employee Stock Option Plan

1. Employee stock option plan is voluntary in nature.

2. It offers an option to purchase a certain amount of stock or shares in the future at a stated
price or in the present at a price lower than th market price.

3. It is intended to procure and hold talented professional employees.

158

4. It makes the employee a part-owner of the company where he is working.

5. Mutuality of interest is created between the individual and the company.

6. Stocks are held in trust until employee chooses to withdraw from the plan or leave the
company.

The Securities and Exchange Board of India (SEBI) guidelines for Disclosure and Investor
Protection explains the ESOS is a voluntary scheme on the part of the company to encourage
employees participation in the company. A suitable percentage or reservation can be made by
the issue for the employees of his company. However, under the existing guidelines, 5% of the
new issue may be reserved for ESOS subject to a maximum limit of 200 shares per employee.
Further, the membership of ESOS should be restricted only to the permanent employees of the
company.

Merits of Employee Stock Option

The advantages of employee stock option are as under :

1. It promotes mutuality of interest between the employees and the employer. The employees
is encouraged to consider the view point of a shareholder. He is also led to read company
literature such as operating results, balance sheet and annual report sent to him as a
shareholder which he would have probably ignored as an employee.

2. The employees get an opportunity to attend the meetings of the shareholders and have
detailed information about the progress and future plans of the company.

3. It promotes thrift, efficiency and security on the part of employees. The employees feel
that they are not merely servants but masters also. The stake in company profit and loss
is a great motivating force towards increased efficiency.

4. Worker’s income is supplemented by dividends. In the beginning, it may not be very

alluring but when some more shares are acquired by a worker out of the dividends received,
his interest goes on increasing.

5. The management also gains because of better cooperation, lesse supervision, reduced
labour turnover, improved industrial relations, better understanding on the part of workers,
elimination of waste and enhancement of efficiency.
 159

The limitations of the scheme are

i. This scheme can be used by the profit – making companies

ii. Share prices do not always reflect fundamentals

iii. Falling share prices result in loss to employees

iv. Unsound stock market conditions cause inconveniences to employees in encashing their
investment.

v. Lack of transparency can earn accusations of favoritism.

15.7 Financial and Non - Financial Rewards

Financial Rewards
1. Basic pay

2. Dearness Allowance (DA)

3. House Rent Allowance (HRA)

4. City Compensatory Allowance (CCA)

5. Overtime Allowance (OT)

6. Leave Travel Concession (LTC)

7. Incentive Plans (Piece rates, Bonus or Profit sharing)

8. Medical benefits

9. Provident Fund

10. Gratuity

11. Pension Fund

12. Group – linked insurance scheme

13. Accident and death compensation while on duty

14. ESI benefits

15. Leave with pay

16. Education allowances

160

Non - Financial Rewards

The following table summaries some of the major categories of non – financial rewards.
Even though these are considered non – financial, they may still cost the organization.

Table 15.1 Categories of Non – Financial Rewards

Consumables Manipulatables Visual and Tokens Social Job Design

Auditory Rewards
Rewards
Coffee – Desk Office with a Early time Friendly Jobs with
break treats Accessories window off with pay greetings more
Free Lunches Wall plaques Piped – in Informal responsibility
Stocks
recognition
Food Baskets Company Car music Job rotation
Stock
Festival Watches Redecoration Formal
options Special
turkeys Trophies of work acknowledge
assignments
Dinners for Commendations environment Movie -ment of
passes achievement Cross -
the family on Rings/tie pins Company
the company Appliances and literature Trading Solicitation of training

Company furniture for the Private stamps suggestions Knowledge

Picnics home office Solicitation of training
Paid-up
After – work Home shop tools advice
Popular insurance Authority to
wine and Garden tools Compliment schedule own
speakers or policies
cheese Clothing on work
lecturers work
Dinner and
parties Club privileges progress
Book club theatre Flexible hours
Use of company Recognition
discussions tickets
recreation in house Flexible
facilities Vacation organ. breaks
Use of company trips Pat on the Job sharing
convenience Coupons back
Participation
center redeemable Smile
in discussions
Use of company at local Verbal or non
facilities for Participation
stores – verbal
personal in teams
recognition or
projects praise
 161

15.8 Summary
In this lesson the different types of reward system prevalent in the industries have been
discussed in detail inorder to enable the students to understand the working and applicability
such reward systems in the organisations. In additions, the students will gain knowledge about
latest practices in modern organisations.

15.9 Keywords
Bonus

Dearness allowances

Gratuity

House rent allowances

Overtime allowances

Pension

15.10 Review Questions

1. How is DA calculated?

2. Distinguish between statutory and non-statutory fringe benefits.

3. Explain the concept of bonus and profit sharing.

4. What do you mean by employees stock option scheme?

5. Classify and illustrate the various financial and non-financial rewards.

162

Model Question Paper

MBA Degree Examination
Second Year – Third Semester
Paper - XI
HUMAN RESOURCE MANAGEMENT
Time : 3 Hours Maximum : 80 Marks

SECTION - A

Answer any TEN out of TWELVE Questions (10 x 2 = 20 Marks)

1. Define Human Resource Management.

2. What is recruitment ?

3. What is selection ?

4. What is induction ?

5. What are Wages ?

6. What is promotion ?

7. What are rewards ?

8. What is Human Factor ?

9. What is Man Power Planning ?

10. What is demotion ?

11. What is Job separation ?

12. What is performance appraisal ?

SECTION - B

Answer any FIVE out of Seven Questions ( 5 x 6 = 30 Marks)

13. Explain the types of transfer.

14. Differentiate Training and Development.

15. Explain the socialiation process.

 163

16. Explain the steps in training process.

17. What are the advantages of career planning ?

18. What is management by objectives ?

19. Differentiate Wage and Salary.

SECTION - C

Answer any THREE out of FIVE questions (3 x 10 = 30 Marks)

20. Differentiate personnel management and Human Resource Development.

21. Explain the emerging issues of Human Resource Management.

22. Explain the methods of performance Approval.

23. Discuss the types of tests.

24. Explain the methods of Wage payment.