UNIT 3

Predicting employee performance

Human capital forms the foundation of any organization, and employee performance has a
significant impact on the bottom line. In fact, research indicates that a five per cent increase
in employee engagement is linked to a three percent growth in revenues in the subsequent
year. Yet, most HR departments struggle in the management of employee performance.

Employees often perceive performance reviews as a process that inclines heavily towards
traditional practices (Bell Curve Method), is subjective and consumes time. If they are not
satisfied with outcomes, their morale, productivity and performance may plunge.
Consequently, it may lead to high turnover. However, it is an important exercise given that it
creates a high-performing culture and motivates top-performing employees. It enables the
organization to identify skill gaps, develop learning and development programs, retain
employees and do succession planning.

Most organizations have realized that conventional performance review systems are outdated,
do not capture real-time performance, and fail to provide timely feedback and improvement
opportunities to employees.

Predictive analytics can be applied to the workforce to identify traits/patterns that account for
bad or good performance on an individual and team basis. Since analytics is an amalgamation
of powerful mathematical algorithms, it also gives objective insight into their work
preferences and the factors that drive their performance. An article published in The Times of
India talks about a case study on how analytics helped a manufacturing firm predict what was
wrong with employee performance. Using analytics, this company discovered that morale of
ten employees was down due to their issues with manager. The management quickly stepped
in to resolve the situation and take preventive measures before the employee performance
deteriorated further.

Adani Group has hired an analytics startup firm Vahanalytics, which uses machine learning
for driver profiling, behavior and performance. The startup will track the vehicles deployed at
Adani Group’s Mundra Port and capture information on whether drivers have been speeding,
taking sharp turns or not following driving norms. These reports will help Adani Group to
predict the performance factors of drivers and make timely innervations in regards to their
training.

With the help of analytics, HR can also identify engagement activities which have the
maximum and minimum impact on employee performance. This exercise has two-fold
advantages. One, an organization can direct their investment towards initiatives that generate
the highest interest in the engagement levels. Two, an organization can define measurable
metrics that co-relate engagement and performance.

Since organizations usually review employee performance annually, it leaves little time for
HR to act on possible flight risks. However, performance analytics gives real-time
information to take timely decisions. HR can recognize red flags of performance and predict
which employees fall in the highest flight risk category. It can then either discuss the matter
directly with the employees or implement tailor-made retention programs to re-engage them.
When HR can gauge employee performance from analytics, succession planning also
becomes easier. It can anticipate promotions, transfers and firing in advance. Accordingly, it
can forecast workforce requirements and work towards filling the open positions.

HR is also discovering advantages of analytics in predicting employee performance and

improving quality of hiring during recruitment. Analytics can mine data on candidate’s
personality, behavioral traits and skills to throw useful insights into whether he or she would
be the right fit for the organization.

Recruiting

Gathering data about your recruiting sources is the first step to honing your strategies in on
what works. Once you have enough recruiting data, you will be able to predict which sources
your best candidates come from, and invest your time, energy, and money into those sources
that yield the best return.

Screening

A good screening system will not only help you remove unfit candidates from the get-go, but
it will provide data on the value of your various recruiting sources.
In today’s hiring environment, it can be difficult to tell from a resume, a cover letter, or
someone’s social media profile whether they’re a good match for the job –particularly if you
don’t know the right factors to focus on.

Selection

Now that you have recruited from the best pools and screened out the least qualified
candidates based on predictive analytics, you must choose a specific candidate to hire.

Use psychometric profiles to collect data and help with selection. When you have enough
data to become predictive, you will understand which types of people are attracted, well-
suited, and well-matched to your corporate culture and the roles you’re looking to fill. You
will find a certain type of person, with certain characteristics, who thrives in your
organization.

Predicting the employees who will thrive at your company brings a multitude of benefits.
Those employees will perform better, respond well to your distinct methods of training and
coaching, and will likely stay at your organization longer.

Requisites of Effective Training

Effective Training is a targeted educational process that equips individuals with the
knowledge, skills, and competencies necessary to perform their jobs proficiently and
contribute positively to the broader goals of an organization. It is characterized by clear
objectives, tailored content that meets the specific needs of the participants, and engaging
delivery methods that facilitate active learning. Effective training should also be measurable,
allowing organizations to assess its impact through changes in employee performance and
productivity. Crucially, it should promote continuous development and be adaptable to
evolving organizational demands and technological advancements. Ultimately, effective
training not only enhances individual performance but also drives organizational success and
competitiveness in the marketplace.

Requisites of effective Training:

 Alignment with Organizational Goals

Training should be strategically aligned with the organization’s goals and objectives. This
alignment ensures that the training directly contributes to the company’s broader strategic
aims, such as improving productivity, enhancing quality, fostering innovation, or expanding
market reach.

 Needs Assessment

A thorough needs assessment is essential to identify the specific skills and knowledge gaps
among employees. This assessment helps in designing training programs that are relevant and
focused, targeting areas where they are most needed, thus maximizing the impact and
relevance of the training.

 Well-Defined Objectives

Each training program should have clear, specific, and measurable objectives. These
objectives guide the design of the curriculum and help in evaluating the success of the
training. Trainees should understand what they are expected to learn and how it applies to
their jobs.

 Engaging and Practical Content

The training content must be engaging and practical, using real-world applications to
illustrate concepts and theories. This approach helps in retaining interest and improving the
applicability of learned skills in the workplace. Methods such as hands-on activities,
simulations, and role-playing can enhance engagement and retention.

 Qualified Trainers

Effective training requires knowledgeable and skilled trainers who can communicate ideas
clearly and motivate participants. Trainers should not only be experts in their subject matter
but also skilled in instructional methods and adept at managing diverse learning styles and
dynamics within the training group.

 Evaluation and Feedback

Post-training evaluation is crucial to determine the effectiveness of the training program. This
should include immediate feedback to assess trainee satisfaction and learning outcomes, as
well as longer-term evaluations that measure the application of skills on the job. Continuous
feedback allows for ongoing improvements to training strategies and content, ensuring they
remain relevant and impactful.

 Adaptability and Flexibility

Effective training programs are adaptable to changes within the organization and the external
environment. They should be flexible enough to accommodate differing learner needs,
preferences, and varying paces of learning. Adapting content and delivery methods to suit
remote learning environments or to integrate emerging technologies are also crucial aspects
of maintaining training relevance and effectiveness.

 Integration with Technology

Leveraging technology can significantly enhance the effectiveness of training. Tools such as
Learning Management Systems (LMS), virtual reality (VR), and artificial intelligence (AI)
can provide immersive and interactive learning experiences, facilitate distance learning, and
personalize the learning experience for individual needs.

 Supportive Learning Environment

Supportive Learning environment that encourages interaction, questions, and collaboration

among participants fosters a more effective training experience. This environment should be
free from distractions, conducive to learning, and equipped with the necessary resources to
aid in the training process. Psychological safety, where trainees feel safe to express
themselves and make mistakes, is also vital.

 Continuous Improvement

Effective training is not a one-time event but a continuous process of development.

Organizations should commit to the continuous improvement of training programs based on
the feedback and outcomes of past sessions. This involves regularly updating training
materials to keep up with industry developments and changing job requirements.

 Strategic Reinforcement
Post-training reinforcement is key to ensuring that new skills and knowledge are retained and
applied effectively in the workplace. This can involve follow-up sessions, coaching,
mentoring, and support groups. Additionally, integrating learned skills with day-to-day tasks
and providing practical applications in the workplace can significantly boost the long-term
impact of training.

Designing and Developing effective Training Modules:

1. Needs Analysis

Start by conducting a thorough needs analysis to determine the skills, knowledge, and
competencies required by the workforce to meet current and future job demands. This
analysis should consider the organizational goals, individual performance gaps, and feedback
from stakeholders. This foundational step ensures that the training modules are targeted and
relevant.

2. Define Learning Objectives

Based on the needs analysis, clearly define the learning objectives for each training module.
These objectives should be Specific, Measurable, Achievable, Relevant, and Time-bound
(SMART). Learning objectives guide the content creation and help in evaluating the
effectiveness of the training.

3. Curriculum Development

Develop a curriculum that methodically covers all necessary topics to meet the learning
objectives. Organize the content logically, ensuring a progressive build-up of knowledge.
Include various learning activities such as lectures, discussions, case studies, and hands-on
exercises that cater to different learning styles.

4. Select Appropriate Training Methods

Choose training methods that best suit the content and the audience. Consider a blend of
traditional classroom learning, e-learning, on-the-job training, and interactive simulations to
enhance engagement and retention. The choice of method should also consider logistical
aspects like the number of trainees, geographical dispersion, and available resources.
 5. Develop Training Materials

Create high-quality training materials that are clear and concise. These can include slide
presentations, workbooks, handouts, and multimedia materials such as videos and interactive
software. Ensure that these materials are accessible to all participants, considering any
disabilities or technological limitations they might have.

6. Integrate Technology

Utilize technology to make training more effective and flexible. Tools like learning
management systems (LMS), virtual reality (VR), augmented reality (AR), and mobile
learning applications can provide immersive and personalized learning experiences.

7. Pilot Testing

Before full-scale implementation, conduct a pilot test of the training module with a select
group of employees. This testing helps identify any issues or areas for improvement in the
training content, delivery methods, and materials. Use feedback from the pilot to refine the
module.

8. Implementation

Execute the training program according to the planned schedule and format. Ensure
facilitators and trainers are well-prepared and that all logistical aspects are managed
efficiently. Consider the environment and timing of the training to minimize disruptions and
maximize learning.

9. Evaluation and Feedback

Evaluate the effectiveness of the training module using both formative (during the program)
and summative (after completion) assessments. Collect feedback from participants and other
stakeholders to assess whether the learning objectives have been met and how the training has
impacted job performance.

10. Continuous Improvement

Use the insights gained from evaluations and feedback to continuously improve the training
modules. Update the content and methods regularly to keep pace with changes in the
industry, technology, and your organization’s internal strategies.

Training Evaluation & Methods of Training Evaluation

Evaluation involves the assessment of the effectiveness of the training programs. This
assessment is done by collecting data on whether the participants were satisfied with the
deliverables of the training program, whether they learned something from the training and
are able to apply those skills at their workplace. There are different tools for assessment of a
training program depending upon the kind of training conducted.

Since organizations spend a large amount of money, it is therefore important for them to
understand the usefulness of the same. For example, if a certain technical training was
conducted, the organization would be interested in knowing whether the new skills are being
put to use at the workplace or in other words whether the effectiveness of the worker is
enhanced. Similarly in case of behavioral training, the same would be evaluated on whether
there is change in the behavior, attitude and learning ability of the participants.

Benefits of Training Evaluation

Evaluation acts as a check to ensure that the training is able to fill the competency gaps
within the organization in a cost effective way. This is especially very important in wake of
the fact the organizations are trying to cut costs and increase globally. Some of the benefits of
the training evaluation are as under:

 Evaluation ensures accountability: Training evaluation ensures that training

programs comply with the competency gaps and that the deliverables are not
compromised upon.
 Check the Cost: Evaluation ensures that the training programs are effective in
improving the work quality, employee behavior, attitude and development of new
skills within the employee within a certain budget. Since globally companies are
trying to cut their costs without compromising upon the quality, evaluation just aims
at achieving the same with training.
  Feedback to the Trainer / Training: Evaluation also acts as a feedback to the trainer
or the facilitator and the entire training process. Since evaluation accesses individuals
at the level of their work, it gets easier to understand the loopholes of the training and
the changes required in the training methodology.

Not many organizations believe in the process of evaluation or at least do not have an
evaluation system in place. Many organizations conduct training programs year after year
only as a matter of faith and not many have a firm evaluation mechanism in place.
Organizations like IBM, Motorala only, it was found out, have a firm evaluation mechanism
in place.

Methods of Training Evaluation

1. Satisfaction and Participant reaction

Satisfaction evaluation is the most basic measure for assessing the success rate of any
training. For the purpose, the trainer, usually, hands out a survey at the end of the course to
test the reaction of the participants.

Most of the time, it covers common questions like whether the participants enjoyed the
training or did they like the trainer. Moreover, would they want him or her back, in case any
other training program is initiated or do they feel as if it was a loss of their time? Generally,
the training evaluation ends here, since this method answers nearly all of the expectations, but
still, if someone likes to dig deeper, then rest of the methods can also do the job.

2. Knowledge Acquisition

Knowledge acquisition is the second level of the training evaluation and involves the
examination as the attachment of the training course to check that how much the participants
have learned from the training course. It is a fact that most of the participants take training
seriously only if they know that they are required to demonstrate the concepts that they have
learned during the training.

In this method, participants are supposed to take the exam, after the training. The instructors
or the trainers check and grade the responses, and share the results with the students as well
as the training managers. This is done so that any gaps in the expected and acquired
knowledge can be quickly sewn up.

A reliable and valid examination, as the training ends, can help in determining if the
participant has understood and learned the concept or not. It can point out the participants that
did not gain anything from training, leaving even further room for the support those who did.
Furthermore, it can highlight areas that might need additional coaching or further training.

3. Behavioral Application

The third method of evaluation deals with the behavioral application of their newly acquired
skills. It also involves monitoring the changing behaviors as the skills and knowledge are
applied to the tasks. Even though the first method of training evaluation, satisfaction
assessment, is sufficient in most of the cases, but whenever the method of behavioral
application is needed, it is used with the combination of the first two.

This method demonstrates the level to which the participants apply their newly acquired
knowledge in their real life and real world problems. This provides crystal clear evidence of
who is applying the knowledge, where the knowledge is being applied and for what purposes.
This can assist the management to avoid any misapplications.

For example, a company that initiates a course for increasing the telephone conversion rates
can conduct a particular number of mystery calls before starting the training. This response
can be recorded and graded in accordance with the objectives of the course. After the
training, the same company can again conduct that particular number of mystery calls and
can compare their results with those before the training and measure the effectiveness of the
training.

4. Measuring the Business Improvement

The primary objective of nearly all the organizations arranging the training courses is to
generate a particular business improvement. So, it means that we can assess the success level
of a training program by the improvement made in that particular field, once the training is
complete and the participants are ready to apply their knowledge for the cause of
development of the brand.
For example, if we use the above example of the course of increasing the telephone
conversion rates, then it can be based on the goals like increasing the number of sales,
decreasing the number of appointment cancellations, expanding the lead list, gaining higher
conversion rates and decreasing the time lag.

5. Return on Investment (ROI)

The final member of our list of training evaluation methods, is related to the measurement of
return on investment. It deals with the training regarding costs and returns. Costs like those of
the course fee, facility fee, staff management and their wages, time used for the training the
participants and returns like the business improvement, increased number of conversions and
financial gains, both short term and long term net gains.

Optimizing Selection and Promotion decisions

The ability to select the right person for the job, the team, the project. is a fundamental
capability of highly successful organizations and leaders. Unfortunately, it is also an area
that, in most organizations, is done rather poorly. This would be more clearly understood if
they looked at their level of engagement, performance, and positive retention.

Considerations:

 The people decisions are normally what determine the level of success a leader will
have.
 Effective people decision-making is both and art and a science and increasingly, with
the tools available, can become more of a predictive science.
 Making the wrong people decision is remarkably expensive as it may be easy to get
rid of truly bad performers- but that mediocre performer can pose greater risks as they
can cost your organizations month after month and they also lead to the loss of high
performers…
 In a rapidly changing world and market environment, picking the right investments to
make in your people is key to creating and maintaining a high performing
organization.
 Technology is having a huge impact on the cost-effectiveness of available alternatives
both for selection and development of people.
  For many competition for competencies and skills can come from those half way
around the world who are more educated and cost 1/3 as much (or less). How does
this impact people decisions locally?
 Selecting the wrong person is a very expensive proposition but it’s commonly done.
 Interviews, even structured behavioral interviews, are often poor ways to accurately
assess the future performance of an individual (but effectivve in validating key
performance factors).

Strategies:

1. Don’t Focus on The Questions, Focus on The Interview.

Too many times interviewers focus on buzzworthy questions they believe will help them
understand everything they need to know about the candidate. However, there aren’t specific
questions that will instantly give them insight into the candidate.

Instead, recruiters should focus on the interview process as a whole. Spend your time getting
to know the candidate better by exploring their skills and gaining an understanding of their
experience and personality. Asking questions related to your industry and the candidate’s
skillsets will be far more effective than a couple of oddball questions.

Test A Candidate’s Skills

Unfortunately, some candidates lie on their resume which is why it’s important that hiring
staff check references and follow up with previous employers to evaluate a candidate’s stated
skills and background.

For some hiring managers, viewing a candidate’s portfolio is enough to prove their skills.
However, many companies test a candidate’s skills in the form of a test, written, verbal or
otherwise. The job assessment test doesn’t have to be complex, but it should be difficult
enough for the candidate to show the level of their skill set.

Include Other Relevant Employees

One person shouldn’t conduct the entire talent acquisition process on their own. Recruiters
should involve other qualified employees throughout the interview process to get an accurate
understanding of the skills the potential candidate can bring to the company and how their
personality will fit in with the rest of the team.

This should include the candidate’s future manager, the department’s head or even a team
member who will be working closely with them on a daily basis. It can also be effective to
include a recruitment and staffing expert in the hiring process. These consultants can manage
almost all of the entire recruitment and selection process from candidate sourcing to
interviews, streamlining the hiring process for internal HR teams.

Identifying Training and Development Need, Designing Training Programs

The need for Training and Development

Before we say that technology is responsible for increased need of training inputs to
employees, it is important to understand that there are other factors too that contribute to the
latter. Training is also necessary for the individual development and progress of the
employee, which motivates him to work for a certain organization apart from just money. We
also require training update employees of the market trends, the change in the employment
policies and other things.

The following are the two biggest factors that contribute to the increased need to training and
development in organizations:

(i) Change: The word change encapsulates almost everything. It is one of the biggest factors
that contribute to the need of training and development. There is in fact a direct relationship
between the two. Change leads to the need for training and development and training and
development leads to individual and organisational change, and the cycle goes on and on.
More specifically it is the technology that is driving the need; changing the way how
businesses function, compete and deliver.

(ii) Development: It is again one the strong reasons for training and development becoming
all the more important. Money is not the sole motivator at work and this is especially very
true for the 21st century. People who work with organizations seek more than just
employment out of their work; they look at holistic development of self. Spirituality and self
awareness for example are gaining momentum world over. People seek happiness at jobs
which may not be possible unless an individual is aware of the self. At ford, for example, an
individual can enroll himself / herself in a course on ‘self awareness’, which apparently
seems inconsequential to ones performance at work but contributes to the spiritual well being
of an individual which is all the more important.

Designing Training Programs

When developing your training plan, there are a number of considerations. Training is
something that should be planned and developed in advance.

Designing a training programme is very important part of human resource management. Let
us discuss in this article how to design a training programme:

1. Identification of training needs: the main cause of identification of training needs is

the technological changes that are taking place. For example computers are now days
are used in all the offices which require training the employees. Except technological
changes poor performance of workers which result in low production requires
systematic training. Training needs can be identified through following types of
analysis.

(a) Organizational analysis: it is the systematic study of organizational objectives,

resources, its utilization, growth potential and climate. It involves following elements:

 Analysis of objectives: All the objectives of the organization whether long-term or

short-term should be analyzed properly. It is the responsibility of the management to
check which kind of training programme is required to achieve these objectives.
 Climate analysis: Organizational climate shows the attitude of organizational
members. It helps in checking whether the environment in different departments is
 conducive or not and where there is the need of training programme to improve the
climate of the organization.
 Resource utilization analysis: It should be checked that whether the physical and
human resources have been utilized properly or not otherwise there is the need of
training to utilize them properly.

(b) Task analysis: it is analyzing the job systematically. To identify the job contents,
knowledge, skill, aptitude required to perform the job. In task analysis focus is on the job. It
basically studies the various types of skills and training required to perform the job.

(c) Manpower analysis: the quality or type of manpower the firm required should be
checked properly. To achieve the proper quality standards specific training needs should be
determined on the basis of capability of present workers to learn the new skills.

2. Setting the training objectives: after identification of training needs the next step is
setting the training objectives. The aim of any training programme is to increase the
organizational effectiveness. As each training programme must have specific
objective like increase productivity, improved quality, higher the morale of
employees, growth of employees, better human resource planning etc.

3. Organization of training programme: as every training programme include the trainees,

trainers, training period, training material so all these should be organized properly.
(i) Selection of the trainees: it is the first step of organization of training programme. The
trainee should be selected properly. They should be trained for the kind of the job they like.
Careful selection of the trainees helps in effectiveness of training programme.

(ii) Preparation of instructor: instructor I the important person in the training programme.
Qualified instructor may be obtained from inside the organization or from the outside. He
must have all the qualities of good trainer because he has to give training to other people.

(iii) Determination of training period: the time duration of training depends upon the type
of skill required. For the training of clerk training of a week is enough while for any other
position it may require more or less training time.

(iv) Training methods: the on the job training and off the job training has been already
discussed. So the choice of training methods depends upon the objective of the training
programme.

4. Evaluation of training: at the end it is very important to evaluate the effectiveness of

training programme. As how much the employees have learnt from the training
programme. It will help in modifying the future training programme.

Training Effectiveness Models – Kirkpatrick Model of Training Effectiveness

Measuring the effectiveness of training programs consumes valuable time and resources. As
we know all too well, these things are in short supply in organizations today.

Many training programs fail to deliver the expected organizational benefits. Having a well-
structured measuring system in place can help you determine where the problem lies. On a
positive note, being able to demonstrate a real and significant benefit to your organization
from the training you provide can help you gain more resources from important decision-
makers.

Consider also that the business environment is not standing still. Your competitors,
technology, legislation and regulations are constantly changing. What was a successful
training program yesterday may not be a cost-effective program tomorrow. Being able to
measure results will help you adapt to such changing circumstances.
The Kirkpatrick Model

The most well-known and used model for measuring the effectiveness of training programs
was developed by Donald Kirkpatrick in the late 1950s. It has since been adapted and
modified by a number of writers, however, the basic structure has well stood the test of time.
The basic structure of Kirkpatrick’s four-level model is shown here.

Level 1 – Reaction: To what extent did the participants find the training useful, challenging,
well-structured, organized, and so on.

Level 2 – Learning: To what extent did participants improve knowledge and skills and
change attitudes as a result of the training.

Level 3 – Behavior: To what extent did participants change their behavior back in the
workplace as a result of the training.

Level 4 – Results: What measurable organizational benefits resulted from the training in
terms such as productivity, efficiency and sales revenue.

An evaluation at each level answers whether a fundamental requirement of the training

program was met. It’s not that conducting an evaluation at one level is more important that
another. All levels of evaluation are important. In fact, the Kirkpatrick model explains the
usefulness of performing training evaluations at each level. Each level provides a diagnostic
checkpoint for problems at the succeeding level. So, if participants did not learn (Level 2),
participant reactions gathered at Level 1 (Reaction) will reveal the barriers to learning. Now
moving up to the next level, if participants did not use the skills once back in the workplace
(Level 3), perhaps they did not learn the required skills in the first place (Level 2).

The difficulty and cost of conducting an evaluation increases as you move up the levels. So,
you will need to consider carefully what levels of evaluation you will conduct for which
programs. You may decide to conduct

Level 1 evaluations (Reaction) for all programs.

Level 2 evaluations (Learning) for “hard-skills” programs only.

Level 3 evaluations (Behavior) for strategic programs only.

Level 4 evaluations (Results) for programs costing over $50,000. Above all else, before
starting an evaluation, be crystal clear about your purpose in conducting the evaluation.

Using the Kirkpatrick Model

How do you conduct a training evaluation? Here is a quick guide on some appropriate
information sources for each level.

Level 1 (Reaction)

 Completed participant feedback questionnaire

 Informal comments from participants
 Focus group sessions with participants

Level 2 (Learning)

 Pre- and post-test scores

 On-the-job assessments
 Supervisor reports

Level 3 (Behavior)

 Completed self-assessment questionnaire

 On-the-job observation
 Reports from customers, peers and participant’s manager
Level 4 (Results)

 Financial reports
 Quality inspections
 Interview with sales manager

When considering what sources of data you will use for your evaluation, think about the cost
and time involved in collecting the data. Balance this against the accuracy of the source and
the accuracy you actually need. Will existing sources suffice or will you need to collect new
information?

Think broadly about where you can get information. Sources include:

 Hardcopy and online quantitative reports

 Production and job records
 Interviews with participants, managers, peers, customers, suppliers and regulators
 Checklists and tests
 Direct observation
 Questionnaires, self-rating and multi-rating
 Focus Group sessions

Designing a Compensation System

Employers receive compensation from a company in return for the work performed. Most
people think the pay and compensation to be the same, but the fact is compensation is much
more than just the monetary rewards provided by an employer. According to Milkowitch and
Newman, “compensation is all forms of financial returns and tangible services and benefits
employees receive as a part of an employment relationship”.

The phrase “financial returns” refers to an individual base salary, as well as short and long
term incentives. Tangible services and benefits are such things such as insurance, paid
vacations and employer discount.

Employers receive compensation from a company in return for the work performed. Most
people think the pay and compensation to be the same, but the fact is compensation is much
more than just the monetary rewards provided by an employer. According to Milkowitch and
Newman, “compensation is all forms of financial returns and tangible services and benefits
employees receive as a part of an employment relationship”.

The phrase “financial returns” refers to an individual base salary, as well as short- and long-
term incentives. Tangible services and benefits are such things such as insurance, paid
vacations and employer discount.

Any organization’s compensation practices and designing have far reached effects on its
competitive advantage. According to Richard Henderson, to develop a competitive advantage
in a global economy, the compensation program of the organization must support totally the
strategic plans and actions of the organization. An organization compensation system can
help to reinforce the key corporate values and facilitate the achievement of organizational
objectives. It is important to give a lot of consideration to our business compensation
structure because it ultimately reflects how employees are valued.

A host of laws such as The Equal Pay Act, Fair Labour Standards Act, and The Employment
Retirement Income Security Act, regulate corporate compensation practices. Some pertain to
pay issues such as discrimination, minimum wages and overtime pay, others pertain to
benefits, such as pensions, unemployment compensation and compensation for work related
injuries. An organization must understand and fully follow these laws in order to avoid costly
lawsuits and design a competency based compensation structure.

The key in designing any compensation is to develop the understating of the forms, vision
and direction. As well-designed compensation plan becomes one of many tools, a firm can
use to help reach its strategic goals. Any failure in compensation design leads to failure to
motivate any employee.

A guideline for designing a compensation plan begins at the top by examining the better
strategy and ends with a model that is ready to be implemented. There are various steps that
help as organization to design a performance-based compensation strategy and prepare the
organizations design. Inadequate use of incentive plans and problems with compensation
design and strategy often fails to motivate performance of an employee.

Behavioural scientists, employee and management surveys experience show that

compensation can be a strong driver of employee behaviour under the right circumstances
when properly designed. Also in jobs where significant variability in pay occur in
compensation and when it is closely related to key performance factor, then pay can be a big
motivator.

The good performers prior to new compensation plan implementation remain good
performers and may not improve much because they are already giving close to 100% effort,
but the middle and the bottom performers are where there is significant opportunity for
change.

1. Focusing on the Strategy Objectives:

The most important goal in designing a compensation system is supporting the strategic
objectives of the organization and ensuring the system that fit in with the organization
structure and strategy.

There are various questions which should be focused before designing compensation strategy
such as:

 What is the rate and mission of the organization?

 Why does it exist?
 What are the strategic goals and objectives for the next five years?
 Whether current employees have the skills to meet these objectives? If so, will they be
rewarded for having them? If not, will internal candidates be trained to gain skills or
will the organization recruit externally to fill the goals?
 What is the organization’s strategy?
 Do employees work individually or in teams?
 Are employees seen as costs or investments?
 What is the cost to replace employees?
 What is the desired turnover rate?
 What should the organization’s compensation plan accomplish?
 How would you describe the current total compensation package, including benefits
retirement time off etc., at the organisation?
 How does it compare with that of other employees in the market. What should the
organization pay in relation to the market?
 What is the appropriate balance between external market equity and internal worth?
Once there is an understanding of the answer to these questions, the compensation can be
developed, policy guidelines are prepared which reflects thinking, values, strategies and the
company is set inconsistency by top management.

2. Ensuring Commitment through Communication and Participation:

An organization must plan for making change to its compensation system.

Before beginning to tackle something, it is important that executive management is

absolutely committed to the process, the result and the implementation. All important
techniques for participation and communication by the clearly defined, advisory or steering
committee. A compensation review committee could help identifying current issues with
compensation, job clarification or salary administration. It could contribute ideas and
feedback provides valuable advice.

3. Analyzing Job Functions:

A job analyst develops a current and thorough understanding of the work that is being formed
by the employee. It is important to undertake a job analysis before making changes to the
compensation plan as job analysis provides a collection of relevant information on the type,
scope and responsibility of each job. It is the foundation for job description and how they are
in the market. It enables the organization to establish baseline information about a job level of
responsibility and qualification, and to compare it to the market place. It also ensures and
documents our compliance with legal requirement.

4. Writing Job Description:

Once the information is collected through the job analysis process, it can be used for
preparation of job description. A job description summarizes the important component like
the general nature of the work, specific tasks, responsibilities and outcome competence
required to perform the job. A written job description should be considered a final document.
Before it is finalized, it should be received and accepted by both the employee and the
supervisor.

5. Determining Internal Pay Equity:

It determines fairness within the organization. Fair pay is pay that employees generally view
as equitable. Internal equity is determined by job evaluation techniques such as whole job
ranking method and factor comparison technique.

6. Determining External Pay Equity:

It is the perceived fairness in pay relative to what other employees are paying for the same
type of labour. An externally focused job evaluation method includes the market pricing
slotting method. For maximum flexibility, using market pricing is recommended to that of
market competitive pay rates. Market competitiveness is more flexible and adaptable than
other methods.

To gather competitors, pay rates, a survey method is developed which includes the following
steps:

 Establish a timeline
 Select bench-mark positions to survey
 Target survey participants
 Design questionnaire
 Use other available market data sources
 Follow up and verify answers with participants.

Designing Salary Structure:

Once collection of market data and determination of a hierarchical ordering of position, is

done a salary structure can be designed. Salary structure consists of jobs of equal value that
are grouped into grades with competitive salary ranges. Pay ranges are the rates from the
minimum to maximum of each grade. Positions are assigned to grades and pay ranges based
on job content, marketing or external equity and internal equity. Each salary range includes
minimum, midpoint and maximum salaries, with the midpoint representing the market or
going rate for the job.

Typical compensation design problems include:

1. Failure to tie pay closely to achievement of objective and realistic performance

measures.
 2. Failure to regularly measure and provide feedback on performance.
3. Failure to design variances in pay-related to performance that are large enough to be
perceived by the employer as worth the effort.
4. Over reliance on salary as the only significant method of financial rewards.

Understanding compensation Analytics, Quantifiable data

Compensation analytics is a practice to analyze whether or not the employer is paying a

reasonable amount of salary to its employees. It is a practice to bring discipline. Professionals
work on employment data to understand factors from all sides both in the employee as well as
employer benefits. The biggest objective is to make informed compensation decisions on the
basis of accurate analytics and data. During the process, salaries are compared by region,
industry level of experience, and job titles.

Labour costs make up the majority of expenses for most organizations. It can account for up
to 70% of the business cost. It is, therefore, critical to understand what this cost consists of.
Although compensation analysis can be a complex process, it is a necessary tool to ensure
fair workplace practices and contribute to your employee engagement strategy.

The purpose of this guide is to provide a basic understanding of compensation analysis and
its associated benefits. It also offers practical steps on conducting a compensation analysis,
which you should tailor to your organization’s needs.

Components:

External competitiveness: Employers compare their compensation data and practices to

external companies. For example, Salesforce found that their engineer salaries were
comparable to engineers at Microsoft. It was a fair comparison because of the size and
geographical spread of both organizations. On the other hand, engineers at Slack were paid
much less, but they are a much smaller organization.

Internal equity: Employers compare employees’ salary and indirect compensation data to
ensure fair compensation for the level and type of work done.

Region: Employers compare compensation data of people doing similar work within a
particular region.
Level: Employers compare employees’ levels and the level at which they are compensated.

Benefits:

Salary benchmarking gives an impartial idea of competitive salaries and allows

organizations to make informed decisions. Salary benchmarks provide data points, whether it
is worth it or not to pay an employee above the average salary. It also helps understand the
holistic remuneration packages offered by employers.

Evaluating pay equity allows organizations to compensate employees doing the same level
of work in a fair way. Conducting a comprehensive compensation analysis also enables you
to correct historic pay gaps.

Transparent compensation decisions leave the decision-making of salaries in the hands of

accurate and impartial data. This leaves employees with a higher level of trust in the
organization and their managers.

Compensation analysis is dynamic, as mentioned before, and thus, you’re able to make
projections based on future needs or employees and how this may affect your compensation
strategy.

Identifying opportunities: Through a comprehensive compensation analysis, you can

identify where you can improve your compensation strategy. You may be able to find
different ways to remunerate employees.

Factors affecting Employee Compensation

The Compensation is the monetary and non-monetary rewards given to the employees in
return for their work done for the organization. Basically, the compensation is in the form of
salaries and wages. There are several internal and external factors affecting employee
compensation, which are discussed in detail below.
 1. Internal
factors

The internal factors exist within the organization and influence the pay structure of the
company. These are as follows:

(i) Ability to Pay- The prosperous or big companies can pay higher compensation as
compared to the competing firms whereas the smaller companies can afford to maintain their
pay scale up to the level of competing firm or sometimes even below the industry standards.

(ii) Business Strategy- The organization’s strategy also influences the employee
compensation. In case the company wants the skilled workers, so as to outshine the
competitor, will offer more pay as compared to the others. Whereas, if the company wants to
go smooth and is managing with the available workers, will give relatively less pay or
equivalent to what others are paying.

(iii) Job Evaluation and Performance Appraisal- The job evaluation helps to have a
satisfactory differential pays for the different jobs. The performance Appraisal helps an
employee to earn extra on the basis of his performance.

(iv) Employee- The employee or a worker himself influences the compensation in one of the
following ways.
  Performance- The better performance fetches more pay to the employee, and thus
with the increased compensation, they get motivated and perform their job more
efficiently.
 Experience- As the employee devotes his years in the organization, expects to get an
increased pay for his experience.
 Potential- The potential is worthless if it gets unnoticed. Therefore, companies do pay
extra to the employees having better potential as compared to others.

2. External Factors

The factors that exist out of the organization but do affect the employee compensation in one
or the other way. These factors are as follows:

(i) Labor Market- The demand for and supply of labor also influences the employee
compensation. The low wage is given, in case, the demand is less than the supply of labor.
On the other hand, high pay is fixed, in case, the demand is more than the supply of labor.

(ii) Going Rate- The compensation is decided on the basis of the rate that is prevailing in the
industry, i.e. the amount the other firms are paying for the same kind of work.

(iii) Productivity- The compensation increases with the increase in the production. Thus, to
earn more, the workers need to work on their efficiencies, that can be improved by way of
factors which are beyond their control. The introduction of new technology, new methods,
better management techniques are some of the factors that may result in the better employee
performance, thereby resulting in the enhanced productivity.

(iv) Cost of Living- The cost of living index also influences the employee compensation, in a
way, that with the increase or fall in the general price level and the consumer price index, the
wage or salary is to be varied accordingly.

(v) Labor Unions- The powerful labor unions influence the compensation plan of the
company. The labor unions are generally formed in the case, where the demand is more, and
the labor supply is less or is involved in the dangerous work and, therefore, demands more
money for endangering their lives. The non-unionized companies or factories enjoy more
freedom with respect to the fixation of the compensation plan.
(vi) Labor laws- There are several laws passed by the Government to safeguard the workers
from the exploitation of employers. The payment of wages Act 1936, The Minimum wages
act 1948, The payment of Bonus Act 1965, Equal Remuneration Act 1976, Payment of
Gratuity Act 1972 are some of the acts passed in the welfare of the labor, and all the
employers must abide by these.

Thus, there are several internal and external factors that decide the amount of compensation
to be given to the workers for the amount of work done by them.

Analytics for Compensation Planning

Compensation strategies that entice employees to stay at the company are more important
than ever.

Compensation has become much more complicated, as it’s no longer just about exchanging
money for time.

Today’s compensation plan must maximize the effectiveness of the budget for each employee
and department. At the same time, it needs to provide satisfaction and security to your
employees, ensuring that they’re compensated fairly.

What’s more, a good compensation plan incorporates ways of motivating employees to

perform at their best. You can do so by providing a range of performance incentives that are
appealing, relevant and quantifiable.

That’s why investing in the development of a solid compensation planning strategy is worth
it. A method of ensuring that your compensation budget is allocated as efficiently as possible
can have a considerable effect on your company’s success.

Techniques:

Market Data Comparison: Using your internal payroll data to compare market averages
from external salary surveys.

Labour Cost Analysis: Merging payroll data such as base salaries, bonuses, overtime pay,
and benefits to determine overhead costs.
People count Analysis: Providing an accurate picture of staffing levels and compensation
costs to assist with salary and workforce planning.

Retention Analysis: Looks at employee’s risk of leaving by reviewing compensation levels

and performance data.

High Performer Analysis: Profiles high performers by analyzing performance levels and
correlates with rewards, training, previous work experience and education to assist with
recruitment and retention efforts.

Sales Compensation Analysis: Calculates commissions, bonuses, quotas and hours worked
to determine sales per hour.

Geographic Pay Analysis: Review payroll costs by location to assist with geographic
investment and expansion strategy decisions.

Managing Compensation Costs

Performing internal audits like the pay equity example above can lead to company-wide
changes to pay and benefits. Movements can lead to more hires and reduced turnover, as well
as increased wage and benefits pressures at competing organizations. If you find your
organization behind the pack, it can be tempting to simply follow the lead of others.
However, this can lead to wasted spending.

Uses:

Eliminating guesswork from your decision-making

The second benefit lies in using data to make a decision where Human Resources and
management previously used “gut instinct” for decision-making. When a good employee
tenders their resignation, the natural instinct of their manager is to get approval to make a
counter-offer.

Assessing pay equity

The topic of pay fairness has received a great deal of press across multiple countries,
particularly given the mandated reporting of the “gender pay gap” in the United Kingdom and
elsewhere. Since the defined pay gap that needs to be reported doesn’t measure pay equity,
companies need much more detailed data to conduct an accurate pay fairness assessment.
Much of the data required for an accurate assessment of pay equity such as base salary, bonus
structures, job classes, and performance values reside inside compensation applications.
Statistical procedures in combination with compensation analytics reveal the true
compensation picture that can be communicated both internally and externally, and satisfy
compliance requirements.

 Visualize all of your compensation data in one place and discover trends that result in
key business outcomes.
 Streamline compensation planning with actionable insights.
 Empower leaders to view current compensation costs and develop fair compensation
strategies for their teams.
 Identify trends in your organization’s succession plans to streamline your succession
strategy.
 Break down time-since-promotion by succession job and discover actionable insights.

HRM Competencies

A competency is the combination of knowledge, skill, and/or ability one needs to

successfully perform a job function. There are general and technical competencies, and both
are required for each occupation. General competencies cut across occupations, while
technical competencies are specific to an occupation and/or technical area. Both general and
technical competencies have a required proficiency level by grade level.

The primary goal of human resource management (HRM) is to maximize workforce

performance and value so as to meet the company’s business needs. Achieving this goal
requires several HRM competencies within each of the human resource disciplines –
recruitment and selection, training and development, workplace safety and risk management,
employee relations, and compensation and benefits. The result of effective and
complementary HRM functions is a strategically sound and effective human resources
department.
HRM Competencies

HR Services

Services to employees – the company’s internal customers – must be efficient, accurate and
timely. Services such as benefits administration and payroll processing are major components
of this HRM competency because they support large-scale human resource programs such as
performance management and compensation practices.

HR Strategic Partnership

Alignment between human resource goals and organizational goals happens when there exists
a strategic partnership between human resource management and the company’s leadership.
The HRM competency most effective in developing a strategic partnership is the ability to
produce human resources metrics — or measurements — that demonstrate a return on
investment in HR department activities and functions. For example, lobbying executive
leadership to invest in a costly applicant tracking system to create a more efficient
recruitment and selection would require justifying the expense through demonstrating a
return on investment. The usual return on investment for an applicant tracking system is the
reduction in the costs to hire and process new employees. Applicant tracking systems
automate recruitment and selection processes that would have typically required staff time
and expense. Strategic alliances are worth the time they take to build, but they require
forward-thinking management principles.

HR Processes

Staying abreast of human resource best practices is an effective way to maintain HRM
competencies pertaining to processes, employment trends and procedures for the delivery of
services to employees and external HR customers. External HR customers include applicants,
former employees, vendors and suppliers. Recruitment and selection steps, workplace
investigation procedures and safety and risk management measures are among the human
resources processes that comprise this HRM competency.

HR Compliance

Without human resource oversight, companies could be liable for exorbitant legal fees,
penalties and fines. In addition, noncompliance with labor and employment laws can cause
irreparable damage to the company’s business reputation. Compliance and audit are critical
HRM competencies – human resource department staff must maintain up-to-date knowledge
of federal, state and municipal employment regulations and ensure the company demonstrates
a commitment to fair employment practices. Maintaining current knowledge of laws and
regulations should also include the ability to determine how pending legislation can impact
the human resources field and the employment landscape.

HR Development

Long-range planning for employee training and development is an HRM competency and a
key component in succession planning. Succession planning prepares the current workforce
for increasingly responsible roles using promotion-from-within policies. Workforce planning
and development prepares the organization for projected demands for the company’s
products and services. An essential HRM competency is the ability to conduct and analyze
needs assessments for future workforce skills and capabilities. Looking at current employees’
skill sets and using that information to determine what type of training or employee
development is necessary requires knowledge of workforce planning and delivery of training.
This HRM competency helps the organization achieve or maintain a competitive edge and
industry status by readying it for employment trends and the availability of workers. HR
development also positions the organization to become an employer of choice through long-
range planning activities that include innovative recruitment, selection and talent
management. Talent management is a human resources concept that refers to the breadth and
depth of human capital – also known as employee expertise – which is an employer’s most
valuable resource.