MODULE 3

Performance Management and Appraisal

Compensation and Benefits , Industrial Relations , Employment Relations

Performance Management and Appraisal

Objectives of Performance Management
Performance appraisal may be understood as the assessment of an individual’s performance in a
systematic way. The performance being measured against such factors as job knowledge, quality
and quantity of output, initiative, leadership abilities, supervision, dependability, cooperation,
Judgment, versatility, health etc.t is the systematic evaluation of the individual with respect to
his/her performance on the job and his/her potential for development. A system that involves
employee evaluations once a year with an ongoing effort to provide feedback and coaching so
that performance can be improved is performance management system.(PMS).PA-Performance
appraisal is the systematic description of an employee’s strengths and weaknesses. Thus
performance appraisal is a part of Performance management system. Assessment is generally not
confined to past performance alone .Potentials of the employee for future performance must also
be assessed. Therefore a more comprehensive definition is Performance Appraisal is a formal,
structured system of measuring and evaluating job related behaviour and outcomes to discover
how and why the employee is presently performing on the job and how the employee can
perform more affectively in the future so that the employee, organization and society all
benefits” This definition states behaviour is also a part of the assessment .Behaviour can be
active or passive – do something or do nothing. Either way behaviour affects job results,
employee assessment is as old as the concept of management.
The process of performance appraisal helps the employee and management to know the level of
employee’s performance compared to the standard pre-determined level useful to decide upon
employee promotion/ transfer salary etc. Performance appraisal indicates the level of desired
performance level, level of actual performance and the Gap between these two. This Gap should
be bridged through Human Resource techniques like, Training, executive development etc.
Method of evaluating Behaviour of Employees in the work spot including both the quantitative
and qualitative aspect of Job performance. Performance is measured in terms of results and not
efforts. Important features are.
 It is the systematic description of an employee’s job relevant strength and weakness.
 To find how well the employee is performing the job and establish a plan of improvement.
 Appraisals are arranged periodically according to a definite plan
 Performance evaluations not job Evaluation. It refers to how well someone is doing the
assigned job. Job evaluation determines how much a job is worth to the organization and
therefore what range of pay should be assigned to the job.
 Performance appraisal is a continuous process in every large scale organization.
 Is a way to find out interpersonal relationship
 Provides job satisfaction of the employees on the job assigned
 A system by which favoritism and Discrimination by superiors can overcome- a fair judgment.
The following are the objectives :
 To effect promotions based on competence & performance
 To confirm the services of probationary employees after the completion of probationary
period.
 To assess the training & development needs of employees.
 To decide on pay rise(unorganized sector)
 To let the employees know where they stand & to guide them for their development.
 To improve communication between a superior & subordinate & to set goals.
 To ask HR programmes such as selection training & transfer are effective or not
 To create and maintain a satisfactory level of performance
 Assist managers to take decision: On promotion, transfer, extension of tenure,
Termination etc. In such cases objective assessment of performance is needed.
 Training and development: Needs of employees vary depending on their skill level.
Knowledge Level, Experience. Hence as accurate, up to date information in regard to their
competence level is needed. Appraisal provide this.
 Validation of selection criteria: for certain position or skill.
 Feedback to employees: Adequate & Relevant on time feedback is made available for
corrective action, motivation etc.
 Reward Management; Upto date, accurate, objective, performance evaluation is needed
for selecting employees to receive such awards.
 Manpower planning: for these purposes appraisal is useful
- Towards long term successive – planning career paths.
- Determination of future vacancies & consequent promotional avenues.
To sum up performance appraisal primary purpose / objective are
 Compensation
 Performance feedback
 Training
 Promotion
 Manpower Planning
 Plan Lay off, Retrenchment etc
The Performance Appraisal Process
The following are the steps
Performance goal setting/Standard performance

Communicating the standards performance to employees

Measuring the actual performance

Comparing the actual and standard performance

Identifying the gap

Framing training and development actions to meet the gap

Methods of Performance Appraisal

1. Traditional method
2. Modern methods

Traditional method

1. Graphic Rating Scale

Ranking Method
2. Paired comparison method
 3. Forced Distribution method.
4. Checklist Methods
 Simple check list
 Weighted check list
 Forced choice method
5. Essay free from appraisal
6. Group appraisal
7. Confidential Reports.

Modern methods
1. Behaviorally anchored rating scales bars
2. Assessment center
3. Human Resource Accounting
4. Management by Objective.
5. Psychological Appraisal
There are numerous methods which have been devised to measure the quantity and quality of
employees’ job performance. Each of the methods could be effective for some purposes, for
some organizations. These methods are appropriate as per the company’s requirements. Broadly
are the approaches to appraisal can be classified into a) past oriented methods b) future oriented
method.
Past oriented method:
Rating scale methods:
This is the simplest and most popular technique for appraising employee performance. The
typical rating scale system consists of several numerical scales, each representing a job
relatedperformance criterion such as dependability, imitative, output, attendance, attitude,
cooperation and etc... Each scale ranges from excellent to poor. The rater checks the appropriate
performance level on each criterion; then computes the employees total numerical score. The
number of points may be linked to salary increases, whereby total points = corresponding
percentage of increase in salary.
Rating Scale:
Instructions: - for the following performance factors, please indicate on rating scale, your
evaluation of the employee.
Employee name: ____________ Dept: _________
Raters name: _______________ Date: _________
Excellent Good Acceptance Fair Poor
Dependability

Initiative

Overall output
 Attendance

Attitude

Cooperation

Quality of work

Total

Grand total

Advantages: adaptability, easy to use, low cost, nearly every type of job can be evaluated with
this rating scale, if the job performance is changed. A large number of employees can be
evaluated in short time; the rater do not require training to use this scale.
Disadvantage: Biases influence valuation.

Check lists:
Here a check list of statements on the traits of the employee and his/her job is prepared in two
columns i.e. ‘yes’ and ‘no’ column. The rates (immediate superior) ticks the ‘yes’ column if the
answer to the statement is positive and in column ‘no’. if the answer is negative. Assessment is
done in the HR department. Certain points are given to ‘yes’ & ‘no’ column to become a
weighed check list depending on the points. Increases in salary are determined thereafter.
PARAMETERS YES NO
Is the employee really interested in the job
Does he/she possess adequate knowledge about the job?
Is his/her attendance satisfactory?
Does he/she maintain his/her equipment in good
Condition?
Does she/he cooperate with coworkers?
Does he/she keep his/her temper?
Does he/she obey orders?
Does he/she observe safety preparations?
Does he/she complete the work?
Does he/she evade responsibility?
(ii) Ranking Method:
Rank as best to worst on Some characteristics. Bajaj, Tempo, BASF use this. Rank the
best and worst in the first stage and go on the same way with remaining, to complete rating of all
employees.

(iii) Paired comparison Method:

Followed where number of employee are less. Assign each employee a capital letter A,B,C etc
Pair the objectives, put them in a chart & each plotted pair against write in the letter of employee
who is found superior and given a positive comparison total and a percentage of total positive
evaluation. This positive comparison given in the paired comparison method has an advantage
over other comparative methods. (Ranking and forced Distribution)

(iv) Forced Distribution:

after assigning marks to the performance of each employee, Distributor in a pattern to confirm to
normal frequency Distribution. The limitation is that, in a group if all are outstanding, it is
difficult to place people at lower category. Usha, JCT, SPL follow this method.

No
Of
Employee
40% 20%
Average Below 10%
10%20% Average
Excel Good On
Ent satisfactory
 Scores

Checklist Method.

(i) Simple Checklist (ii) Weighted checklist (iii) Forced choice

Method
Rater checks on a statement of Performance Ratings on Large number of statements in
behavior of an employee as various Behaviour of Groups are prepared. Each group
positive / negative. Employee employee is given a weight consists of four descriptive
performance is rated on age. Weighted performance statements concerning employee
number of positive choice score is compared with the behavior. Two Statements
Statement meaning may vary overall assessment standards to favourable Two Statements,
Rater to Rater find out the overall Unvavourable. Appraiser to select
performance of an employee. one statement that mostly
 Demerit: The consuming rater deserves employee’s behavior.
may not fully know items Demerit: Objective evaluation not
contributing to the successful possible – Rater may not fully
performance. understand equally desirable/ un
desirable

Critical incident method: A continuous rating method, instead of once in 6 months or 1 year
Annual Rating.

Supervisor records employee performance on critical incidents both positive and negative
characters on specially designed note book. Rating done based on notebook data. Reduces Bias
in evaluation short coming. Critical incidents not defined for comparison – All capital (ITC,
VOLTAS, VST follow this) incident may not be knowing to supervisor.

Essay or Free form of appraisal: Manager is required to write a short essay describing each
employee’s performance during the rating period. This format emphasizes Evaluation of overall
performance. Based on strength and weakness of employee rather than specific job dimension.

Supervisory BIAS and HOLO effect required by asking supervisor to enumerate specific
examples of employee behavior.

To Enumerate Specific examples of employee behavior.

Demerit.
- Difficult to take decisions based on essays- No standard
- to compare- Evaluators may vary in their skills of essay
- Writing & the employee actual performance will depend
- On the writing skills of the appraiser.
-
BPL, BIRLA, 3M, Wheels India & BATA follow this method.

Group Appraisal; An employee is appraised by a Group of appraisers. Group consist of

Immediate superiors, Managers, HODs of other Department, who have close contacts,
Consultants. HOD of the concerned employee will be chairman and immediate supervisor,
coordinator for group activities and he explains other members about job character, Demands,
standard of performance etc.
The Group rating against standard performance discussed with the concerned widely used by
Kinetic Honda, Birla, VXL, Bluestar used essentially for promotion, Demotion and
Retrenchment.
Confidential Reports: A traditional method of Assessment based on observations, Judgments and
in turn, superior appraises. Superior does not allow the employee knows the Report and his
performance superior rates on his subordinates.

- Strengths - Attitude to work - punctuality - Character

- weakness - Sincerity - Attendance - Friendliness
- Intelligence - Commitment - Conduct - Cooperation etc
Followed by Most of PSU & Organizations, though suffer Limitations.

Modern methods
Behaviourly Anchored Rating Scales: BARS
Combines Elements of Traditional Rating Scales and Critical Incident Methods
Using BARS: Job Behaviour from Critical Incidents – Effective Ineffective Behaviours are
described more objectively.

Method: Individuals who are familiar with a particular job to identify its major components and
then rank and validate specific behavior for each of the components, then they rank and validate
specific behaviours for each of the components emphasis on pooling the thought process of
people who will use the scales both as Evaluators and Evaluees.

Step: I. Collect Critical Incidents: Supervisors job Holders Describe Effective In effective,
Indifference Behaviour Related to Job performance.
Step II. Identify performance Dimension: Convert Critical incidents into Key performance
dimension, Generally About 5 to 10 Dim for a job.
Step III. Reclassification of Incidents: Another Group to reclassify the Critical Incidents
Generated > 75% agreed ones selected.
Step IV. Assigning Scale value to the Incidents: 1 to 9 scale
1- Ineffective performance- Higher value- Effective performance.
Step V. Producing the Final Instrument; About Six/Seven incidents for each performance
dimension. Scale to its mean value.

Assessment centre: First applied in the German Army in 1930s

Technique: It is a system or organization, where assessment of several individuals done by
various experts using different techniques some of the method used are : Role Playing, Case
Studies, Stimulation Exercise, In Basket, structured insight, Transactional analysis. This is not a
technique of performance appraisal by itself.

Human Resource Accounting: Deals with Cost and Contribution of human resources to the
organization. Employee contribution can be taken as positive when contribution is more than the
cost and cost of employee includes Cost of manpower, planning, recruitment, selection,
Induction, Placement, Training, Development, etc. Bank of Baroda, SAIL, ITC Ltd, Made
attempts to follow this method.

Management by Objectives: ‘MBO’ focuses attention on particularly set goals that are tangible,
verifiable and measurable.

‘MBO’ is done along the following lines

Emphasis is on what must be accomplished rather than how it is to be accomplished.
- Subordinate and Superior jointly Determine Goals to be accomplished dring the
Appraisal period and level of performance to meet specific goals.
- During the appraisal period the superior and subordinates update and alter the
Goals as necessary to suit business environment both superior and subordinate
jointly discuss whether the subordinate achieved the Goals. If not identify reasons
for deviations viz. Market change, strike / lockout etc

COMPENSATION
Objectives of Compensation Planning
Compensation is what employees receive in exchange for their contribution to the organisation.
Compensation is a comprehensive payment including pay, incentives and benefits offered by
employers for hiring the services of employees. Remuneration is the compensation an employee
receives in return for his/her contribution to the organisation. Remuneration occupies an
important place in the life of an employee.
 His/her standard of living, status in the society, motivation, loyalty & productivity
depend upon the remuneration he/she receives.
 For employer too, employee remuneration is significant because of its contribution to the
cost of production.
 Many battles (in the form of strikes & lockouts) are fought between the employer and the
employees, on issues relating to wages or bonus.
 For HRM too, employee remuneration is a major function since HR specialists has a
difficult task of fixing wages & wages differentials acceptable to employees and their
leaders.

Compensation has been an extremely important issue for both, the employer and employee. This
is because money is a crucial incentive and directly or indirectly related with fulfillment of all
human needs.
• Employees sell their hands and brain in order to fulfill their primary needs and employers hire
them to achieve their organizational objectives. Therefore the employer’s and employee’s
perspectives vary on matters concerning compensation. Another perspective from employer’s
point of view is to assess its impact on wide range of employee’s attitude, behaviors and
ultimately its effectiveness on organization’s success.
• Compensation directly influences key outcomes like job satisfaction, attraction, retention,
performance, skill acquisition, cooperation and flexibility etc. While employer’s objective is
concerned with primarily productivity, the employee’s emphasis may be on higher compensation
to offset their increased cost of living and perhaps the price his skill will fetch in the competitive
job market.
• Compensation therefore remains one of the most strategic and important functions of human
resource management. Over the years, compensation has become a complicated issue. Not only
are the problems of internal equity and external parity important, but also the larger issues of the
wider economy and society impinge on the problem of compensation.
Components of compensation
Compensation consists of mainly 2 types’ monetary benefits & non-monetary benefits
Monetary benefits:
a. Wages & salary:
Wages represent hourly rates of pay & salary refers to the monthly rate of pay. Wages & salaries
are subject to annual increments. They differ from employee to employee and depend upon the
nature of job, seniority & merit.
b. Increments:
Also called as ‘payments by results’. Incentives are paid in addition to wages & salaries.
Incentives depend upon productivity, sales, profit or cost reduction efforts.
There are 2 types of incentives
1. Individual incentive is given to specific employee based on his performance.
2. Group incentive is given to a group to a based on the team effort in achieving the goals.
The amount is divided equally to its members.
c. Fringe benefits
Includes employee benefits such as provident fund, medical care, hospitalization, accident relief,
health & group insurance, canteen, uniform, recreation and etc…
d. Perks:
These are given to executives & include company car, club membership, paid holidays, furnished
house, stock & shares. Perks are essential to retain competent executives.
Non-monetary benefits:
Challenging job opportunities, recognition of merit, growth prospects, competent supervision,
comfortable working conditions, job sharing & flextime.

The most important objective of any pay system is fairness or equity. The term equity has three
dimensions:
Internal Equity: This ensures that more difficult jobs are paid more
External Equity: This ensures that jobs are fairly compensated in comparison to similar jobs in
the labour market.
Individual Equity: It ensures equal pay for equal work: each individual pay’s fair in comparison
to others doing the same/similar jobs.
New & Desired Behavior: loyalty, commitment, initiative
Control costs: effective compensation management ensures that employees are neither overpaid
nor underpaid
Comply with legal rules: Compensation should satisfy with government rules, bonus,
allowances, benefits etc.
Ease of operation: Compensation management should be transparent and easy to understand
Employee compensation is designed to have 3 objectives
1. To attract capable employees to the organisation
2. To motivate than towards superior performance
3. To retain their services over an extended period of time.

Total compensation and rewards system

• Compensation: Pay provided by an employer to its employees for services rendered (i.e.,
time, effort, skill). This includes both fixed and variable pay tied to performance levels.
• Benefits: Programs an employer uses to supplement the cash compensation employees
receive. These health, income protection, savings and retirement programs provide
security for employees and their families.
• Work-Life Effectiveness: A specific set of organizational practices, policies and
programs, plus a philosophy that actively supports efforts to help employees achieve
success at both work and home.
• Recognition: Either formal or informal programs that acknowledge or give special
attention to employee actions, efforts, behavior or performance and support business
strategy by reinforcing behaviors (e.g., extraordinary accomplishments) that contribute to
organizational success.
• Performance management: The alignment of organizational, team and individual
efforts toward the achievement of business goals and organizational success.
Performance management includes establishing expectations, skill demonstration,
assessment, feedback and continuous improvement.
• Talent development and career opportunities: Provides the opportunity and tools for
employees to advance their skills and competencies in both their short- and long-term
careers

Forms of Pay

Basic pay: Basic salary is a fixed amount paid to employees by their employers in return for the
work performed or performance of professional duties by the former.
Base salary, therefore, does not include bonuses, benefits or any other compensation from
employers.
As the name suggests, basic salary is the core of the salary of an employee.
It is a fixed part of the compensation structure of an employee and generally depends on her or
her designation
VARIABLE PAY
• Company Performance Linked Pay
• Group/Team Performance Linked Pay
• Individual Performance Linked Pay
Fringe benefits: Pension plans, profit-sharing programs, vacation pay, and company-paid life,
health, and unemployment insurance programs
Perquisites/perks: Medical Facilities & Reimbursements, Recreational Facilities, Education for
Children, Food and Beverage, Loan to Employees, Free domestic servant provided
Allowances: Overtime allowance, Travelling, Fuel allowance

Theories of compensation
Reinforcement theory
Reinforcement theory of motivation was proposed by BF Skinner and his associates. It states that
individual’s behaviour is a function of its consequences. It is based on “law of effect”, i.e,
individual’s behaviour with positive consequences tends to be repeated, but individual’s
behaviour with negative consequences tends not to be repeated.

Reinforcement theory of motivation overlooks the internal state of individual, i.e., the inner
feelings and drives of individuals are ignored by Skinner. This theory focuses totally on what
happens to an individual when he takes some action. Thus, according to Skinner, the external
environment of the organization must be designed effectively and positively so as to motivate the
employee. This theory is a strong tool for analyzing controlling mechanism for individual’s
behaviour. However, it does not focus on the causes of individual’s behaviour.

The managers use the following methods for controlling the behaviour of the employees:

Positive Reinforcement- This implies giving a positive response when an individual shows
positive and required behaviour. For example - Immediately praising an employee for
coming early for job. This will increase probability of outstanding behaviour occurring
again. Reward is a positive reinforce, but not necessarily. If and only if the employees’
behaviour improves, reward can said to be a positive reinforcer. Positive reinforcement
stimulates occurrence of a behaviour. It must be noted that more spontaneous is the giving
of reward, the greater reinforcement value it has.

Negative Reinforcement- This implies rewarding an employee by removing negative /

undesirable consequences. Both positive and negative reinforcement can be used for
increasing desirable / required behaviour.

Punishment- It implies removing positive consequences so as to lower the probability of

repeating undesirable behaviour in future. In other words, punishment means applying
undesirable consequence for showing undesirable behaviour. For instance - Suspending an
employee for breaking the organizational rules. Punishment can be equalized by positive
reinforcement from alternative source.
 Extinction- It implies absence of reinforcements. In other words, extinction implies
lowering the probability of undesired behaviour by removing reward for that kind of
behaviour. For instance - if an employee no longer receives praise and admiration for his
good work, he may feel that his behaviour is generating no fruitful consequence. Extinction
may unintentionally lower desirable behaviour.

Expctancy theory

Expectancy theory, initially put forward by Victor Vroom at the Yale School of Management,
suggests that behavior is motivated by anticipated results or consequences. Vroom proposed that
a person decides to behave in a certain way based on the expected result of the chosen behavior.
For example, people will be willing to work harder if they think the extra effort will be rewarded.

In essence, individuals make choices based on estimates of how well the expected results of a
given behavior are going to match up with or eventually lead to the desired results. This process
begins in childhood and continues throughout a person’s life. Expectancy theory has three
components: expectancy, instrumentality, and valence.

 Expectancy is the individual’s belief that effort will lead to the intended performance
goals. Expectancy describes the person’s belief that “I can do this.” Usually, this belief is
based on an individual’s past experience, self-confidence, and the perceived difficulty of
the performance standard or goal. Factors associated with the individual’s expectancy
perception are competence, goal difficulty, and control.
 Instrumentality is the belief that a person will receive a desired outcome if the
performance expectation is met. Instrumentality reflects the person’s belief that, “If I
accomplish this, I will get that.” The desired outcome may come in the form of a pay
increase, promotion, recognition, or sense of accomplishment. Having clear policies in
place—preferably spelled out in a contract—guarantees that the reward will be delivered if
the agreed-upon performance is met. Instrumentality is low when the outcome is vague or
uncertain, or if the outcome is the same for all possible levels of performance.
 Valence is the unique value an individual places on a particular outcome. Valence
captures the fact that “I find this particular outcome desirable because I’m me.” Factors
associated with the individual’s valence are needs, goals, preferences, values, sources of
motivation, and the strength of an individual’s preference for a particular outcome. An
outcome that one employee finds motivating and desirable—such as a bonus or pay raise
—may not be motivating and desirable to another (who may, for example, prefer greater
recognition or more flexible working hours).

Expectancy theory, when properly followed, can help managers understand how individuals are
motivated to choose among various behavioral alternatives. To enhance the connection between
performance and outcomes, managers should use systems that tie rewards very closely to
performance. They can also use training to help employees improve their abilities and believe
that added effort will, in fact, lead to better performance.
 Adams' Equity Theory

Adams' Equity Theory calls for a fair balance to be struck between an employee's inputs (hard
work, skill level, acceptance, enthusiasm, and so on) and an employee's outputs (salary, benefits,
intangibles such as recognition, and so on).According to the theory, finding this fair balance
serves to ensure a strong and productive relationship is achieved with the employee, with the
overall result being contented, motivated employees.

Equity theory shows that inequities (perceived or real) harm employee motivation. Employees
who feel that they are receiving inequitable treatment will be emotionally motivated to gain
equity. What does this behavior look like? When inequities persist, employees may do any of the
following:

 Decrease inputs (give less time, do less work)

 Push for more output from the company (more pay, authority)
 Go into survival mode (do their job and little more)
 Become resistant (act out on other issues)
 Become overly competitive (focus on reducing the outputs of others)
 Quit

These outcomes harm an organization’s bottom line and where organizational turnover occurs
the loss is two-fold (economic and talent based). Clearly, equity theory shows why employee
perceptions about fairness do matter. When employees believe that the workplace is unfair, they
grow to distrust organizational leadership. When leaders choose to ignore this distrust, employee
morale and motivation suffers.

Agency theory

Agency theory is a principle that is used to explain and resolve issues in the relationship between
business principals and their agents. Most commonly, that relationship is the one between
shareholders, as principals, and company executives, as agents. Agency theory is used to
understand the relationships between agents and principals. The agent represents the principal in
a particular business transaction and is expected to represent the best interests of the principal
without regard for self-interest. The different interests of principals and agents may become a
source of conflict, as some agents may not perfectly act in the principal's best interests. The
resulting miscommunication and disagreement may result in various problems and discord
within companies. Incompatible desires may drive a wedge between each stakeholder and cause
inefficiencies and financial losses. This leads to the principal-agent problem.

Factors affecting compensation

The factors affecting employee compensation can be categorized into:-
1. Internal Factors
2. 2. External Factors.
Some of the internal factors affecting employee compensation are:

Compensation Policy of the Organization 2. Employer’s Affordability 3. Worth of a Job 4.

Employee’s Worth 5. The Organizational Ability to Pay 6. Job Analysis and Job Description and
7. Employee Related Factors.

Some of the external factors affecting employee compensation are:

Demand and Supply of Labour 2. Cost of Living 3. Economic Conditions 4. Prevailing Wage
Level 5. Society 6. Government Control 7. Labour Unions 8. Legislation 9. Globalization 10.
Cross Sector Mobility and 11. Compensation Survey.

External Determinants of Compensation:

Labour Market Conditions:
The forces of demand and supply of human resources, no doubt, play a role in compensation
decision. Employees with rare skill sets and expertise gained through experience command
higher wage and salary than the ones with ordinary skills abundantly available in the job market.
But the higher supply of human resources for certain jobs may not lead to reduction of wages
beyond a floor level due to Government’s prescription of minimum wage levels and employee
union’s bargaining strength.
Similarly, this factor by itself does not result in lower pay if the vast majority of available
resources are unemployable due to poor skill and low talent. Thus, it is clear that law of demand
and supply applies to labour market only to a limited extent.
2. Economic Conditions:
Organizations having state-of-the-art technology in place, excellent productivity records, higher
operational efficiency, a pool of skilled manpower, etc., can be better pay masters. Thus,
compensation is the consequence of the level of competitiveness .prevailing in a given industry.
3. Prevailing Wage Level:
Most of the organizations fix their pay in keeping with the level for similar jobs in the industry.
They frequently conduct wage survey and accordingly seek to keep their wage level for different
jobs. If a particular firm keeps its pay level higher than those of others in the industry, its
employee cost becomes heavier which may escalate the end cost of the products. This will affect
the competitiveness of the firm. On the other hand, if a firm keeps its pay level lower than the
prevailing rates, it may not recruit the skilled and competent manpower.
4. Government Control:
Government through various legislative enactments such as Minimum Wages Act, 1948,
Payment of Wage Act, 1936, Equal Remuneration Act, 1976, Payment of Bonus Act, 1965,
dealing with Provident Funds, Gratuity, Companies Act, etc., have a bearing on compensation
decisions. Therefore, firms have to decide on salaries and wages in the light of the relevant Acts.
5. Cost of Living:
Increase in the cost of living, raise the cost of goods and services. It varies from area to area
within a country and from country to country. The changes in compensation are based on
consumer price index which measures the average change in the price of basic necessities like
food, clothing, fuel, medical service, etc., over a period of time. Allowances like Dearness
Allowance. City compensatory allowances are paid to meet the increasing cost of living and
parity among employees posted at different geographies.
6. Union’s Influence:
The collective bargaining strength of the trade unions also influence the wage levels. Trade
unions enjoy an upper hand in certain industries like banking, insurance, transport and other
public utilities. Therefore, wage structure in such industries and in such Union-active regions,
salary and wage need to be fixed and revised in consultation with the unions for ensuring smooth
industrial relation.
7. Globalization:
It has ushered in an era of higher compensation level in many sectors of the economy. The entry
of multinational corporations and big corporates have triggered a massive change in the
compensation structure of companies across sectors. There is a salary boom in sectors like
information technology, hospitality, biotechnology, electronics, financial services and so on.
8. Cross Sector Mobility:
Contemporary companies find it difficult to benchmark the salaries of their staff with others in
the industry thanks to mobility of talent across the sectors. For example, hospitality sector
employees are hired by airlines, BPOs, healthcare companies and telecom companies.

II. Internal Determinants of Compensation:

1. Compensation Policy of the Organization:
Firm’s policy regarding pay i.e., attitude to be an industry leader in pay or desire to pay the
market rate determines its pay structure. The former can attract better talent and achieve lower
cost per unit of labour than the ones that pay competitive pay.
2. Employer’s Affordability:
Those organizations which earn high profit and have a larger market share, a large business
conglomerate and multinational companies can afford to pay higher pay than others. Besides,
company’s ability to pay higher pay is impaired by sector- specific economic recession and acute
competition.
3. Worth of a Job:
Organizations base their pay level on the worth of a job. The wages and salaries tend to be higher
for jobs involving exercise of brain power, responsibility laden jobs, creativity-oriented jobs,
technical jobs.
4. Employee’s Worth:
In some organizations, time rates are granted to all employees irrespective of performance. In
such cases, employees are rewarded for their mere physical presence on the job rather than for
their performance. However many private sector organizations follow performance-linked pay
system. They conduct performance appraisal more often than not which provides input for
determining pay levels. It distinguishes the high-performer from the low-performer and the non-
performer.

Other Factors
Factor # 1 Supply and Demand for Employee Skills:
Though the commodity approach to labour is not completely correct, it is nevertheless true that a
wage is a price for the services of a human being. The firm desires these services and it must pay
a price that will bring forth the supply, which is controlled by the individual worker or by a
group of workers acting together. The primary practical result of the operation of this law of
supply and demand is the creation of the “going wage rate policy.”
Even though practically it is not possible to draw demand and supply curves for each job in an
organisation, but in general, if anything was to decrease the supply of labour, such as the
restriction of particular labour unions, there will be a tendency to increase the compensation.
If anything works to increase the employers demand for labour, there will be a tendency to
increase the compensation. The reverse of a situation is likely to result in a decrease in employee
compensation.

Factor # 2 Company’s Business Strategy:

The compensation method followed by an organisation depends to a large extent on the business
strategy followed by them, such as an organisation following the aggressive strategy for rapid
growth will maintain higher levels of compensation than their competitors.
As against this, business pursuing a defensive strategy will keep its remuneration levels at
average or below average levels than the ones prevailing in the market.
Factor # 3. Job’s Worth:
An organisation would like to pay their employees in terms of the worth of the job which they
are going to perform for the organisation. The job’s worth can be calculated by conducting a
thorough job evaluation and comparing the job with other jobs in the organisation as well as with
jobs in competitive organisations.
Factor # 4. Labour Unions:
They try to regulate the supply side of the labour. From time to time labour unions put pressure
over the management for providing better work facilities, better wages, or service conditions for
workers. At times they do resort to strike or lockout affecting the supply of labour to the
industry.
So it becomes important for the employers to keep their labour happy and satisfied by
compensating them well so that their union should not pose any problems to them.
Factor # 5. Ability to Pay:
The level of compensation being paid to the employees depends to a large extent on the paying
ability of the organisation. In case the organisation is big and prosperous, its employees expect a
better level of salary and better perks and facilities from the management.
Such organisations generally compensate their employees at higher levels than their competitors,
while in case the firm is marginal and cannot afford to pay competitive rates its employees will
always have a tendency to leave the organisation for better paying jobs.
Factor # 6. Productivity:
The employee’s salary at times is directly related to their level of productivity. Every good
management would try to bring equity between the results and rewards of an employee.
Employee’s productivity results in increasing turnover for the organisation resulting in better
revenues and ultimately an increase in the salary of its employees.
Factor # 7. Cost of Living:
The consumer price index is widely accepted and followed by many employers and labour
organisations for fixing the basic level of employee’s salary. Cost of living adjustment of
compensation does not provide any fundamental solution to the principle of equitable
compensation to employees. It is useful as a stopgap device in times of inflation when labour is
pressed to keep up with the rise in prices.
Factor # 8. Government Regulation:
Government plays a very important role in fixing the basic level of salary for employees. From
time to time government has made various laws to protect the interest of employees at various
levels. It is expected of every organisation to keep the various laws into account while fixing the
compensation for employees so that they should not finally land into any legal trouble.
(i) Demand for and Supply of Labour:
Wage is a price or compensation for the services rendered by a worker. The firm requires these
services, and so it must pay a price that will bring forth the supply which is controlled by the
individual worker or by a group of workers acting together through their unions. The primary
result of the operation of the law of demand and supply is the creation of the “going-wage rate”.

It is not practicable to draw demand and supply curves for each job in the organisation even
though, theoretically, a separate curve exists for each job. But, in general, if anything works to
decrease the supply of labour such as restriction by a particular labour union, there will be a
tendency to increase the wage.
If anything works to increase the employer’s demand for labour, there will be a tendency to
increase the wage. The reverse of each situation is likely to result in a decrease in employee
wage, provided other factors do not intervene.
(ii) Capacity to Pay:
Employer’s capacity to pay is an important factor affecting wages not only for the individual
firm, but also for the entire industry. This depends upon the financial position and profitability of
the firm. However, the fundamental determinants of the wage rate for the individual firm
emanate from supply and demand of labour.
If the firm is marginal and cannot afford to pay competitive wage rates, its employees will
generally leave it for better paying jobs in other organisations.
(iii) Cost of Living:
Another important factor affecting the wage is the cost of living adjustment of wages. This tends
to vary money wage depending upon the variations in the cost of living index following rise or
fall in the general price level and consumer price index. It is an essential ingredient of long-term
labour contract unless provision is made to reopen the wage clause periodically.
(iv) Productivity of Workers:
To achieve the best results from the worker and to motivate him to increase his efficiency, wages
have to be productivity based. There has been a trend towards gearing wage increase to
productivity increases. Productivity is the key factor in the operations of a company. Higher
wages and lower costs are possible only when productivity increases appreciably.
(v) Trade Unions:
Organised labour is able to ensure better wages than the unorganised one. Higher wages may
have to be paid by the firm to its workers under the pressure of trade unions, If the trade unions
fail in their attempt to secure higher wages and other allowances through collective bargaining,
they resort to strike and other methods whereby the supply of labour is restricted.
This exerts a kind of influence on the employers to concede at least partially the demands of the
labour unions.
(vi) Wage Laws:
To protect the working class from the exploitation of powerful employers, the Government has
enacted several laws. Laws on minimum wages, hours of work, equal pay for equal work,
payment of dearness and other allowances, payment of bonus, etc., have been enacted and
enforced to bring about a measure of fairness in compensating the working class.
Thus, the laws enacted and the labour policies framed by the Government have an important
influence on wages and salaries paid by the employers. Wages and salaries can’t be fixed below
the minimum level prescribed by the Government.
(vii) Prevailing Wage Rates:
Wages in a firm are influenced by the general wage level or the wages paid for similar
occupations in the industry, region and the economy as a whole. External alignment of wages is
essential because if wages paid by a firm are lower than those paid by other firms, the firm will
not be able to attract and retain efficient employees.
Job Evaluation
Job evaluation is the process of analyzing and assessing the various jobs systematically to
ascertain their relative worth in an organisation”. Jobs are evaluated on the basis of their content
& are placed in the order of their importance, in this way; a job hierarchy is established in the
organisation. The purpose of job evaluation is to fix the salary among various jobs. Here jobs are
ranked & then wages are fixed and not the job holders. For job holders, separate evaluation
performance evaluation is carried out.
Job evaluation process starts with defining objectives of evaluation & ends with establishing age
& salary differentials.
A job evaluation programme involves answering several questions.
 Which jobs are to be evaluated?
 Who should evaluate the jobs?
 What training do the evaluators need?
 How much time is involved?
 What should be the criteria for evalution?
 What methods of evaluation are to be employed?
Objectives of job evaluation
 To fix the salary among various jobs
 To review salary & wages from time to time
 To classify jobs & responsibility to maintain the organisation structure
 To motivate employees for better productivity and human relations
 To reduce complaints & labour turnover
 To help in performance appraisal programme i.e. promotions
Techniques/methods of job evaluation
Ranking/grading method (non analytical method):
This is the simplest & inexpensive method of job evaluation. The assessment is done by looking
at the worth of each job on the basis of little .But the job is not broken down into factors or
elements. Each job is compared with others and its place is determined.
Analytical methods of job evaluation
Factors are checked for job analysis
Factors comparison method:
Factors of jobs are compared, the factors are
a. Mental requirements
b. Skill requirements
c. Physical exertion
d. Responsibility
e. Job conditions.
Accordingly ranks are assigned to each factor. The total value of ranks is converted into salary.
Merits: all jobs can be evaluated.
Demerits: Complicated & expensive, Time consuming
Point ranking method
The factors start with selection of job factors, construction of degrees for each factors and
assignment of points to each degree.
Advantages:
 A job is split into a number of factors. The worth of each job is determined based on
factors.
 Systematic & explainable to the employees
 Simple & easy to administer
Disadvantage:
 Points allotment & degree identification
 Range of points and grades allotted is difficult to calculate.
E.g. 231 to 249 – grade 7
250 to 259 – grade 6
A point 1 difference changes the grade
Limitations of job evaluation
a. Difficult to measure factors accurately
b. Difficult in deciding salary calculations. E.g. secretary job & receptionist job
c. It depends on the standards & formulae for salary calculations & hence salary may be
less than the cost of living.
d. Complicated procedures & difficult to understood.

Compensation Pay Structure in India

Demand & supply of Labour influence wage and salary fixation. A low wage may be fixed when
the supply of Labour exceeds the demand for it. A higher wage will have to be paid when the
demand exceeds supply e.g. skilled Labour. But in our country there are plenty of workers e.g.
unskilled Labour and they are underpaid, to avoid this exploitation, minimum wages act of 1948
is established. In contrast, there is a shortage of technicians, computer specialists and
professional managers. High remuneration packages are necessary to retain these skilled
employees. Current trends in salary, Productivity also influences wage fixation. A number of
factors influence the wage fixation. They are categorized into external and internal
factors.
Wage and Salary Administration
The term “Wage & salary administration” or “compensation administration” denotes the process
of managing a company’s compensation programme. The goals of compensation administration
are to design a cost effective pay structure that will attract, motivate and retain competent
employees. Employee compensation may be classified into two types-base compensation and
supplementary compensation. Base compensation refers to monetary payments to employees in
the form of wages and salaries. The term wages implies remuneration to workers doing manual
work. The term salary is usually defined to mean compensation to office, managerial, technical
and professional staff.

Factors Influencing Compensation levels

Job needs
b) Ability to pay
c) Cost of living
d) Prevailing wage rates
e) Unions
f) Productivity
g) State regulation
h) Demand & supply of labour
Types of compensation
Time rate system: Employees are simply paid a predetermined rate per week, or hour for the
actual time they have worked. The basic rate for the job can be fixed by negotiation by reference
to local rates, or by job evaluation. This system is prevalent in the engineering and processing
industries among clerical, supervisory and managerial personnel.
Advantages: Earnings are predictable and steady. Need not argue with supervision and rate-
fixers about piece rate or time allowances.
Disadvantages: do not provide motivation of a direct incentive relating the reward to the effort.
• This problem can be overcome by adopting a system of measured day work and merit
award.
Piece rate system
• Straight Piece work: is payment of a uniform price per unit of production. This is most
appropriate where production is repetitive in character and can easily be divided into similar
units. In this system, you can pay a worker a flat money price for each piece or operation
completed (money piece work), or you can pay him for the time allowed to complete a task (time
piece work). In this latter case, if the worker completes the job in less than the allowed time he
gains the advantage of time saved.
• Differential Piece work: Systems allow you to adjust wage cost per unit in relation to output.
In this system, the wages cost per unit of production falls as output increases. At the same time
the hourly rate of workers earnings still increases, although not in proportion to the increased
output. This system is possible where it is early to relate effort to production and the work is
standardized, repetitive and measurable. Quality should be kept in mind while adopting the piece
rate system.
Executive Compensation.
Executive compensation in India is built around three important factors:
a) Job complexity:
It depends on the size of the company as measured its sales volume, earnings and assets growth,
the geographical dispersal of the unit etc.
b) Employers ability to pay:
It is also a major factor to be considered while deciding executive compensation.
Eg: a sick bank cannot afford to pay the same kind of salary as paid by a flourishing bank.
c) Executive human capital:
The economic theory of Human capital sys that the compensation of a worker should be equal to
his marginal productivity. The productivity of an executive likewise depends on his
qualifications, job knowledge, experience and contribution.
In recent years, companies are paying allowances like stock options. Educational, recreational,
academic allowances and several other developmental initiatives aimed at improving the overall
personality of an executive. The following are the perks given to executives
Physical exam
• Company car
• Financial counseling
• Company plane
• Income tax preparation
• First-class air travel
• Country club membership
• Luncheon club membership
• Estate planning
• Employee stock options(ESOP)
• Personal liability insurance
• Spouse travel
• Chauffeur service
• Reserved parking
• Executive dining room
• Home security system
• Car /phone
• Financial seminars/Coupons
• Loans at low or no interest
• Legal counseling

Establishing Pay rates

The process of establishing pay rates while ensuring external, internal and (to some extent)
procedural equity consist of five steps:

1) Conduct a salary survey of what other employer are paying for comparable jobs (to help
ensure external equity).
2) Determine the worth of each job in your organizations through job evaluation (to ensure
internal equity).
3) Group similar jobs into pay grades.
4) Price each pay grade by using wave curves.
5) Fine tune pay rates

Salary Survey

A survey aimed to determining prevailing wage rates. A good salary survey provides specific
wages rates for specific jobs. Formal written questionnaire surveys are the most comprehensive
but telephone surveys and newspaper ads are also sources of information.

It’s difficult to set pay rates if you don’t know what others are paying so salary surveys – surveys
of what others are paying – play a big role in pricing jobs. Virtually every employer conducts at
least informal telephone, newspaper, or internet salary survey.

Benchmark job

A job that is used to anchor the employer’s pay scale and around which other jobs are arranged
in order of relative worth.

Employers use these surveys in three ways. First, they use survey data to price benchmark jobs.
Benchmark jobs are the anchor jobs around which they slot their other job, based on each job’s
relative worth to the firm. (Job evaluation, explained next, helps determine the relative worth of
each job). Second, employers typically price 20% or more of their positions directly in the
marketplace (rather than relative to the firm’s benchmark jobs), based on a formal or informal
survey of what comparable firms are paying for comparable jobs. (Google might do this for jobs
like Web programmer whose salaries fluctuate widely and often). Third, surveys also collect data
on benefits like insurance, sick leave, and vacations to provide a basis for decisions regarding
employee benefits.
Salary surveys can be formal or informal. Informal phone or Internet surveys are good for
checking specific issues, such as when a bank wants to confirm the salary at which to advertise a
newly open teller’s job, or if some banks are really paying tellers an incentive. Some large
employers can afford to send out their own formal surveys to collect compensation information
from other employers. Most of these ask about things like number of employee, overtime
policies starting salaries and paid vacations.

Commercial, Professional, and Government Salary surveys

Many employers use surveys published by consulting firms, professional associations, or

government agencies. For example, the US Department of Labor’s Bureau of Labor Statistics
(BLS) conducts three annual surveys: (1) area wage surveys; (2) industry wage surveys; and (3)
professional administrative, technical and clerical (PATC) surveys.

Compensation policy
The compensation policy is the basic document, which drives the detail of the compensation
practices in the organization. As the compensation strategy sets the high level compensation
goals of the organization, the compensation policy describes the details of the individual
compensation components, their behavior and their role in the compensation scheme of the
organization.
The compensation policy describes the details of the compensation components in the
organization, how they are used and the conditions for the employees as the compensation
component can be applied in their specific situation.
Each organization uses many compensation components and they have to be described. The
compensation policy provides the basic explanation of the compensation component, how it is
calculated, who is eligible for the usage and the approval procedure.

Compensation Policies are the collection of rules that govern the calculation of salary and benefit
entitlement for all individuals. These policies apply to all employees of the core public service
with the exception of those employees on the Executive Pay Plan. Bargaining unit employees
should consult their respective collective agreement and where there is a conflict, the collective
agreement shall prevail.
The Compensation policy of an organization is usually expressed explicitly or implicitly as
where it wants its rates to be positioned relatively to the market place. Does the organization
want to lead, lag or meet the market in compensation?
The Compensation policy could cover the following matters:
1. How will internal compensation levels compete with market rates?
2. How will internal equity and external competitiveness be balanced?
3. How much information to be shared on compensation?
4. How will pay be fixed on appointment or on progression?
5. How employees will be fitted into revised grades?
6. How employees’ pay be covered to avoid stagnation at maximum of the grade

INDUSTRIAL / EMPLOYMENT RELATIONS

Overview of industrial relations and industrial conflict.

It is the relationship between employees and management in the day-to-day working of an
Industry .Industrial relations is a set of functional interdependence involving historical, economic, social,
psychological, demographic, technological, occupational, political and legal variables.
Industrial Relations means the relationship between employees and the Management in the day
to day working of the Industry.
Whole field of relationship that exists because of the necessary collaborations of men and
women in the employment process of an Industry” Dale Yoder.
Whole field = Set of functions inter dependence involving, historical, economic, social, physical,
demographic, Technological, occupational political and Legal Variables
Industrial Relations deal with either the Relationship between the State and the Employers and
worker organizations or the relation between occupational organization themselves”
I.L.O (International labour Organisation)

Characteristics of Industrial Relations (IR)

 Industrial relations are outcome of employment relationship in an industry
 IR develops the skills of co-operation with each other
 IR creates rules to maintain harmonious relation
 Government is involved in forming the rules , laws, awards etc
 Employers ,employees and government are responsible for IR

Features of Industrial Work

 Industry is the association of large number of workers, supervisors, managerial, personnel,
consultants and other stake holders.
 This association brings group relationship which affects social, economic, political and cultural
life of the community
 Large scale industrialization requires diversified skilled human resource, blue collar, white collar,
and gold collar workers
 Industrial workers are interdependent
 Centralization of power and authority, workers feel loss of freedom because of rules and
regulation
 Jobs are highly insecure because of technology change, downsizing
 Wage/salary is the main attraction factor
OBJECTIVES OF IR
1. To promote and develop congenial labor management relations
2. To enhance wages and other benefits
 3. To regulate production by minimizing conflicts
4. To socialize industries
Factors for Industrial Relations
Governmental Factors
Factors include governmental Policies like Industrial policy, Economic policy, labor policy,
export policy etc
Eg: reservation policy, VAT

Economic Factors
Economic organisation like capitalist, communist, mixed, democratic etc, the structure of
labor force, demand and supply of labor force
Eg: open policies to setup industries

Technological Factors
Mechanization, automation, rationalization, computerization, internet
Social And Cultural Factors
Population, religion customs and traditions of people, various cultures and religions, joint
family, women in labor etc

Political Factors
Political parties and their ideologies, their growth, mode of policies, involvement in trade unions etc
Eg: economic reforms, MNC’s

Institutional Factors
Governmental policies, labor legislations, collective agreement employees’ court, employers’ federations,
attitude of workers, system of power status etc

Three Actors of Industrial Relations

Workers and their organizations (trade union)
Employers and their organisation
Government

Industrial disputes
Industrial disputes mean any dispute or difference between employers and employees and workmen or
between workmen and workmen which is connected with the terms of employment or with the working
conditions
Causes of industrial conflicts
Industry related factors
• Employment, work, wages, hours of work,privileges,rights and obligations of employees
and employers
• Dismissal or non-employment of any person
• Registered agreement, settlement or award
• Demarcation of the functions of an employee
Management related factors
• Management’s non -cooperation wrt disputes
• Unwillingness to recognise a trade union
• Less delegation of authority to officials for negotiation
• Management’s rigidity wrt employment, promotion, transfer
• Change in working methods, closure of the department, termination of employees etc.
Government related factors
• Change in the economic policies
• Old labor laws
• Improper and inadequate implementation of labor laws
• Lack of monitoring of the labor laws
• Political unrest and little faith in government
• Inefficient officers dealing with the disputes
Other factors
• Influence of politics in the trade union, strikes ,gherao and bandhs
• Political instability, strained centre-state relation
• Corruption, decreased social values, morale and industrial unrest
• Rivalry between unions
Industrial Disputes
Industrial Dispute in the form of a strike or a lock out is a double edged sword. It means stoppage of
work, causing production loss to the employer. The worker at the same time, is pushed to the wall as he
loses his earnings.
Preventive and settlement machinery
Adoption of well defined, progressive policies for IR
• Adoption of fair recruitment, promotion and wage policies
• Adoption of effective two way communication
• Provision of just and humane working conditions
• Adoption of suitable and speedy grievance procedure
• Recognition of a representative union
• Encouragement of joint consultation, collective bargaining
Settlement of Industrial Conflicts
Investigation
Mediation
Conciliation
Voluntary Arbitration/adjudication
Collective bargaining
Collective bargaining is a process of negotiations between the employers and group of employees aimed
at reaching agreements that regulate working conditions. The interests of the employees are commonly
presented by representatives of a Trade union to which the employees belong to.
Characteristics of Collective bargaining
 It’s a group action as opposed to individual action.
 It is flexible & mobile and not fixed.
 It is a two-party process.
 It is a continuous process.
 It is dynamic and not static
Importance of collective bargaining
 It helps to increase economic strength of both parties.
 It helps to establish uniform conditions of employment.
 Secure a prompt and fair redresses of grievances.
 Avoid strikes, & coercive activities.
 Lay down fair rates of wages& norms.
 Achieve an efficient operation of the plant.
 It ensure old age pension benefits and other fringe benefits.

Employee or labour welfare is a comprehensive term including various services, benefits and facilities
offered to employees by the employer. Through such generous fringe benefits the employer makes life
worth living for employees. The welfare amenities are extended in addition to normal wages and other
economic rewards available to employees as per the legal provisions.
According to Dr.Parandikar” labour welfare work is work for improving the health, safety and general
wellbeing and the industrial efficiency of the workers beyond the minimum standard laid down by labour
legislation”
Welfare measures may also be provided by the government, trade unions and non-government agencies in
addition to the employer. The basic purpose of labour welfare is to enrich the life of employees and keep
them happy and contented. Welfare measures may be both statutory and voluntary. Labour laws require
the employer to extend certain benefits to employees in addition to wages. Voluntary benefits are the
result of employer’s generosity, enlightenment and philanthropic feelings.
Types of Welfare Facilities and Statutory Provisions.
Welfare services may broadly be classified into two categories
1. Intramural activities which are provided within establishment such as latrines and urinals, crèches’, rest
centers, canteens, uniforms, library. Medical aid, subsidized food, shift allowance etc.
2. Extramural activities which are undertaken outside the establishment such as family planning, child
welfare, cooperative stores, credit societies, vocational guidance, holiday homes, leave travel facilities,
transport to and from the place or work .etc.

Statutory Provisions.
Employers are required to offer welfare facilities to workers under different labour laws.
The Factories Act, 1948
The Act provides the following services to workers:
 Washing facilities to male and female workers separately
 Facilities for storing and drying clothes
 Facilities for occasional rest for workers who work in a standing position for long hours.
 First aid boxes or cupboards- one for every 150 workers and the ambulance facility if there are
more than 500 workers
 Canteens, where there are more than 250 workers
 Shelters rest rooms and lunch rooms where over 150 workers are employed
 Crèche, if 30 or more workers are employed
 Welfare officer, if 500 or more workers are employed.
 The Plantation Act, 1951
The Act provides for the following:
 A canteen if 150 or more workers are employed
 Crèche, if 50 or more women workers are employed
 Recreational facilities for workers and their children
 Educational arrangements in the estate if there are 25 or more children of workers,between the
age of 6 and 12
 Housing facilities for every worker and his family residing in the estate.
 Medical aid to workers and their families’ sickness and maternity allowance.
 Providing umbrellas, blankets, raincoats to workers as a protection against rain or cold as
prescribed by the state government.
 Welfare officer, if 300 or more workers are employed.
The Mines Act, 1951
The Act provides for the following:
 Shelters for taking food and rest if 50 or more workers are employed
 First aid boxes and first-aid rooms if 150 or more workers are employed.
 A canteen if employing 250 or more workers
 A crèche if employing 50 or more females
 Pit-head baths equipped with showers, sanitary latrines
 Welfare officer if 500 or more workers are employed
The Motor Transport Act, 1961
The Act provides for the following:
 First aid equipment in each transport vehicle
 Medical facilities at the operating and halting centers
 Canteen if employing 100 or more workers
 Comfortable, clean, ventilated and well-lighted rest rooms at every place where motor transport
workers are required to halt at night.
 Uniforms, rain coats to conductors, drivers and line checking staff for protection against cold and
rain
 Prescribed amount of washing allowance to the above staff members.

The Contract Labour (Regulation and Abolition) Act,1970

The act requires the contractor to extend the following benefits to workers:
 Canteen, if employing 100 or more workers
 Rest rooms or other suitable alternative accommodation where contract labour is required
 to halt at night in connection with the work of an establishment Washing facilities
 First aid boxes equipped with prescribed contents.
Labour Welfare Officer
The Factories act, 1948,The Plantation act 1951 and the Mines act 1951 provide for the
appointment of a labour Welfare Officer if the number of workers employed within a unit
exceeds 500(300 as per the plantation act).The post has been created specifically to:
1. Eliminate the malpractices of the recruitment system
2. Improve labour administration in the factories
3. Serve as a liaison with the state labour commissioner
The Labour Welfare Officer should possess a university degree/diploma in social service form a
recognized institution and adequate knowledge of local language where the factory is situated.
The duties and Responsibilities of a Labour Welfare Officer many be summarized (Central
Welfare Officers Rules 1951)
 Advisory: advising & suggesting in the formulation of labour laws
 Service oriented: Offers help to workers to solve their problems
 Supervisory: He can supervise, inspect and regulate welfare activities
 Functional: Check the implementation of labour laws
 Policing: He can forward workers grievances to management, can influence Industrial relations
and can restrain workers from resorting to illegal strikes and lockouts
 Mediation: can mediate and build harmony between labour and management

Employee Grievances
A grievance is a sign of employees’ discontent with job and its nature. Grievance is caused due to the
difference between the employee expectation and management practice
Causes of Grievance
• Wages, Incentives
• Job Classifications
• Foreman/Supervisor
Disciplinary Measures
• Promotions
• Transfer/Night Shift
• Safety And Health Measures
• Non Availability Of Materials
• Violation Of Contracts
• Improper Job Assignment
• Work Conditions
Employee Grievance procedure

3 important principles of grievance settlement are

1. Settlement at the lowest level
2. Settlement as expeditiously (speedily and efficiently)as possible
3. Settlement to the satisfaction of the aggrieved
Settlement of grievances at 3 levels
• Immediate supervisor(reply within 2 days)
• Departmental/factory head(reply within 3 days)
• Grievance committee(within 7 days)
• Else, appeal for further voluntary arbitration
Grievances Management in Indian Industry.-Grievance Machinery
• A grievance machinery is required to administer the grievance procedure
• Departmental representatives are selected to take forward the grievance procedure to
solve the problems as a committee
At present, there are three legislations dealing with grievances of employees working in industries. The
Industrial Employment (Standing Orders) Act, 1946, requires that every establishment employing 100 or
more workers should frame standing orders. These should contain, among other things, a provision for
redressal of grievances of workers against unfair treatment and wrongful actions by the employer or his
agents. The Factories Act, 1948, provides for the appointment of a Welfare officer in every factory
ordinarily employing 500 or more workers. These Welfare officers also look after complaints and
grievances of workers. They will look after proper implementation of the existing labor legislation.
Besides, individual disputes relating to discharge, dismissal or retrenchment can be taken up for relief
under the Industrial Disputes Act, 1947, amended in 1965. However, the existing labor legislation is not
being implemented properly by employers. There is lack of fairness on their part. Welfare officers have
also not been keen on protecting the interests of workers in the organized sector. In certain cases, they are
playing a dual role. It is unfortunate that the public sector, which should set up an example for the private
sector, has not been implementing labor laws properly.

Grievances Management in Indian Industry.

Guidelines for Handling Grievances
The following guidelines may help a supervisor while dealing with grievances. He need not follow all
these steps in every case. It is sufficient to keep these views in mind while handling grievances.
Treat each case as important and get the grievance in writing.
 Talk to the employee directly. Encourage him to speak the truth. Give him a patient hearing.
 Discuss in a private place. Ensure confidentiality, if necessary.
 Handle each case within a time frame.
Examine company provisions in each case. Identify violations, if any. Do not hold back the
remedy if the company is wrong. Inform your superior about all grievances.
 Get all relevant facts about the grievance. Examine the personal record of the aggrieved worker.
See whether any witnesses are available. Visit the work area. The idea is to find where things
have gone wrong and who is at fault.
 Gather information from the union representative, what he has to say, what he wants, etc. Give
short replies, uncovering the truth as well as provisions. Treat him properly.
 Control your emotions, your remarks and behavior.
 Maintain proper records and follow up the action taken in each case.

Discipline
Meaning
• Discipline refers to a condition or attitude among employees with respect to rules and
regulations of an organisation
• Discipline refers to the orderliness in working and behavior
Objectives of Discipline
• To obtain a willing acceptance of the rules, regulations
• To impart an element of certainty
• To develop the spirit of tolerance and adjustments
• To give and seek direction and responsibility
• To create an atmosphere of respect
• To increase the working efficiency and morale of the employees
Approaches to discipline
1. Positive Approach
2. Progressive discipline
3. Red Hot stove Rule
4. Judicial Approach to Discipline in
India.
A Positive Approach to Employee Discipline
Traditionally, methods for maintaining discipline have been punitive in nature. The relatively new
concept of a non-punitive positive discipline system is winning increasing acceptance among many
employers. The purpose of this method is to enable employees to truly confront their performance or
attendance problems and take responsibility for their actions.
To be effective, disciplinary action should emphasize correcting the problem rather than punishing the
offender. It should maintain the employee's dignity and self-respect. It should provide for increasingly
serious steps if the problem is not resolved, and it should ultimately result in a change in the employee's
behavior and performance.
Like traditional approaches, the positive discipline approach involves a number of formal steps that
increase in seriousness. But unlike punitive disciplinary systems, the positive approach emphasizes
reminders of expected performance — not warnings or reprimands for misconduct.
Step 1: Oral Reminder — The first step in the positive discipline approach is a meeting between a
supervisor and the employee to discuss the problem. The supervisor tells the employee the reason for the
rule that has been violated, tells the employee the specific changes that are required, and expresses
confidence that the employee will correct the problem and the expectation that no further action will be
needed. No record of the meeting is placed in the employee's file. This is communicated to the employee,
hopefully providing a strong incentive for improvement.
Step 2: Written Reminder — If the problem continues, the supervisor again talks to the employee —
seriously, but without threats. The supervisor tells the employee what is expected and asks the employee
to confirm that he or she understands what changes must be made. At the end of the discussion, the
supervisor tells the employee that a written summary of their conversation will be placed in the
employee's file. It's recommended that the employee be asked to sign the report of the documented
discussion.
Step 3: Decision-Making Leave — In traditional discipline systems, the next step involves suspending the
offending employee for several days. In the positive discipline approach, the supervisor tells the
employee to remain at home the following day and to use that time to make a final decision as to whether
she or he can meet the organization's standards. The employee is told that the organization wants to keep
him or her as a productive member of the work force, but that the decision is up to the employee — and
future violations will result in termination. The employee is told to report back to the supervisor after the
decision-making leave day to let the supervisor know his or her decision. The employee may be asked to
develop a plan for improving his or her performance. Upon returning to work, the results of the meeting
with the supervisor should be documented, signed by the employee, and placed in the employee's
personnel file.

Progressive Approach to discipline

It is an employee disciplinary system that provides a graduated range of responses to employee
performance or conduct problems. Disciplinary measures range from mild to severe, depending on the
nature and frequency of the problem. For example, an informal coaching session might be appropriate for
an employee who is tardy or violates a minor work rule, while a more serious intervention -- or even
termination -- might be called for if an employee commits serious misconduct or doesn't improve a
performance problem after receiving several opportunities to do so.
Most large companies use some form of progressive discipline, although they don't necessarily call it by
that name. Whether they are referred to as positive discipline programs, performance improvement plans,
corrective action procedures, or some other title, these systems are all similar at their core, although they
might vary in the details. All are based on the principle that the company's disciplinary response should
be appropriate and proportionate to the employee's conduct.

Red Hot stove Rule

The "Hot-Stove Rule" of Douglas McGregor gives a good illustration of how to impose disciplinary
action without generating resentment. This rule draws an analogy between touching a hot stove, and
undergoing discipline. When you touch a hot stove, your discipline is immediate, with warning,
consistent, and impersonal.
These four characteristics, according to McGregor, as applied to discipline are self-serving and may be
explained as follows:
1. When you touch the Hot stove, you burn your hand. The burn was immediate. Will you blame the hot
stove for burning your hand? Immediately, you understand the cause and effect of the offense. The
discipline was directed against the act not against anybody else. You get angry with yourself, but you
know it was your fault. You get angry with the hot stove too, but not for long as you know it was not its
fault. You learn your lesson quickly.
2. You had warning as you knew the stove was red hot and you knew what would happen to you if you
touched it. You knew the rules and regulations previously issued to you by the company prescribing the
penalty for violation of any particular rule so you cannot claim you were not given a previous warning.
3. The discipline was consistent. Every time you touch the hot stove you get burned. Consistency in the
administration of disciplinary action is essential. Excessive leniency as well as too much harshness
creates not only dissatisfaction but also resentment.
4. The discipline was impersonal. Whoever touches the hot stove gets burned, no matter who he is.
Furthermore, he gets burned not because of who he is, but because he touched the hot stove. The
discipline is directed against the act, not against the person. After disciplinary action has been applied, the
supervisor should take the normal attitude toward the employee.

Judicial Approach to Discipline in India

The Industrial Employment (Standing Orders) act was passed in 1946 with a view to improve the
industrial relations climate. The Act requires that all establishments must define the service rules and
prepare standing orders. The term standing orders refers to the rules and regulations which govern the
conditions of employment or workers. They indicate the duties and responsibilities on the part of both the
employer and the employees. The standing order contain rules relating to:
Classification of employees ,working hours, holidays, shift working, attendance ,leave, suspension,
termination, stoppage of work etc..
Thus standing order specify the terms and conditions which regulate the employee-employer relationship
within a unit. Any violation of these terms and conditions may lead to misconduct or indiscipline.
Essential of a good disciplinary system
To avoid conflict and lawsuits, managers must administer discipline properly.
1. Rules and Performance criteria
2. Documentation of the facts
3. Consistent response to rule violations
4. Training of supervisors
5. Prompt action
6. Impersonal discipline
7. Reasonable penalty
Follow-up
Principles of a Natural Justice
• The employee must be indicated about the charge against him
• The employee must be given a chance for defense
• The enquiry must be fair and impartial
• The evidence should be put forward in front of the employee
• Punishment should be appropriate with the misconduct

Managing difficult employees.

Problem employees are those employees who create problems within the organization. Substance
abusers, angry or withdrawn workers, personnel with excessive absenteeism, and the terminating
employees provide challenges to nurse managers. In each case the nurse manager must be alert to
the symptoms of problems, help the employee solve the problem, and evaluate the results.
Types of problem employee:-
 Substance abusers
 Angry or withdrawn employees
 Decreased productivity
 Absenteeism
 Terminating employees
When the delinquent employee is going to be punished, the type of punishment should be a
commensurate with the severity of the omission or misconduct.
Different types of punishment resulting from various types of omission or misconduct are as
follows:
 Oral warnings
 Written warnings
 Loss of privileges and fines
 Punitive suspension
 Withholding of increments
 Demotion
 Termination

Approaches to Industrial Relations

Industrial relations is that part of human resource management which studies the formal
relationship of the workers with the administration and the employers and ensuring a proper
mechanism to manage the industrial disputes and conflicts.
Definition: Industrial relations is that part of human resource management which studies the
formal relationship of the workers with the administration and the employers and ensuring a
proper mechanism to manage the industrial disputes and conflicts.

In the present scenario, the relationship between the employer and the employees have changed
to a great extent what it used to be in the 1900s. The industries today are becoming more of
technology-oriented, which has generated the need for skilled and educated personnel in the
organizations.

Systems Approach

John Dunlop gave the systems theory of industrial relations in the year 1958. He believed that
every human being belongs to a continuous but independent social system culture which is
responsible for framing his or her actions, behaviour and role.

The industrial relations system was based on three sets of different variables:

1. Actors: By actors here we mean that the individuals or parties involved in the process of
developing sound industrial relations. This variable is denoted by ‘A’.
2. Contexts: The contexts refer to the setup in which the actors perform the given tasks. It
includes the industry markets (M), technologies (T) and the power distribution in the
organization and labour unions(P).
3. Ideology: The similar ideas, mentality or beliefs shared by the actors helps to blend the
system. It can be expressed by the initial (I)

John Dunlop’s Systems Approach Formula: R = f(A,T,M,P,I)

Unitary Approach

As the name suggests, the unitary approach can be seen as a method of bringing together the
teamwork, common objective, individual strategy and mutual efforts of the individuals.

This theory believes that the conflicts are non-permanent malformations, which are a result of
improper management in the organization.

Moreover, if everyone works towards the achievement of the common goals by maintaining
peace and cooperation in the workplace, it will tend to benefit everyone associated with the
organization. It also considered the organizational conflicts resulting in strikes to be useless and
destructive.

The other aims of the unitary approach are as follows:

 To create a productive, effective and harmonious work environment;

 to develops a trustworthy, open, fair and transparent work culture;
 to create a cordial work environment;
 to restrict the role of the tribunals and other government associations like the trade unions
and initiates direct negotiation between the management and the employees.
Pluralist Approach/ Oxford Approach

The pluralist theory also called the ‘Oxford Approach’, was proposed by Flanders in the year
1970. This approach explained that the management and the trade unions are the different
and robust sub-groups which unanimously form an organization.

Collective bargaining was considered to be a useful technique for resolving organizational

conflicts. Due to this, the management’s role has transformed from imposition and control; to
influencing and coordinating with the workers.

Following are some of the highlights of this approach:

 The organization should appoint personnel experts and industrial relations specialists to act
as mediators between the management and trade unions. They need to look into the
matters of staffing, provide consultation to the managers and the unions, and negotiate
with both the parties in case of conflicts.
 The organization should ensure that the trade unions get recognized and the union
leaders or representatives can perform their duties freely.
 In the case of industrial disputes, the organization can avail the services of the external
agent for settlement of such issues.
 The managers should resolve to a collective bargaining agreement when there is a need
for negotiation and settlement with the trade unions.

Marxist Approach

Lenin came up with the concept of a Marxist approach in the year 1978, where he emphasized
the social perspective of the organization.

This theory perceived that the industrial relations depend upon the relationship between the
workers (i.e., employees or labour) and the owners (i.e., employer or capital). There exists
a class conflict between both the groups to exercise a higher control or influence over each
other.

The assumptions of this approach are as follows:

 Industrial relations are a significant and never-ending source of conflicts under capitalism
which cannot be avoided. However, cases of open disputes are quite unusual.
 Understanding the conceptions of capitalized society, capital accumulation process and the
pertaining social relations, give a better overview of the industrial relations.
 The Marxist theory assumed that the survival of the employees without any work is more
crucial than the survival of the employer without the labours.

Sociological Approach

The industries comprise of different human beings who need to communicate with the
individuals of other organizations.
Due to the difference in their attitude, skills, perception, personality, interests, likes and
dislikes, needs, they are usually involved in one or the other conflict. Even the social
mobility and other aspects including transfer, default, group dynamics, stress, norms, regulations
and status of the workers influence their output and the industrial relations.

This theory also emphasizes on the impact of various changes in the work environment (i.e.,
economic, technical and political) on the interactions and relationship shared by the employer,
employees, institutions and the government bodies.

Gandhian Approach

The Gandhian approach to industrial relations was proposed by the father of our
nation, Mahatma Gandhi or Mohandas Karamchand Gandhi, who was also a well-known labour
leader.

Following are the various features of the trusteeship or Gandhian theory:

1. Gandhi Ji was not against strikes; instead, he gave the following conditions to carry out
a favourable strike:

 The workers or labours can go on a strike only if there is a specific grievance.

 There should be complete non-violence while carrying out strikes.
 The ones who are not involved in the strikes should not be tormented.
2. Though Gandhi Ji was not against carrying out strikes, he believed that it should be
the last option to which the labour should resort to, after the failure of all the
constitutional and peaceful ways of resolving conflicts and negotiating with the employer.
3. The Gandhian approach illustrated that nature had provided us with human capabilities and
different kinds of property. Thus, such nature’s gift belongs to the whole society and
cannot be considered as of personal possession by anyone.
4. The objective of this theory is to adopt non-violent ways to bring in economic parity and
material enhancement in a capitalist society.
5. Gandhi Ji perceived that every organization is a joint venture, and the labour should be
treated as associates or co-partners with the shareholders. Moreover, the workers should
have proper knowledge of all the business transactions as it is their right.
6. He focused on increasing the production and believed that the gains should be shared
with the employees because of whom it has been possible.
7. He also emphasized that the industrial disputes and conflicts between the parties should be
resolved healthily through interactions, arbitration and bilateral negotiations.

Psychological Approach

The psychologists perceived the problem of the industrial relations as a result of the varying
perception and mindset of the key participants, i.e., the employees and the management.
The ‘thematic application test’ was conducted by Mason Harie to understand the behaviour,
mindset and perception of the two significant workgroups, i.e., executive and the union leaders,
in a particular situation.

In this test, both the groups were asked to rate and interpret the photograph of an ordinary
middle-aged person, and the results were drastically contrasting. The union leaders perceived the
person to be a ‘manager‘ whereas, the executives thought that the person was a ‘union leader‘.

The major interpretations of this test were as follows:

 The general belief of a management representative is entirely different from that of a

labour representative.
 Both the management and labour do not consider each other to be trustworthy.
 Even each of these groups considers that the other one lacks emotional and interpersonal
attributes.

These contrasting impressions are a result of certain economic as well as non-economic factors,
like values, power, position, personal objectives, recognition, beliefs, education, social security
and income of the individuals.

Also, each of these parties forms a negative image or perception of each other. Due to which
they always find fault in the actions and behaviour of one another.

As a result of the factors mentioned above, there remains a tensed interpersonal relation leading
to conflicts which ultimately hinders the image and interest of the individuals involved.

Human Relations Approach

The person behind the concept of the human relations approach is Keith Davis. The organization
and the society comprise of human beings who vary in various aspects as their behaviour,
emotions, attitude, mindset and personality. But, they have come together to achieve common
organizational goals and objectives.

The concept of human relations approach underlines the need for making the individuals familiar
with the work situations of the organization and uniting the efforts of the workers. The purpose is
to meet the social, psychological and economic objectives, by enhancing the overall
productivity.

Some of the primary objectives of the human relations approach are as follows:

 To ensure cooperation by promoting the mutual interest of the organization;

 to enhance the productivity of the individuals;
 to satisfy the psychological, social and economic needs of the employees.
The Strategic Choice Approach:

1. Focuses on decisions to be made in a particular planning situation, whatever their

timescale and whatever their substance.
2. Highlights the subtle judgements involved in agreeing how to handle the uncertainties
which surround the decision to be addressed - whether these be technical, political or
procedural.
3. The approach is an incremental one, rather than one which looks towards an end product
of a comprehensive strategy at some future point in time. This principle is expressed
through a framework known as a `commitment package'. In this, an explicit balance is
agreed between decisions to be made now and those to be left open until specified time
horizons in the future.
4. The approach is interactive, in the sense that it is designed not for use by experts in a
backroom setting, but as a framework for communication and collaboration between
people with different backgrounds and skills.