Performance and Compensation Management
Performance and Compensation Management
Performance and Compensation Management
Mobility
BLOCK 3
PERFORMANCE AND COMPENSATION
MANAGEMENT
129
Performance and
Compensation BLOCK 3 PERFORMANCE AND
Management
COMPENSATION MANAGEMENT
It is critical to design a good career development plan and manage employee
remuneration in order to keep, retain, and utilise human resources. This block
has four units to help you understand these functions.
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UNIT 8 PERFORMANCE APPRAISAL Performance
Appraisal
Objectives
After completion of the unit, you should be able to:
Structure
8.1 Introduction
8.2 Concept of Performance Appraisal
8.3 Goals of Performance Appraisal
8.4 Objectives of Performance Appraisal
8.5 The Performance Appraisal Process
8.6 Benefits of Performance Appraisal
8.7 Performance Appraisal Methods
8.8 Performance Counselling
8.9 Problems in Performance Appraisal
8.10 Effective Performance Appraisal
8.11 Potential Appraisal
8.12 Summary
8.13 Self Assessment Questions
8.14 Further Readings
8.1 INTRODUCTION
Performance appraisal helps organizations to determine how employees can
help to achieve the goals of organizations. It has two important activities
included in it. First has to do with determining the performance and other with
the process of evaluation. In this unit, concept of performance appraisal and the
processes involved in it have been discussed.
b) What is Appraisal?
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Performance
Appraisal
a) Employees should be actively involved in the evaluation and development
process.
d) Supervisors must be aware, and have knowledge of the employee‟s job and
performance.
Some employees may believe that performance appraisal is simply used by the
organization to apportion blame and to provide a basis for disciplinary action.
They see it as a stick that management has introduced with which to beat
people. Under such situations a well thought out performance appraisal is
doomed to failure. Even if the more positive objectives are built into the system,
problems may still arise because they may not all be achievable and they may
cause conflict. For Example, an appraise is less likely to be open about any
shortcomings in past performance during a process that affects pay or promotion
prospects, or which might be perceived as leading to disciplinary action. It is
therefore important that performance appraisal should have specific objective.
Not only should the objectives be clear but also they should form part of the
organization‟s whole strategy. Thus incorporating objectives into the appraisal
system may highlight areas for improvement, new directions and opportunities.
Establish
Performance
Standards
Initiate Measurement of
Corrective Actual
Action, if Performance
necessary
Comparison of
Actual Performance
in the Communicate
Performance Performance
standards expectations
5) The final step in the appraisal is the initiation of corrective action when
necessary. Corrective action can be of two types; one is immediate and
deals predominantly with symptoms. The other is basic and delves into
causes. Immediate corrective action is often described as “putting out
fires”, where as basic corrective action gets to the source of deviation and
seeks to adjust the differences permanently. Immediate action corrects
something right now and gets things back on track. Basic action asks how
and why performance deviated. In some instances, managers may
rationalize that they do not have the time to take basic corrective action and
therefore must be content to “perpetually put out fires.” Figure 1 shows the
performance process in summary.
2) For the appraiser: The following benefits would accrue to the appraiser:
c) The opportunity to link team and individual objectives and targets with
departmental and organizational objectives.
3) For the appraisee: For the appraisee the following benefits would accrue:
a) Increased motivation.
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Critical incident appraisal focuses the rater‟s attention on those critical or key
behaviors that make the difference between doing a job effectively and doing it
ineffectively. What the appraiser does is write down little anecdotes that
describe what the employee did that was especially effective or ineffective. In
136 this approach to appraisal, specific behaviors are cited, not vaguely defined
personality traits. A behaviorally based appraisal such as this should be more Performance
valid than trait-based appraisals because it is clearly more job related. It is one Appraisal
2) Checklist
In the checklist, the evaluator uses a bit of behavioral descriptions and checks of
those behaviors that apply to the employee. The evaluator merely goes down the
list and gives “yes” or “no” responses. Once the checklist is complete, it is
usually evaluated by the staff of personnel department, not the rater himself.
Therefore the rater does not actually evaluate the employee‟s performance;
he/she merely records it. An analyst in the personnel department then scores the
checklist, often weighting the factors in relationship to their importance. The
final evaluation can then be returned to the rating manager for discussion with
the subordinate, or someone from the personnel department can provide the
feedback to the subordinate.
One of the oldest and most popular methods of appraisal is the graphic rating
scale. They are used to assess factors such as quantity and quality of work, job
knowledge, cooperation, loyalty, dependability, attendance, honesty, integrity,
attitudes, and initiative etc. However, this method is most valid when abstract
traits like loyalty or integrity are avoided unless they can be defined in more
specific behavioral terms. The assessor goes down the list of factors and notes
that point along the scale or continuum that list of factors and notes that point
along the scale or continuum that best describes the employee. There are
typically five to ten points on the continuum. In the design of the graphic scale,
the challenge is to ensure that both the factors evaluated and the scale pints are
clearly understood and unambiguous to the rater. Should ambiguity occur, bias
is introduced. Following are some of the advantages of this method:
a) Since the appraiser does not know the “right” answers, it reduces bias.
These scales combine major elements from the critical incident and graphic
rating scale approaches. The appraiser rates the employees based on items along
continuum, but the points are examples of actual behavior on the given job
rather than general descriptions or traits. Behaviorally anchored rating scales
specify definite, observable, and measurable job behavior. Examples of job-
related behavior and performance dimensions are generated by asking
participants to give specific illustrations on effective and ineffective behavior
regarding each performance dimension. These behavioral examples are then
retranslated into appropriate performance dimensions. Those that are sorted into
the dimension for which they were generated are retained. The final group of
behavior incidents are then numerically scaled to a level of performance that
each is perceived to represent. The incidents that are retranslated and have high
rater agreement on performance effectiveness are retained for use as anchors on
the performance dimension. The results of the above processes are behavioral
descriptions, such as anticipates, plans, executes, solves immediate problems,
carries out orders, and handles emergency situations.
c) It clarifies to both the employee and rater which behaviors connote good
performance and which connote bad.
The group order ranking requires the evaluator to place employees into a
particular classification, such as “top one-fifth” or “second one-fifth.”
Evaluators are asked to rank the employees in the top 5 per cent, the next 5 per
cent, the next 15 per cent. So if a rater has twenty subordinates, only four can be
in the top fifth and, of course, four must also be relegated to the bottom fifth.
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The advantage of this method is that it prevent raters from inflating their Performance
evaluations so everyone looks good or from homogenizing the evaluations for Appraisal
everyone is rated near the average outcome that are usual with the graphic rating
scale. It has following disadvantages:
7) Individual Ranking
The individual ranking method requires the evaluator merely to list all the
employees in an order from highest to lowest. Only one can be the “best.” If the
evaluator is required to appraise thirty individuals ranking method carries the
same pluses and minuses as group order ranking.
8) Paired Comparison
9) Management by Objectives
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Performance and
Compensation
Management a) In goal setting, the organization‟s overall objectives are used as guidelines
from which departmental and individual objectives are set. At the
individual level, the manager and subordinate jointly identify those goals
that are critical for the subordinate to achieve in order to fulfill the
requirements of the job as determined in job analysis. These goals are
agreed upon and then become the standards by which the employee‟s
results will be evaluated.
b) In action planning, the means are determined for achieving the ends
established in goals setting. That is, realistic plans are developed to attain
the objectives.
Ideally, by having the individual review his or her own performance. The
MBO philosophy is built on the assumptions that individuals can be
responsible, can exercise self-direction, and do not require external controls
and threats of punishment.
b) Employees know exactly what is expected of them and how they will be
evaluated.
People whoe are chosen as raters are usually those that interact routinely with
the person receiving feedback. The purpose of the feedback is to:
Following are some of the major considerations in using 360 degree feedback.
These are basically concerned with how to:
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Performance and c) Personal and Organizational Performance Development: 360 degree
Compensation feedback is one of the best methods for understanding personal and
Management
organizational developmental needs.
To the individual:
a) This process helps individuals to understand how others perceive them
b) It uncovers blind spots
c) It provides feedback that is essential for learning
d) Individuals can better manage their own performance and careers
e) Quantifiable data on soft skills is made available.
To the team:
a) It increases communication between team members
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d) It supports teamwork by involving team members in the development Performance
process Appraisal
To the Organization:
a) It reinforces corporate culture and openness and trust
b) It provides better opportunities for career development for employees
c) Employees get growth and promotional opportunities
d) It improves customer service by having customers contribute to evaluation
e) It facilitates the conduct of relevant training programmes.
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Performance and Several conditions for effective counseling are identified. The Following are
Compensation some of the important ones:
Management
a) A climate of openness and trust is necessary. When people are tense and
hostile, attempts should be made to counsel and help rather than be critical.
b) The counselor should be tactful and helpful rather than critical and fault
finding.
a) The organizations are able to identify individuals who can take higher
responsibilities.
b) It also conveys the message that people are not working in dead-end jobs in
the organization.
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Performance
Appraisal
Activity C: List out the contexts in which Performance Counselling is carried
out for a particular employee in an organization.
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Career Path
One of the important objectives of appraisal, particularly potential appraisal is
to help employees to move upwards in the organization. People do not like to
work on dead- end jobs. Hence, a career ladder with clearly defined steps
becomes an integral component of human resources management. Most HRM
practitioners favor restructuring of a job to provide reasonably long and orderly
career growth. Career path basically refers to opportunities for growth in the
organization. Availability of such opportunities has tremendous motivational
value. It also helps in designing salary structures, identifying training needs and
developing second line in command. Career paths can be of two kinds:
b) Those where changes in position bring about changes in job along with
increased salary, status and better benefits and working conditions. In many
engineering organizations, an employee may grow in the same line with
increased responsibilities or may move to other projects with different job
demands.
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Performance and
Compensation
8.9 PROBLEMS IN PERFORMANCE APPRAISAL
Management
While it is assumed that performance appraisal process and techniques present
an objective system it would be naïve to assume, however, that all practicing
managers impartially interpret and standardize the criteria upon which their
subordinates will be appraised. In spite of our recognition that a completely
error-free performance appraisal can only be idealized a number of errors that
significantly impede objective evaluation. Some of these errors are discussed
below:
1) Leniency Error
Every evaluator has his/her own value system that acts as a standard against
which appraisals are made. Relative to the true or actual performance an
individual exhibits, some evaluators mark high and others low. The former is
referred to as positive leniency error, and the latter as negative leniency error.
When evaluators are positively lenient in their appraisal, an individual‟s
performance becomes overstated; that is rated higher than it actually should.
Similarly, a negative leniency error understates performance, giving the
individuals as lower appraisal.
2) Halo Effect
The halo effect or error is a tendency to rate high or low on all factors due to the
impression of a high or low rating on some specific factor. For example, if an
employee tends to be conscientious and dependable, the supervisor might
become biased toward that individual to the extent that he will rate him/her high
on many desirable attributes.
3) Similarity Error
When evaluators rate other people in the same ways that the evaluators perceive
themselves they are making a similarity error. Based on the perception that
evaluators have of themselves, they project those perceptions onto others. For
example, the evaluator who perceives him self or herself as aggressive may
evaluate others by looking for aggressiveness. Those who demonstrate this
characteristic tend to benefit, while others are penalized.
What are the consequences of the appraisal? If the evaluator knows that a poor
appraisal could significantly hurt the employee‟s future particularly
opportunities for promotion or a salary increase the evaluator may be reluctant
to give a realistic appraisal. There is evidence that it is more difficult to obtain
accurate appraisals when important rewards depend on the results.
5) Central Tendency
It is possible that regardless of whom the appraiser evaluates and what traits are
used, the pattern of evaluation remains the same. It is also possible that the
evaluator‟s ability to appraise objectively and accurately has been impeded by a
failure to use the extremes of the scale, that is, central tendency. Central
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tendency is the reluctance to make extreme ratings (in either directions); the Performance
inability to distinguish between and among ratees; a form of range restriction. Appraisal
The opposite of recency is primacy effect. Here the initial impression influences
the decision on year end appraisal irrespective of whether the employee has
been able to keep up the initial impression or not. First impression is the last
impression is perhaps the most befitting description of this error.
b) To help them do this task well, they should be provided systematic training
on writing performance reports and handling performance interviews.
The evidence strongly favors behaviorally based measures over those developed
around traits. Many traits often considered to be related to good performance
may, in fact have little or no performance relationship. Traits like loyalty,
initiative, courage, reliability, and self-expression are intuitively appealing as
desirable characteristics in employees. But the relevant question is, Are
individuals who are evaluated as high on those traits higher performers than
those who rate low? Traits like loyalty and initiative may be prized by
managers, but there is no evidence to support that certain traits will be adequate
synonyms for performance in large cross-section of jobs. Behaviorally derived
measures can deal with this objection. Because they deal with specific examples
of performance-both good and bad, they avoid the problem of using
inappropriate substitutes.
b) Ongoing Feedback
Employees like to know how they are doing. The annual review, where the
manager shares the subordinates evaluations with them, can become a problem.
In some cases, it is a problem merely because managers put off such reviews.
This is particularly likely if the appraisal is negative. The solution lies in having
the manager share with the subordinate both expectations and disappointments
on a day-today basis. By providing the employee with frequent opportunities to
discuss performance before any reward or punishment consequences occur,
there will be no surprises at the time of the annual formal review. In fact, where
ongoing feedback has been provided, the formal sitting down step should not be
particularly traumatic for either party.
c) Multiple Raters
d) Peer Evaluations
will improve; and (b) their recommendations tend to be more specific regarding
job behaviors-unless specificity exists, constructive measures are hard to gain.
Potential can be defined as „a latent but unrealised ability‟. There are many
people who have the desire and potential to advance through the job they are in,
wanting the opportunity to operate at a higher level of competence in the same
type of work. The potential is the one that the appraiser should be able to
identity and develop because of the knowledge of the job. This requires an in-
depth study of the positions which may become vacant, looking carefully at the
specific skills that the new position may demand and also taking into
consideration the more subjective areas like „qualities‟ required. These may be
areas where the employee has not had a real opportunity to demonstrate the
potential ability and there may be areas with which you, as the appraisers are
not familiar. There are few indicators of potential (Box 1) which may be
considered.
Box 1: Indicators of Potential
A sense of reality: This is the extent to which a person thinks and acts
objectively, resisting purely emotional pressures but pursuing realistic
projects with enthusiasm.
Imagination: The ability to let the mind range over a wide variety of
possible causes of action, going beyond conventional approaches to
situations and not being confined to „This is the way it is always being
done!‟
Power of analysis: The capacity to break down, reformulate or transform a
complicated situation into manageable terms.
Breadth of vision: The ability to examine a problem in the context of a
much broader framework of reference; being able to detect, within a
specific situation, relationships with those aspects which could be affecting
the situation.
Persuasiveness: The ability to sell ideas to other people and gain a
continuing commitment, particularly when the individual is using personal
influence rather than „management authority‟.
Source: Adopted from Philip, Tom (1983). Making Performance Appraisal Work, McGraw Hill
Ltd., U.K. 149
Performance and
Compensation
Management
8.12 SUMMARY
Performance appraisal is concerned with setting objectives for individuals,
monitoring progress towards these objectives on a regular basis in our
atmosphere of trust and cooperation between the appraiser and the appraisee.
Well designed appraisal systems benefit the organisation, managers and
individuals in different ways and need to fulfill certain key objectives if they are
to be successful. Appraisal systems should be designed to focus employees on
both their short and long-term objectives and career goals. It is also important to
be aware of the problems associated with performance appraisal systems.
a) Management by objectives
b) Behaviourly Anchored Rating Scale
c) Performance Counselling
Saiyadain, Mirza S., (2003) Human Resource Management (3rd Edition) New
Delhi Tata McGraw Hill Publishing Company Limited.
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Potential
Appraisal,
Career
UNIT 9 CAREER DEVELOPMENT Assessment
Development
Centres and Career
and Succession
Objectives Planning
Structure
9.1 Introduction
9.2 Career Development
9.3 Career Planning
9.4 Career Stages and Career Anchors
9.5 Career Development Strategy
9.6 Process of Career Development
9.7 Responsibility for Career Development
9.8 Limitations of Career Planning
9.9 Strategies for making career planning a success
9.10 Succession Planning
9.11 Summary
9.12 Self- Assessment Question
9.13 Further Readings and References
9.1 INTRODUCTION
Career development is a function of human resource management which aims
at providing opportunities for people to develop their careers. This will help
them to achieve their career aspirations at the same time enable to talent
development in the organisations. Career planning and succession planning
are two major parts of career development. This is carried out along with the
other functions of HRM such as: performance appraisal and potential
appraisal. Training and development plays a major role in career
development. In this unit, the function of career development, career planning
and succession planning are explained in detail.
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Performance and
Compensation 9.2 CAREER DEVELOPMENT
Management
Career is viewed as a sequence of position occupied by a person during the
course of his lifetime. Career may also be viewed as amalgam of changes in
value, attitude and motivation that occur, as a person grows older. The
implicit assumption is that an invididual can make a different in his career
over time and can adjust in ways that would help him to enhance and
optimize the potential for his own career development. Career development is
important because it would help the individual to explore, choose and strive
to derive satisfaction with one‟s career object.
Through career development, a person evaluates his or her own abilities and
interests, considers alternative career opportunities, establishes career goals,
and plans practical developmental activities.
g) It ensures that promising persons get experience that will equip them to
reach responsibility for which they are capable
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On the part of employees, they should manage their own careers like Career
entrepreneurs managing a small business. They should think of themselves as Development
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Performance and
Compensation
Management Activity A:
Present a caselet on how career planning functions in an organisation.
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1. Entry to the organization when the individual can begin the process of self-
directed career planning.
2. Progress within particular areas of work where skills and potential are
developed through experience, training, coaching, mentoring and
performance management.
3. Mid-career when some people will still have good career prospects while
others may have got as far as they are going to get, or at least feel that they
have. It is necessary to ensure that these ‘plateaued’ people do not lose interest
at this stage by taking such steps as providing them with cross-functional
moves, job rotation, special assignments, recognition and rewards for effective
performance, etc.
4. Later career when individuals may have settled down at whatever level they
have reached but are beginning to be concerned about the future. They
need to be treated with respect as people who are still making a contribution
and given opportunities to take on new challenges wherever this is possible.
They may also need reassurance about their future with the organization and
what is to happen to them when they leave.
Career anchors
Some recent evidence suggests that six different factors account for the way
people select and prepare for a career. They are called career anchors
because they become the basis for making career choices. They are
particularly found to play a significant role amongst younger generation
choosing professions. They are briefly presented below:
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a) Managerial Competence: The career goal of managers is to develop Career
qualities of interpersonal, analytical, and emotional competence. People Development
career routes enabling talented people to move from bottom to top of the
organization, or laterally in the firm, as their development and job
opportunities take them;
Career Development
Review of career
development plan in action
Career Counselling
f) Maintaining age balance while taking employees up the career path and
review of career development plan in action, etc.
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Performance and retire and when the vacancy thus caused may be required to be
Compensation filled.
Management
Number of persons required in the near future, say in the next one to five
years, to meet the needs arising from expansion or diversification of
work or natural wastage of manpower. The latter includes death,
permanent disability, superannuation and retirement, discharge,
dismissal, voluntary resignation, or abandonment of the jobs.
Answers to all these and other questions can be found either by holding
brainstorming sessions or by undertaking a survey of career planning
activities and their impact on the working of the organisation.
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It does not suit a very small organisation. There should be opportunities for
vertical mobility if career planning has to become a reality.
b) An organisation must have clear corporate goals for the ensuing five,
ten and fifteen years, and on the basis of its corporate plans it
should conduct analysis periodically; to determine the types of changes,
its functions, activities, procedures, technology and materials. If this is
not done, an organisation cannot develop the manpower development
system, thus reducing the need for career planning.
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Performance and c) Interested, goal-directed, motivated and hard working employees are
Compensation essential for making a career planning programme effective. An
Management
organisation can create an environment and show genuine concern for
the development of the employees, but the employees must be willing
to make use of the resources and opportunities available. There are
instances when employees are not interested either in further developing
themselves or in making use of the training and developing facilities
provided by the organisation. As they are contented with what they are,
the question of planning their career further does not arise.
d) Selection of right person for the right job is an essential pre-requisite for
career planning. The right person should not only be qualified and
have necessary experience for the job applied for, but he or she should
also have enough potential and urge to develop and grow further in the
organisation.
g) Career planning will be made effective when it takes the form of a Fair
Promotion Policy supported by systematic training for those who are
trainable, willing and eager to learn a higher skill.
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training and development facilities are available within and outside the Career
organisation for preparing them for higher or added responsibilities. Development
9.11 SUMMARY
Continuous self and staff development are instrumental for to continuous
performance improvement. One‟s own self-development needs to be related
to your personal strengths and weaknesses and to the career aspirations. This
requires planning of career progression and setting career goals. This can be
achieved by identifying potentialities of employees with the help of potential
appraisal and various methods. Hence career development has become an
essential function of HR department in order to retain HR by providing them
future career planning. It is an integral part of performance management and
training and development functions in line with organisation‟s goals.
Gupta, C.B., “Human Resource Management” (1997), Sultan Chand & Sons,
New Delhi.
164
Tripathi, P.C.: “Human Resource Development”, 2003, Sultan Chand, New Career
Delhi. Philip, Tom: “Making Performance Appraisal Work”, 1983, McGraw Development
Hill, U.K.
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Performance and
Compensation UNIT 10 TRAINING AND DEVELOPMENT
Management
Objectives
After going through this unit, you should be able to:
Structure
10.1 Introduction
10.2 Defining Training
10.3 Needs and Benefits of Training
10.4 Organising Training System
10.5 A Suggested Training System
10.6 Evaluation of Training
10.7 Retraining
10.8 Some Issues in Training
10.9 Making Training a Strategic Function
10.10 Towards Learning Organisation
10.11 Summary
10.12 Self Assessment Questions
10.13 Further Readings
10.1 INTRODUCTION
Training is required at every stage of work and for every person at work. To
keep oneself updated with the fast changing technologies, concepts, values
and environment, training plays a vital role. Training programmes are also
necessary in any organization for improving the quality of work of the
employees at all levels. It is also required when a person is moved from one
assignment to another of a different nature. Taking into account this context,
this unit aims at providing insight into the concept, need and methods of
training, also areas of evaluation of training, retraining and dimensions of
organizational learning.
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10.2 DEFINING TRANING Training and
Development
There are some other reasons also for which this training becomes necessary.
Explained below are various factors, giving rise to the need for training.
People have not to work, but work effectively with the minimum of
supervision, minimum of cost, waste and spoilage, and to produce
quality goods and services.
Training is necessary when a person has to move from one job to another
be3cause of transfer, promotion or demotion.
Potential Appraisal
Training needs identified on the basis of potential appraisal, would become
inputs for designing raining programmes or work-out training strategies for
developing the potential of a selected group of employees who are indentified
for performing future roles in the organization.
Job Rotation
Working in the same job continuously for several years without much change
may have demotivating effects. Some organizations plan job rotation as a
mechanism of maintaining the motivation of people. Training is critical in
preparing the employees before placing them in a new job.
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Continuing Education Training and
Development
Besides these, most of the training programmes that are organized today, aim
at equipping the managers with new technology. These training programmes
attempt to help the managers raise their present level of effectiveness.
A) Methods of Training
Analysis of an Activity: List in a logical sequence, the activities in producing
product or service or part thereof, and determine what new knowledge or skill
is called for or which aspects of present knowledge or skill need to be
modified.
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Performance and Conference: To identify training needs and make decisions on ways these
Compensation needs shall be met.
Management
Informal Talks: To meet and talk informally with people for finding clues to
training needs.
Slip Writing: To write on a skip the type of training needed and analyse the
information on these slips.
Studies: To undertake studies which can turn up training needs which will
have to be met fi the plans were adopted.
Surveys: To undertake surveys that can be used to take inventory of
operations, employee attitudes, implications of advanced planning, etc.
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Tests: To perform test to measure skill, knowledge or attitude and to identify Training and
gaps. Development
Task Force: To constitute a task force which, in analyzing the problem may
unearth training needs which must be met before their recommended solution
to the problem can be implemented.
Activity A: You may be aware of how training needs are determined in your
organization. If not, you may contact your Personnel Department for the
purpose. Write below the ten most commonly used methods for identifying
training needs.
1) …………………………………………………………………………….
2) …………………………………………………………………………….
3) …………………………………………………………………………….
4) …………………………………………………………………………….
5) …………………………………………………………………………….
6) …………………………………………………………………………….
7) …………………………………………………………………………….
8) …………………………………………………………………………….
9) …………………………………………………………………………….
10) …………………………………………………………………………….
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Performance and mentioned above. A training policy should be able to provide answers to the
Compensation following questions:
Management
1) The objectives and scope of a training plan should be defined before its
development is begun, in order to provide a basis for common agreement
and co-operative action.
Principles of Learning
Certain principles are followed for developing effective training programmes.
Some of these are described below:
4) People learn more and faster when they are information of their
achievements.
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8) Learning is a cumulative process. An individual‘s reaction to any lesson Training and
is conditioned and modified by what has been learned by him in earlier Development
11) The rate of learning decreases when complex skills are involved.
15) Trainees learn better when they learn at their own pace.
E) Training Methods
Various methods of training have been evolved and any one method, or a
combination of any two or more of these can be used, depending upon the
training requirements and the level of people to be trained.
However, it is suitable only for a small group of, say 20-30 persons,
because a larger group often discourages active participation of all the
conferees. Under this method the conferees should have some knowledge
of the subject to be discussed. They should be good stimulating leaders
who can adopt a flexible attitude and encourage members while bringing
out the more reserved. They can develop sensitivity to the thoughts and
feelings of individuals, summarise material at appropriate times during a
discussion, and ensure a general consensus son points without forcing
agreement or side-stepping disagreements.
Activity B: Find out about the various training programmes used in your
organization, as also the types of employees for whom each is used and what
it seeks to accomplish. Write these below:
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F) Responsibility for Training Training and
Development
If you have realized that training is quite a stupendous task, which cannot be
done by one single department, you are right in your thinking.
The top management, who should frame and authorize the basis training
policies, review and approve the broad outlines of training plans and
programmes, and approve training budgets.
For designing the training programme on the basis of the training needs, the
following points may be kept in view:
1) Wherever there are sizeable number of people having the same training
needs, it is advisable to organise an in-company programme. The
organisation can save a lot of cost. Besides, by having the group of
people from the same work place mutuality can be inculcated. The
probability of the trainees actually applying what they have learnt is high
because of high group support.
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Performance and 6) Whenever an individual is sponsored for training he should be told
Compensation categorically the reasons for sponsoring him and the expectations of the
Management
organisation from him after he returns from the programme.
Most companies do not inform the employees why they have been sponsored;
such a practice reduces learning, as the employees sponsored are more
concerned about the reasons for being sponsored than actually getting
involved in and benefiting from the training.
Two additional questions are: how should evaluation be done? What specific
ways should be adopted for it? These questions relate to the design and
techniques of evaluation, respectively.
A) Main Clients
There are several partners in the training act and process, and all of them are
the client of evaluation. Their needs for feedback and use of feedback for
improvement (control) will naturally be different with some overlapping.
There are four main partners in training (and clients for evaluation):
Literature on training evaluation has not paid due attention to this respect.
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B) Dimensions of Evaluation Training and
Development
Attention has been given to the main dimensions of training, and most of the
suggested models are based on these. Four main dimensions have usually
been suggested: contexts, inputs, outputs, and reaction. The last dimension is
not in the same category as the other three. Reaction evaluation can be of
contextual factors, training inputs, and outcomes of training.
In all discussions of training evaluation the most neglected aspect has been
the training process which cannot be covered by training inputs. The climate
of the training organisation, the relationship between participants and
trainers, the general attitudes and approaches of the trainers, training
methods, etc., are very important aspects determining the effectiveness of
training. Evaluation of the training process, therefore, should constitute an
important element. We may thus have four main dimensions of evaluation:
evaluation of contextual factors (C), evaluation of training inputs (I),
evaluation of training process (P), and evaluation of training outcomes (O).
C) Areas of Evaluation
The various areas of training evaluation need more attention and elaboration.
Seven main areas, with some sub-areas under each, are suggested for
consideration. These are shown in Exhibit 1 in sequential order; the exhibit
also shows the conceptual model of training, by relating the areas to the
dimensions. This model is based on the following assumptions.
3) Various aspects of the training process that are not direct training inputs
(for example also contribute to its effectiveness. Evaluation should,
therefore, also focus on these factors.
4) The focus or the main task of evaluation should not only be in the nature
of auditing (measuring training outcomes in terms of what has been
achieved and how much), but should also be diagnostic (why the
effectiveness has been low or high), and remedial (how effectiveness can
be raised).
D) Design of Evaluation
The overall design of evaluation helps in planning the evaluation strategy in
advance. Evaluation designs can be classified in various ways. Two
important dimensions, however, are the time when evaluation is done (or data
are collected), and the group, or groups involved in evaluation (or data
collection). Data on relevant aspects may either be collected only once after
the training is over, or on two (or several) occasions before training
interventions, and later again, after the training is over. On the other hand,
only one or more group that undergoes training may be involved in
evaluation. These methods give us four basic designs of evaluation.
Longitudinal design (L) is one in which data are collected from the same
group over a length of time , usually on several occasions, but at least twice,
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i.e., before and after training. In the latter case, it is called ―before-after‖ Training and
design. Development
In ex post facto design (E), data are collected from the group which has been
exposed to training only after the training is over. Obviously, this design has
inherent limitations in drawing conclusions from evaluation. But in many
practical situations this is reality, and is a challenge for evaluation designers
to devise ways of extracting the most in such a design.
Comparative survey design (S) may involve collection of data from many
other groups, in addition to the group exposed to training. In this design also
there is no control and there are limitations in drawing conclusions.
The design with a great deal of control and sophistication is the matched
group design (M). Several variations of this design can be used. Another
group, matched on some significant dimensions with the group being
exposed to training, can be identified, and data can be collected from both,
once (ex post facto) or several times (longitudinal). Or, matched sampling
can be selected for a comparative or cross-sectional survey. The design can
be made very sophisticated with several matched groups (one with training
―treatment‖, another with a different type of treatment, and the third with no
treatment, combined with E and L designs, and making it a ―blind‖ study
investigators not knowing which group is of what category). Both
experimental and quasi-experimental designs can be used.
E) Evaluation Techniques
These can be classified in various ways. One way to classify them into
response (reactive) techniques (R). Techniques requiring some kind of
response produce some reaction inthose who are responding. The very act of
asking people questions (orally or in a written form) may produce change.
Since they produce reactions they are called response or reactive techniques.
The method of data collection for response or reaction techniques (R) may
include interviews, written reactions (questionnaires, scales, open-ended
forms), and projective techniques. One additional method in this category
worth mentioning is group discussion and consensus report. In many cases,
discussion by a small group consisting of individuals having experience and
with a adequate knowledge about it may give better evaluation results than
figures calculated from routine responses.
In the study, the framework of evaluation has been stated in the beginning
emphasising: pre-training stage (performance gaps); training stage (training
design); and post-training stage (assessment whether the gaps were filled). In
order to measure the impact of training on various
aspects, key responsibility areas (KRAS) of the branch managers have been
identified as follows: business, quality of advances, external service, internal
administration, and staff relations. These have been analysed into the
performance process and performance results. The objectives of the training
programme have been analysed in relation to these areas.
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Performance and
Compensation 10.7 RETRAINING
Management
Retraining programmes are designed as a means of avoiding personal
obsolescence. It is the tendency of the individual worker to become outdated
in terms of job requirements. This is true of employees at every in the
organization.
Workers require refresher course to help them recall what they have forgotten
and to overcome some practices they have come to accept as satisfactory.
They also need to bring them with respect to relevant new knowledge and
skill. The need for retraining also arises as a result of technological changes
resulting in changes in equipment, tools, and work methods.
1) Learning
2) Pre-training Work
Unless attention is paid to the following pre-training work, training cannot
succeed in developing people, groups, and organisations: proper
identification of training needs; developing a strategy of development of
people through training, including the rationale and criteria of who (which
role occupants) should be sent for training, how many at a time and, in what
sequence; the process of helping people to volunteer, and the departments to
ask for training; pre-training workshop in some cases to raise the level of
motivation of participants and finalise the curriculum; building expectations
of prospective participants from training, etc.
3) Post-training Work
Equally important is what is done after the training is over. The training
section needs to help the concerned managers to plan to utilise the
participants‘ training, and provide the needed support to them. Post-training
work helps in building linkages between the training section and the line
departments. Follow-up work by the training section is critical.
Training should attend both to the current as well as the future needs. The
current perspective is more operational, while the futuristic perspectiveis
strategic. The other dimension relevant for the role of training is that of
content vs process. While the former emphasises the development of specific
competencies, the latter is concerned with developing learning and
empowering capability. If we combine these two dimensions, we get four
training modes as shown in Exhibit 2.
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Training and
Development
Exhibit 2: Training Modes
PERSPECTIVE
OPERATIONAL STRATEGIC
CONTENT
TRAINING RESEARCH
Concerns
CONSULTING CHANGE
PROCESS MANAGEMENT
All the four modes of training are important. However, increasingly training
must move towards transformational and strategic roles. Exhibit 3 shows the
foci, objectives, and postures, for these four training modes. We shall briefly
discuss these, taking the four main roles of training.
Change Management Role: This is the real strategic partnership role. The
focus of training is to develop leadership at all levels in the organisation - the
ability of strategic thinking, taking responsibility, creativity to find alternative
solutions, and empowering others. The objective is to transform the
organisation, to make paradigm shift if needed. Training then becomes a true
strategic partner. This is not possible without involvement of the trainers in
the main business of the organisation, and gaining relevant business
knowledge.
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Working More Closely with Line Managers Training and
Development
People dealing with training should work more closely with line people. They
are already working with line people in the areas of coaching, counseling,
training, strategy planning for the departments etc. When cross-functional
task forces and implementation teams are set up, training people should join
these. Similarly, when teams are set up to discuss training issues etc., line
people should be invited as members. Such close working together may help
in integrating training with the various business groups, and making training
a strategic partner.
Rosow and Zager have made some recommendations to forge stronger links
between training and business strategy (Exhibits 4 & 5)
2) The vice -president for the training function should ensure that all
training programs (1) are necessary to the corporate strategy; (2) are
recommended by (and, if possible, budgeted to) the managers whose
employees are to be trained; and (3) help the trainees progress along the
career paths jointly set by them and their managers.
189
Performance and within or outside the firm. Such acquaintance maximizes the trainee's
Compensation ability to learn and to apply the new skills.
Management
1) The Chief executive officer (CEO) and senior associates should include a
training plan as a critical component of the corporate strategic plan, to
ensure that all levels of the organisation will have the knowledge and
skills to carry out the strategic plan. The training plan should distinguish
clearly between (1) tactical programs designed to meet current needs,
and (2) strategic programs designed to keep up with - and even
anticipate-changes in technology, competition, and work-force standards,
as well as with the rapid obsolescence of occupations.
2) The CEO should regularly monitor the training function to ascertain that
(1) program priorities match those of the corporate strategy, (2) program
cost and skill objectives are valid, and (3) program cost and skill
objectives are met.
TRAINERS
developed their own clear model of the role in their own organisation
and communicated it accordingly
GOVERNMENT
recognised the limitations of public statements on the importance of
training
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Performance and 3) Since formal training is an indispensable part of implementing new
Compensation technology, manufacturer and user should jointly develop a training
Management
strategy that will ensure profitable operation by the user. The
manufacturer should act either directly or through a third party for whose
performance it accepts responsibility.
6) Manufacturer and user should jointly secure that the user's employees
learn not only the technical aspects of operating, troubleshooting, and
maintaining a system, but also the scientific and technological principles
on which it is based. This will enable the user's employees to solve
problems on equipment of all kinds.
7) Manufacturer and user should pay early attention to how the new
technology will affectorganisation, decision-making patterns, work rules,
job design, communications, and learning systems. These issues require
advance planning and may determine the success of the organisation. Ad
hoc or ex post facto decisions are often too little, too late, and too costly.
Turbulence, newly and reluctantly recognised as the now normal state of the
environment and fed by instantaneous global information and tremors of all
kinds, causes the shift to a continuously learning organisation. It is a basic
shift, to a different disposition for the organisation as a whole. It orients and
prepares the organisation differently, different even from the recent past
when its people expected and then also buckled down to making a learning 193
Performance and effort from time-to-time and here and there in the organisation, and even
Compensation when lately that exigency occurred ever more frequently. So the shift is not
Management
just for more economy of effort and smoothing out interruptions of normal
living and working.
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10.11 SUMMARY Training and
Development
To sum up, training is the act of increasing the knowledge and skill of an
employee for doing a particular job. Training is required in every
organization so as to cope the employees with the emerging trends. There are
various methods of training as discussed in this unit. Depending upon the
training need analysis, a particular method of training is chosen for the
employee(s). Nowadays training has almost become a strategic function of an
organization. Evaluation of training is an important as execution of training
and the concept of retraining is based on this.
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Performance and
Compensation UNIT 11 COMPENSATION AND REWARDS
Management
MANAGEMENT
Objectives
After reading this unit, you should be able to:
Structure
11.1 Introduction
11.2 Compensation Management
11.3 Compensation Policies and Objectives
11.4 Compensation Administration
11.5 Compensation Determinants
11.6 Compensation survey
11.7 Compensation Structure
11.8 Compensation Structure in India
11.9 Executive Compensation
11.10 Reward Systems
11.11 Forms of Reward
11.12 Employee Benefits
11.13 Summary
11.14 Self Assessment Questions
11.15 Further Readings and References
11.1 INTRODUCTION
One of the most difficult functions of human resource management is that of
determining the rates of monetary compensation. It is not only complex, but
significant both to the organisation and employees. Employee compensation
decisions are crucial for the success of an organisation. From a cost
perspective alone, effective management of employee compensation is
critical because of the total operating costs. Another reason for studying
196
compensation from the organisation‟s perspective is to assess its impact on a Compensation
wide range of employee attitudes and behaviours and, ultimately the and Rewards
Management
effectiveness of the organisation and its units. Compensation may directly
influence key outcomes like job satisfaction, attraction, retention,
performance, skill acquisition, cooperation, and flexibility.
Reward systems and their role in organisations have been studied from many
perspectives and by multiple disciplines. Economics, sociology and
psychology, in particular, have contributed to the growing literature on
reward systems. Reward systems have a wide-ranging impact on
organisations, and that their impact is greatly affected by their design and by
the organisational context in which they operate. Thus, to understand pay
systems in organisations, it is necessary to focus on the characteristics of both
the organisation and the pay system. Often new lines of business require a
different approach and therefore a different reward system. Simply putting,
the old reward system in the new business is often not good enough and
indeed can lead to failure. On the other hand, developing a new reward
system for one part of an organisation can cause problems in other parts
because of the comparison made between different parts.
197
Performance and In brief, compensation is provided for two reasons, namely; as a reward for
Compensation past service to the enterprise, and as stimulus to increased performance in the
Management
future.
1) To recognise the value of all jobs in relation to each other within the
company.
The objectives of any compensation system are numerous and might include
the following:
7) Adequate care should be taken to inform the employees and the union, if
any, about the procedure followed in determining wage rates.
Product Market
Pay levels of labour market and product market competitors play an
important role in determining pay levels. Dunlop (1957) argues that product
market competition places an upper boundary on pay level because 199
Performance and organisations in a particular industry “encounter similar constraints of
Compensation technology, raw materials, product demand, and pricing”. Thus, an
Management
organisation will find itself at a competitive disadvantage in the product
market if its labour costs exceed those of its competitors. The reason being
such costs will ordinarily be reflected to some extent in higher prices for its
products.
Labour Market
Organisations not only compete solely in the product market but also in the
labour market. Maruti Udyog, for example, competes for technicians and
managers with similar such organisations. A pay level that is too low relative
to these competitors could lead to difficulties in attracting and retaining
sufficient number of quality employees. As such, labour market competition
can be seen as placing a lower boundary on pay level. In order to avoid such
a situation, many companies emphasise that their total compensation is equal
to or better than other companies in the market.
The data collected through survey should include not only information on the
key jobs and their comparability to the surveyed organisation‟s jobs but also
information on benefits, bonuses, and other methods of compensation besides
direct salary. Failure to include these factors would give a distorted picture of
the total compensation package offered. It is also useful to collect
information on the characteristic of the organisation to determine how similar
the organisation is to the one surveyed. In either case, great care must be
given to compensation survey procedures.
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201
Performance and ...........................................................
Compensation
...........................................................
Management
...........................................................
Basic Wage
The concept of basic wage is contained in the report of the Fair Wages
Committee. According to this Committee, the floor of the basic pay is the
“minimum wage” which provides “not merely for the bare sustenance of life
but for the preservation of the efficiency of the workers by providing some
measure of education, medical requirements and amenities.” The basic wage
has been the most stable and fixed as compared to dearness allowance and
annual bonus which usually change with movements in the cost of living
indices and the performance of the industry.
Dearness Allowance
The fixation of wage structure also includes within its compass a fixation of
rates of dearness allowance. In the context of a changing pattern of prices and
consumption, real wages of the workmen are likely to fluctuate greatly.
Ultimately, it is the goods and services that a worker buys with the help of
wages that are an important consideration for him. The real wages of the
workmen thus require to be protected when there is a rise in prices and a
consequent increase in the cost of living by suitable adjustments in these
wages. In foreign countries, these adjustments in wages are effected
automatically with the rise or fall in the cost of living.
The second method is its linkage with consumer price index numbers
published periodically by the government. It indicates the changes in the
prices of a fixed basket of goods and services customarily bought by the
families of workers. In other words, the index shows the rise or fall in the
cost of living due a rise or fall in consumer prices.
202
The third method of paying dearness allowance is on a graduated scale Compensation
according to slabs. Under this method, workers are divided into groups and Rewards
Management
according to the slabs of wage scales to whom fixed amounts of dearness
allowance are paid on a graduated scale. After a limit, there will not be any
increase in the amount of dearness allowance at all, however high the wage
rate may be. This method is popular because it is convenient and also
considered to be equitable.
Overtime Payment
Working overtime in industry is possibly as old as the industrial revolution.
The necessity of the managements‟ seeking overtime working from
employees becomes inevitable mainly to overcome inappropriate allocation
of manpower and improper scheduling, absenteeism, unforeseen situations
created due to genuine difficulties like breakdown of machines. In many
companies, overtime is necessary to meet urgent delivery dates, sudden
upswings in production schedules, or to give management a degree of
flexibility in matching labour capacity to production demands.
Annual Bonus
The bonus component of the industrial compensation system, though a quite
old one, had assumed a statutory status only with the enactment of the
Payment of Bonus Act, 1965. The Act is applicable to factories and other
establishments employing 20 or more employees.
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............................................................................................................................
............................................................................................................................
............................................................................................................................
............................................................................................................................
............................................................................................................................
1) medical care;
2) professional service in legal and financial matters;
3) facilitates for entertaining customers and for dining out;
4) company recreational services;
204
vi) makes the executive a much better performer both as an individual and Compensation
as a team member both for today and for tomorrow. and Rewards
Management
Give value to the reward system. Employees must have a preference for
the types of rewards being offered. Many employees prefer cash awards
and plaques.
4) People differ widely in the rewards they desire and how much important
the different rewards are to them. One group feels money is the most
important, while another group feels interesting work and job content is.
Both groups, of course, are able to find examples to support their point of
view.
5) Many extrinsic rewards are important and satisfying only because they
lead to other rewards, or because of their symbolic value.
206
and can therefore serve as indirect motivators, as long as people expect that Compensation
further achievements will produce worthwhile rewards. and Rewards
Management
COMPETENCE-RELATED PAY
Competence-related pay may be defined as a method of rewarding people
wholly or partly by reference to the level of competence they demonstrate in
carrying out their roles. This definition has two important points: (1) pay is
related to competence, and (2) people may be rewarded with reference to
their level of competence.
SKILL-BASED PAY
Skill-based pay links pay to the level of skills used in the job and, sometimes,
the acquisition and application of additional skills by the person carrying out
the job. The term is sometimes used interchangeably with competence-related
pay. But skill-based pay is usually concerned with the skills used by manual
workers, including fitters, fabricators, and operators. In competence-related
pay schemes, the behaviours and attributes an individual has to use to
perform a role effectively are assessed in addition to pure skills. Skill- based
pay may in many ways seem to be a good idea, but its potential costs as well
as its benefits need to be evaluated rigourously before its introduction.
Initially they may provide strong motivation for individuals to increase their
skills. But they may outlive their usefulness and hence need to be revised or
even replaced if they are no longer cost effective.
TEAM-BASED REWARDS
Team-based rewards are payments or other forms of non-financial rewards
provided to members of a formally established team which are linked to the
performance of that team. Team based rewards are shared amongst the
members of teams in accordance with a scheme or ad hoc basis for
exceptional achievements. Rewards for individuals may also be influenced by
assessments of their contribution to team results. To develop and manage
team rewards it is necessary to understand the nature of teams and how they
function. Team-based rewards are not always easy to design or manage.
PROFIT SHARING
207
Performance and Profit sharing is better known, older and more widely practiced than gain
Compensation sharing. Profit sharing is associated with participative management theories.
Management
Profit sharing is a group-based organisation plan. The fundamental objectives
of profit sharing are: (a) to encourage employees to identify themselves more
closely with the company by developing a common concern for its progress;
(b) to stimulate a greater interest among employees in the affairs of the
company as a whole; and (c) to encourage better cooperation between
management and employees.
The logic behind profit sharing seems to be twofold. First, it is seen as a way
to encourage employees to think more like owners or at least be concerned
with the success of the organisation as a whole. Individual oriented plans
often place little emphasis on these broader goals. Second, it permits labour
costs to vary with the organisation‟s ability to pay.
Some companies have effectively used their profit sharing plans as vehicles
for educating employees about the financial performance of the business. The
most important advantage of profit sharing is that it makes labour costs of an
organisation variable and adjust them to the organisation‟s ability to pay.
Most Japanese firms have used this approach to adjusting labour costs for
decades.
GAIN SHARING
Gain sharing is a formula based company or factory-wide bonus plan which
provides for employers to share in the financial gain made as a result of its
improved performance. The fundamental aim of gain sharing is to improve
organisational performance by creating a motivated and committed
workforce as part of a successful company. The traditional forms of gain
sharing are the Scanlon Plan and Rucker Plan.
The potential benefits of gain sharing are that if focuses the attention of all
employees on the key issues affecting performance and enlists the support of
all employees towards this. It also encourages teamwork and cooperation at
all levels.
Gain sharing differs from profit sharing in at least three ways. First, under
gain sharing, rewards are based on a productivity measure rather than profits.
The goal is to link pay to performance outcomes that employees can control.
Second, gain sharing plans usually distribute any bonus payments with
greater frequency (e.g., monthly or quarterly versus annually). Third, gain
sharing plans distribute payment during the current payment rather than
deferring them as profit sharing plans often do.
208
STOCK OPTION Compensation
and Rewards
The stock option is the most popular long-term incentive. A stock option is Management
Stock options are similar in many ways to profit sharing plans. The basis for
payouts is organisational performance in the stock market. Important goals of
the plan are:
MERIT PAY
Merit pay is the most widely used approach for paying performance. Merit
pay systems typically give salary increases to individuals based on their
supervisor‟s appraisal of their performance. The purpose of merit pay is to
improve motivation and to retain the best performers by establishing a clear
performance reward relationship. Considerable evidence suggests that most
organisations‟ performance appraisal is not done well and as a result, good
measures of individual performance do not exist.
EMPLOYEE OWNERSHIP
A number of plans exist that help get some or all of the ownership of a
company into the hands of employees. These include stock option plans,
stock purchase plans, and Employee Stock Ownership Plans (ESOPs). In
small organisations in which participative management is practiced it has a
good chance of increasing organisational performance. In a large organisation
with little employee ownership, it may positively affect the structure by
creating integration across the total organisation if, of course, all employees
are included in the ownership plan. Ownership can have a more positive
impact on attraction and retention than does profit sharing. The usefulness of
employee ownership, however, is likely to be highly situational. For instance,
in the case of small organisations they might make profit sharing and gain
sharing unnecessary, and if combined with an appropriate approach to
employee involvement, they can contribute substantially to employee
motivation. In a large organisation they may contribute to the integration of
the organisation and to a positive culture.
209
Performance and
Compensation
11.12 EMPLOYEE BENEFITS
Management
Employee benefits are elements of remuneration given in addition to the
various forms of cash pay. They provide a quantifiable value for individual
employees, which may be deferred or contingent like a pension scheme,
insurance cover or sick pay, or may provide an immediate benefit like a
company car. It also includes elements that are not strictly remuneration, such
as annual holidays. Benefits in general do not exist in isolation. They are a
part of comprehensive compensation package offered by the organisation.
Flexible Benefits
There are significant individual differences in benefit preferences. Such
individual differences, of course, lend greater weight to the need for offering
employees a choice in the design of their benefits package. Flexible benefits
210 plan will help control costs and enhance employee satisfaction.
When an employer considers offering benefits to employees, one of the main Compensation
considerations is to keep costs down. Traditionally, employers attempted to and Rewards
Management
do that by providing a slate of benefits to their employees – irrespective of
their need or use. Companies learn, in due course, that these benefits offered
did little to motivate their employees, or to provide an incentive to be more
productive. Employees viewed benefits as “given”. This fact coupled with the
rising costs of benefits and a desire to allow employees to choose what they
want led employers to search for flexible benefits.
11.13 SUMMARY
The goals of compensation management are to design the cost-pay structure
that will attract, motivate, and retain competent employees. It consists of
organisation‟s policies, procedures, and rules determining the compensation
system. Compensation is usually composed of the basic wage or salary,
allowances, incentive or bonuses, and benefits. Job evaluation serves as the
foundation of most wage and salary systems. The question of fair pay
involves both internal and external equity. The fact that how employees are
paid has important consequences for individual, group and organisational
performance. Top executives, particularly receive special attention in the
compensation literature because of their potential influence on organisational
success.
211
Performance and Organisational rewards include both intrinsic and extrinsic rewards. The kind
Compensation of financial rewards that organisations give to individuals can vary widely.
Management
Employee ownership, gain sharing and profit sharing can all be useful
practices for many organisations. They ought not be looked at as competing
approaches, but as often as compatible approaches that accomplish different
objectives. The types of rewards that an organisation offers its employees
play a crucial role in determining the level of motivation. In addition, rewards
have an impact on the quality and quantity of HR that the organisation is able
to recruit, hire, and retain. Further, rewards have a motivational effect on
both individuals and groups. While rewards serve a valuable purpose for both
the employer and the employee, continual escalation of their cost may lead to
major problems in the future.
212
Laxmi Narain, Managerial Compensation and Motivation in Public Compensation
Enterprises, Oxford and IBH Publishing Co., New Delhi, 1973. and Rewards
Management
Armstrong M., and Murlin H., Reward Management, Kogan Page Ltd.,
London, 1998.
Schofield A., and Husband T., The Wage and Salary Audit, Gower Press,
England, 1977.
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Performance and
Compensation
Management
214